August 20, 2023

The Wealth of Ideas_ A History of Economic Thought

Requirements:

TheWealthofIdeasAHistoryofEconomicThoughtAlessandroRoncaglia

TheWealthofIdeasTheWealthofIdeastracesthehistoryofeconomicthought,fromitsprehistory(theBible,Classicalantiquity)tothepresentday.Inthiseloquentlywritten,scientiÞcallyrigorousandwell-documentedbook,chaptersonWilliamPetty,AdamSmith,DavidRicardo,KarlMarx,WilliamStanleyJevons,CarlMenger,L«eonWalras,AlfredMarshall,JohnMaynardKeynes,JosephSchumpeterandPieroSraffaalternatewithchaptersonotherimportantÞguresandondebatesoftheperiod.Economicthoughtisseenasdevelopingbetweentwooppositepoles:asubjectiveone,basedontheideasofscarcityandutility,andanobjec-tiveonebasedonthenotionsofphysicalcostsandsurplus.ProfessorRoncagliafocusesonthedifferentviewsoftheeconomyandsocietyandontheirevolutionovertimeandcriticallyevaluatesthefoundationsofthescarcityÐutilityapproachincomparisonwiththeClassical/Keynesianapproach.isProfessorofEconomicsintheDepart-mentofEconomicSciences,UniversityofRomeÔLaSapienzaÕ.HeisamemberoftheAccademiaNazionaledeiLinceiandeditorofBNLQuar-terlyReviewandMonetaeCredito.HisnumerouspublicationsincludePieroSraffa:HisLife,ThoughtandCulturalHeritage(2000)andtheItalianeditionofthisbook,Laricchezzadelleidee(2001)whichreceivedthe2003J«eromeAdolpheBlanquiAwardfromtheEuropeanSocietyfortheHistoryofEconomicThought.

ContentsPrefacepageix1Thehistoryofeconomicthoughtanditsrole11.Introduction12.Thecumulativeview23.Thecompetitiveview54.Thestagesofeconomictheorising:conceptualisationandmodel-building115.Politicaleconomyandthehistoryofeconomicthought136.Whichhistoryofeconomicthought?142Theprehistoryofpoliticaleconomy181.Whywecallitprehistory182.Classicalantiquity233.Patristicthought284.TheScholastics315.Usuryandjustprice346.Bullionistsandmercantilists417.ThebirthofeconomicthoughtinItaly:AntonioSerra463WilliamPettyandtheoriginsofpoliticaleconomy531.Lifeandwritings532.Politicalarithmeticandthemethodofeconomicscience553.Nationalstateandeconomicsystem584.Commodityandmarket635.Surplus,distribution,prices694Frombodypolitictoeconomictables761.Thedebatesofthetime762.JohnLocke803.Themotivationsandconsequencesofhumanactions844.BernarddeMandeville875.RichardCantillon906.FranücoisQuesnayandthephysiocrats967.ThepoliticaleconomyoftheEnlightenment:Turgot1038.TheItalianEnlightenment:theAbb«eGaliani1079.TheScottishEnlightenment:FrancisHutchesonandDavidHume111v

viContents5AdamSmith1151.Life1152.Method1183.Themoralprincipleofsympathy1214.Thewealthofnations1265.Valueandprices1346.Naturalpricesandmarketprices1397.Theoriginofthedivisionoflabour:SmithandPownall1458.Economicandpoliticalliberalism:SmithÕsfortune1496EconomicscienceatthetimeoftheFrenchRevolution1551.Theperfectibilityofhumansocieties,betweenutopiasandreforms1552.Malthusandthepopulationprinciple1583.ÔSayÕslawÕ1644.Under-consumptiontheories:Lauerdale,Malthus,Sismondi1675.Thedebateonthepoorlaws1696.Thedebateonthecolonies1727.BenthamÕsutilitarianism1747DavidRicardo1791.Lifeandworks1792.RicardoÕsdynamicvision1813.Fromthecornmodeltothelabourtheoryofvalue1864.Absolutevalueandexchangeablevalue:theinvariablestandardofvalue1915.Moneyandtaxation1966.Internationaltradeandthetheoryofcomparativecosts2017.Onmachinery:technologicalchangeandemployment2038TheÔRicardiansÕandthedeclineofRicardianism2071.TheforcesintheÞeld2072.RobertTorrens2093.SamuelBailey2154.ThomasDeQuincey2185.JohnRamseyMcCulloch2196.TheRicardiansocialistsandcooperativism2217.WilliamNassauSeniorandtheanti-Ricardianreaction2268.CharlesBabbage2309.JohnStuartMillandphilosophicalradicalism23310.Millonpoliticaleconomy2389KarlMarx2441.Introduction2442.Lifeandwritings2453.Thecritiqueofthedivisionoflabour:alienationandcommodityfetishism2494.Thecritiqueofcapitalismandexploitation2515.Accumulationandexpandedreproduction2566.Thelawsofmovementofcapitalism2617.Thetransformationoflabourvaluesintopricesofproduction263

Contentsvii8.Acriticalassessment2689.MarxismafterMarx27210Themarginalistrevolution:thesubjectivetheoryofvalue2781.TheÔmarginalistrevolutionÕ:anoverview2782.Theprecursors:equilibriumbetweenscarcityanddemand2813.WilliamStanleyJevons2854.TheJevonianrevolution2885.Realcostandopportunitycost2926.PhilipHenryWicksteedandFrancisYsidroEdgeworth29411TheAustrianschoolanditsneighbourhood2971.CarlMenger2972.TheÔMethodenstreitÕ3033.MaxWeber3064.EugenvonB¬ohm-Bawerk3085.KnutWicksellandtheSwedishschool3126.FriedrichvonHayek31512Generaleconomicequilibrium3221.Theinvisiblehandofthemarket3222.L«eonWalras3263.VilfredoParetoandtheLausanneschool3364.IrvingFisher3405.Thedebateonexistence,uniquenessandstabilityofequilibrium3426.Thesearchforanaxiomaticeconomics34513AlfredMarshall3501.Lifeandwritings3502.Thebackground3533.ThePrinciples3574.Economicsbecomesaprofession3665.Monetarytheory:fromtheoldtothenewCambridgeschool3686.MaffeoPantaleoni3707.MarshallismintheUnitedStates:fromJohnBatesClarktoJacobViner3728.ThornsteinVeblenandinstitutionalism3749.Welfareeconomics:ArthurCecilPigou37610.Imperfectcompetition37911.MarshallÕsheritageincontemporaryeconomicthought38214JohnMaynardKeynes3841.Lifeandwritings3842.Probabilityanduncertainty3883.TheTreatiseonmoney3914.FromtheTreatisetotheGeneraltheory3955.TheGeneraltheory3986.Defenceanddevelopment4077.Theasymmetriesofeconomicpolicyinanopeneconomyandinternationalinstitutions409

viiiContents8.MichalKalecki4119.ThenewCambridgeschool41315JosephSchumpeter4161.Life4162.Method4203.Fromstaticstodynamics:thecycle4224.Thebreakdownofcapitalism4285.Thepathofeconomicscience43116PieroSraffa4351.Firstwritings:moneyandbanking4352.FriendshipwithGramsci4383.CriticismofMarshalliantheory4404.ImperfectcompetitionandthecritiqueoftherepresentativeÞrm4435.Cambridge:WittgensteinandKeynes4456.ThecriticaleditionofRicardoÕswritings4507.Productionofcommoditiesbymeansofcommodities4528.Critiqueofthemarginalistapproach4579.TheSrafÞanschools46017Theageoffragmentation4681.Introduction4682.Themicroeconomicsofgeneraleconomicequilibrium4713.ThenewtheoriesoftheÞrm4744.Institutionsandeconomictheory4795.MacroeconomictheoryafterKeynes4806.Thetheoryofgrowth4887.Quantitativeresearch:thedevelopmentofeconometrics4918.Newanalyticaltechniques:theoryofrepeatedgames,theoryofstochasticprocesses,chaostheory4969.Interdisciplinaryproblemsandthefoundationsofeconomicscience:newtheoriesofrationality,ethicsandnewutilitarianism,growthandsustainabledevelopment,economicdemocracyandglobalisation50018Wherearewegoing?Some(verytentative)considerations5051.Howmanypathshaseconomicthoughtfollowed?5052.Thedivisionoflabouramongeconomists:canweforgeaheadalongdifferentpaths?5083.Whichofthevariouspathsshouldwebebettingon?511References515Indexofnames564Subjectindex575

PrefaceTheideaunderlyingthisworkisthatthehistoryofeconomicthoughtisessentialforunderstandingtheeconomy,whichconstitutesacentralaspectofhumansocieties.Confrontedwithcomplex,ever-changingreali-ties,thedifferentlinesofresearchdevelopedinthepastarerichinsugges-tionsforanyonetryingtointerpreteconomicphenomena,evenforthosetacklingquestionsofimmediaterelevance.Inthislattercase,indeed,thehistoryofeconomicthoughtnotonlyprovideshypothesesforinter-pretationoftheavailableinformation,butalsoteachescautiontowardsamechanicaluseofthemodelsdeducedfromthe(protempore)mainstreameconomictheory.Similarly,whenconfrontedwiththevarietyofdebatesoneconomicissues,agoodunderstandingoftheculturalrootsbothofthelineofreasoningchosenandofitsrivalsisinvaluableforavoidingadialogueofthedeaf.Infact,thecomfortingvisionofferedbythegreatmajorityofeco-nomicstextbooks,thatofageneralconsensusonÔeconomictruthsÕ,isÐatleastasfarasthefoundationsareconcernedÐfalse.Inordertounder-standthevarietyofapproacheswithineconomicdebate,itisnecessarytoreconstructthedifferentviewsthathavebeenproposed,developedandcriticisedovertimeaboutthewayeconomicsystemsfunction.Thisisnoeasytask.Theeconomicdebatedoesnotfollowalinearpath;rather,itresemblesatangledskein.Inattemptingtodisentangleit,wewillfocusontheconceptualfoun-dationsofthedifferenttheories.Oneoftheaspectsthatdistinguishesthisworkfromotherhistoriesofeconomicthoughtisitsrecognitionthatthemeaningofaconcept,eventhoughitmayretainthesamename,changeswhenwemovefromonetheorytoanother.Changesinanalyticstructureareconnectedtochangesinconceptualfoundations;alltoooftenthisfactisoverlooked.Inthiscontext,theSchumpeteriandistinctionbetweenhistoryofanal-ysisandhistoryofthoughtÐtheformerconcerninganalyticstructures,thelatterÔvisionsoftheworldÕÐprovesnotsomuchmisleadingaslargelyuseless.Equallyinappropriateisthesharpdichotomybetweenix

xPrefaceÔrationalreconstructionsÕandÔhistoricalreconstructionsÕofthehistoryofeconomicthought.ItishardtoseewhyreconstructingthelogicalstructureofaneconomistÕsideasshouldclashwithrespectinghisorherviews.Indeed,intheÞeldofthehistoryofthought,asinanalogousÞelds,thecriterionofphilologicalexactnessisthemainelementdifferentiatingscientiÞcfromnon-scientiÞcresearch.ThelimitsofthepresentworkhencedependnotsomuchonaprioriÞdelitytoaspeciÞclineofinterpretationasontheinevitablelimitationsÐofability,cultureandtimeÐofitsauthor.Forinstance,Ihavenotcon-sideredthecontributionsofEasternculturaltraditions,andverylittlespaceÐasinglechapterÐisgiventothetwentycenturiesconstitutingtheprehistoryofmoderneconomicscience.OfcourseWesterneconomictheoryisdeeplyrootedinclassicalthoughtÐbothGreekandRomanÐandthankstothemediationofamedievalculturewhichisricherandmorecomplexthaniscommonlyperceived.Thus,thedecisiontotreatsuchalongandimportantperiodoftimeinjustafewpagesisobvi-ouslycontroversial.However,insowideaÞeld,choicesofthiskindareunavoidable.Naturallytheresultspresentedinthepagesthatfolloware,notwithstandingeffortsatsystematicexposition,clearlyprovisional,andcommentsandcriticismswillbehelpfulforfutureresearch.Ourjourneybeginswithachapteronmethodologicalissues.Itisnotintendedasasurveyof,oranintroductionto,theepistemologicaldebate.WewillonlytrytoshowthelimitsoftheÔcumulativeviewÕ,andtheimpor-tanceofstudyingtheconceptualfoundationsofdifferenttheoreticalapproaches.Thefollowingthreechaptersaredevotedtopre-Smithianeconomicthought.Chapter2concernstheprehistoryofeconomicscience,fromclassicalantiquitytomercantilism.Chapter3isdevotedtoWilliamPettyandhispoliticalarithmetic:acrucialepisodeofourscience,withrespectbothtomethodandtotheformationofasystemofconceptsforrep-resentingeconomicreality.Focusinguponanindividualoraparticulargroupofthinkers,hereasinotherchapters,willillustrateaphaseintheevolutionofeconomicthoughtandalineofresearch,lookingbackandlookingon,toprecursorsandfollowers.Betweentheendoftheseventeenthcenturyandthemiddleoftheeigh-teenth(asweshallseeinchapter4)differentlinesofresearchintersect.Althoughinterestingcontributionsfromthestrictlyanalyticalpointwererelativelyscarceinthisperiod,weshallnoteitsimportanceforthecloserrelationsbetweeneconomicandothersocialsciencescharacterisingit.Theproblemofhowhumansocietiesareorganisedandwhatmotiva-tionsdeterminehumanactionsÐpassionsandinterests,inparticularself-interestÐaswellasthedesiredorinvoluntaryoutcomesofsuch

Prefacexiactions,areinthisperiodatthecentreoflivelydebateattheintersectionbetweeneconomics,politicsandmoralscience.AlreadyinthisÞrststagetwodistinctviewsareapparent:adichotomywhich,togetherwithitslimits,willbecomeclearerasourstoryunfolds.Ontheonehand,theeconomyisseenascentredonthecounter-positionbetweensupplyanddemandinthemarket:wemaycallthistheÔarcÕview,analogoustotheelectricalarc,inwhichthetwopolesÐdemandandsupplyÐdeterminethesparkoftheexchange,andhencetheequilibrium.Inthisviewthenotionofequilibriumiscentral.Ontheotherhand,wehavetheideathattheeconomicsystemdevelopsthoughsuccessivecyclesofproduction,exchangeandconsumption:aÔspiralÕview,sincethesecyclesarenotimmutable,butconstitutestagesinaprocessofgrowthanddevelopment.Recapitulationandanoriginalreformulationofsuchdebatesispro-videdbyAdamSmithÕswritings,whichweshallconsiderinchapter5:thedelicatebalancebetweenself-interestandtheÔethicsofsympathyÕistheothersideofthedivisionoflabouranditsresults.ThedebateontypicallySmithianthemesofeconomicandsocialprogressisillustratedinchapter6.TheFrenchRevolutionandtheTerrorconstitutethebackgroundtotheconfrontationbetweensupportersoftheideaofperfectibilityofhumansocieties,andthosewhoconsiderinter-ferenceinthemechanismsregulatingeconomyandsocietyuseless,ifnotdangerous.Wethusarrivewithchapter7atDavidRicardo,theÞrstauthorwecancreditwitharobustanalyticalstructure,systematicallydevelopedonthefoundationofSmithianconcepts.Ricardostandsoutamongotherprotagonistsofanextremelyrichphaseofeconomicdebate,althoughTorrens,Bailey,DeQuincey,McCulloch,JamesandJohnStuartMill,BabbageandtheÔRicardiansocialistsÕareautonomouspersonalitieswithleadingrolestoplayintheirownright;theyarediscussedinchapter8.Inchapter9weconsiderKarlMarx,inparticularthoseaspectsofhisthoughtthataredirectlyrelevantfromtheviewpointofpoliticaleconomy.Thegoldenageoftheclassicalschoolruns,moreorless,fromSmithtoRicardo.Theturningpoint,traditionallylocatedaround1870andtermedtheÔmarginalistrevolutionÕ,returnsustotheÔarcÕviewofthecounter-positionbetweendemandandsupplyinthemarket.Althoughlongpresentintheeconomicdebate,theviewnowassumesamorematureformthanksbothtotherobustanalyticstructureofthesubjectivethe-oryofvalueandthegreaterconsistencyoftheconceptualpicture.Thecentralproblemofeconomicscienceisnolongeroneofexplainingthefunctioningofamarketsocietybasedonthedivisionoflabour,butoneofinterpretingthechoicesofarationalagentintheirinteractions,throughthemarket,withotherindividualswhofollowsimilarrulesofbehaviour.

xiiPrefaceThemaincharacteristicsofthisturnandthelongpathpreparatorytoitarediscussedinchapter10.Inaddition,thisandthetwosubse-quentchaptersillustratethethreemainstreamsintowhichthemarginalistapproachistraditionallysubdivided:JevonsÕsEnglish,MengerÕsAustrianand,Þnally,WalrasÕs(generalequilibrium)Frenchapproach.Anecu-menicalattemptatsynthesisbetweentheclassicalandthemarginalistapproachesmarksAlfredMarshallÕswork.Thisattempt,anditslimits,arediscussedinchapter13.Marginalismisstrictlyconnectedtoasubjectiveviewofvalue,witharadicaltransformationofutilitarianism,whichoriginallyconsti-tutedthefoundationforaconsequentialistethic.JevonsÕsutilitarian-ismreduceshomooeconomicustoacomputingmachinethatmaximisesamono-dimensionalmagnitude:itisonthisverythinfoundation,asweshallsee,thatthesubjectivetheoryofvaluebuildsitsanalyticalcastle.ThecaseofMarshallisquiteinteresting,sinceitshowshowdifÞcultitistoconnectcoherentlyacomplexandßexiblevisionoftheworldtoananalyticstructureconstrainedbythecanonsoftheconceptofequi-librium.SomethingsimilarhappensinthecaseoftheAustrianschool,aswellasinthethoughtofSchumpeter,whosetheoryisillustratedinchapter15.Wecanthusunderstandthecontrastingevaluationsformu-latedovertimeonseveralleadingÞgures(exaltedordespiseddependingonthepointofviewfromwhichtheyarejudged),takingaccountoftherichnessanddepthoftheirconceptualrepresentationofreality,ortheweaknessesandrigidityoftheiranalyticstructure.TheproblemoftherelationshipbetweenconceptualfoundationsandanalyticstructuretakesdifferentformsinJohnMaynardKeynesandPieroSraffa,whosecontributionsarediscussedinchapters14and16.Keyneshopedtomakehisthesesacceptable,revolutionaryastheywere,toscholarstrainedwithinthemarginalisttradition.However,hisconcil-iatorymannergeneratedglaringdistortionsofhisthought,whichbecamesterilisedinthecanonicalversionoftheÔneo-classicalsynthesisÕ.Sraffa,ontheotherhand,formulatedhisanalysisinsuchawayastorenderpos-sibleitsusebothinaconstructiveway,withinaclassicalperspective,andforthepurposeofcriticism,withinthemarginalistapproach.However,thismadeitmoredifÞculttoreconstructthemethodandconceptualfoundationsofhiscontribution,againopeningthewaytoanumberofmisunderstandings.Finally,mainlyonthebasisofKeynesÕsandSraffaÕscontributions,andtakingintoaccountrecentdevelopmentsillustratedinchapter17,chapter18presentssometentativeandprovisionalreßectionsontheprospectforeconomicscience.

PrefacexiiiThebynowsomewhatremoteoriginofthisworkwasacourseoflecturesonEconomicphilosophiesgivenin1978atRutgersUniversity.IhadalreadydoneresearchonTorrens,SraffaandPetty(Roncaglia1972,1975,1977)andIdeludedmyselfthatIwouldbeabletowriteabookofthiskindonthebasisofmylecturenotesinarelativelybriefspanoftime.InthefollowingyearsIgavecoursesoflecturesinthehistoryofeconomicthoughtonvariousoccasions:attheUniversityofParisX(Nanterre),attheFacultyofStatisticsandthedoctoratecoursesinEconomicSciencesoftheUniversityofRome(LaSapienza),andattheInstituteSantÕAnnaofPisa.IhavealsotakenpartintherealisationofanItalianTVseries,ThePinFactory:twenty-seveninstalmentsonthemajorprotagonistsofthehistoryofeconomicthought.Theseexperiencesplayedanessentialpartintheendeavourtomakemyexpositioneverclearerandmoresystematic.TheresearchworkbeneÞtedovertheyearsfromMIURÕs(theItalianMinistryforUniversitiesandResearch)researchgrants.Itwasalsogreatlyhelpedbyremarksandsuggestionsreceivedatanumberofseminarsandconferences,andonthepapersthatIhaveovertimepublishedonissuesinthehistoryofeconomicthought.Manycolleaguesandfriendshavebeenofgreathelp;IwishtorecallheretheinitialstimulusofferedbyPieroSraffaandPaoloSylosLabini,andtheusefulsuggestionsofGiacomoBecattini,MarcellaCorsi,FrancoDonzelli,GeoffHarcourt,MarcoLippi,CristinaMarcuzzo,NerioNaldi,CosimoPerrotta,GinoRoncaglia,MarioTonveronachi,LuisaValenteandRobertoVilletti,whoreaddraftsofsomeofthechapters.SilviaBrandolinprovidedprecioushelpwiththeediting.TheEnglisheditionembodiessomenewmaterialandanumberofminorchanges,promptedbycommentsandsuggestionsofGiuseppePriviteraandotherreadersofthe(bynow)twoItalianeditionsandoffouranonymousreferees.ThanksarealsoduetoGrahamSells(andtoMarkWaltersforchapters12,13and17)forhelpinimprovingmybastardEnglishstyle,andtoAnnieLovett,PatriciaMauriceandJoNorthfortheirkindnessandpatiencewhileseeingthisbookthroughthepress.ObviouslytheresponsibilityforremainingerrorsÐunavoidableinaworkofthiskindÐismine.Iwillbegratefultoreaderswhopointsucherrorsouttome([email protected]).NoticeBibliographicalreferenceswillfollowthecustomarysystem:nameofauthor,dateofthework.Thelatterwillbetheoriginaldateofpublication(withtheexceptionofauthorsofantiquity),whilethepagereferencewillbetotheeditionoftheworkusedhere,i.e.thelastnotinbracketsofthe

xivPrefaceeditionscitedinthebibliography.WhenthisisnotanEnglishedition,thetranslationofthepassagesquotedismine.Insomecasesofposthumouspublications,theyearinwhichtheworkwaswrittenisindicatedbetweensquarebrackets.Whenreferringtootherpartsofthisworkthenumberofthechapterandsectionwillfollowthesign,butthechapternumberwillbeomittedwhenreferringtoasectionwithinthesamechapter.

1ThehistoryofeconomicthoughtanditsroleTounderstandtheothers:thisisthehistorianÕsaim.ItisnoteasytohaveamoredifÞculttask.ItisdifÞculttohaveamoreinterestingone.(Kula1958,p.234)1.IntroductionThethesisadvancedinthischapteristhatthehistoryofeconomicthoughtisessentialforanyoneinterestedinunderstandinghoweconomieswork.Thuseconomists,preciselyasproducersandusersofeconomictheo-ries,shouldstudyandpractisethehistoryofeconomicthought.Whileillustratingthisthesis,wewillexaminesomequestionsofmethodthat,apartfromtheirintrinsicinterest,mayhelpinunderstandingourlineofreasoninginthisbook.Ourthesisisopposedtotheapproachnowprevailing.Mostcontempo-raryeconomists,especiallyinAnglo-Saxoncountries,areconvincedthatlookingbackmayperhapsbeofsomeuseintrainingyoungeconomists,butisnotnecessaryfortheprogressofresearch,whichratherrequiresworkonthetheoreticalfrontier.Inthenextsectionwewillconsiderthefoundationsofthisapproach,alsoknownasÔthecumulativeviewÕofthedevelopmentofeconomicthought.Weshallseehow,eveninthisapparentlyhostilecontext,acrucialrolehasbeenclaimedforthehistoryofeconomicthought.Thecumulativeviewhasbeenopposedbyotherideasonthepathpur-suedbyscientiÞcresearch.Insection3wetakealookatthethesesontheexistenceofdiscontinuities(KuhnÕsÔscientiÞcrevolutionsÕ)orcom-petitionamongdifferentÔscientiÞcresearchprogrammesÕ(Lakatos).Asweshallsee,theypointtotheexistenceofdifferentviewsoftheworld,andhenceofdifferentwaysofconceivinganddeÞningtheproblemstobesubjectedtotheoreticalenquiry.Insection4wewillrecallthedistinction,proposedbySchumpeter,betweentwodifferentstagesintheworkprocessoftheeconomictheorist:1

2TheWealthofIdeasÞrst,thestageofconstructionofasystemofconceptstorepresenttheeconomyand,second,thestageofconstructionofmodels.Insection5,wethengoontoseehowthisdistinctionpointstoanimportant,butgenerallyoverlooked,roleforthehistoryofeconomicthoughtwithintheveryÞeldofeconomictheory,asawaytoinvestigatetheconceptualfoundationsofdifferenttheories.Allthisconstitutesthebackgroundfordiscussing,insection6,thekindofhistoryofeconomicthoughtwhichismostrelevantfortheformationofeconomictheories.Obviously,thisisnottodenythatthereisintrinsicinterestinresearchintothehistoryofideas:farfromit!Norwillweconsiderissuessuchastheautonomyofthehistoryofeconomicthoughtorwhether,inthedivisionofintellectualwork,historiansofeconomicthoughtshouldbeconsideredclosertotheeconomistsortotheeconomichistorians.ThepointwewishtomakeisthateconomistswhorefusetogetinvolvedinthestudyofthehistoryofeconomicthoughtandtohavesomeresearchexperienceinthisÞeldareseverelyhandicappedintheirowntheoreticalwork.2.ThecumulativeviewAccordingtothecumulativeview,thehistoryofeconomicthoughtdis-playsaprogressiverisetoeverhigherlevelsofunderstandingofeco-nomicreality.TheprovisionalpointofarrivaloftodayÕseconomistsÐcontemporaryeconomictheoryÐincorporatesallpreviouscontributions.Thecumulativeviewisconnectedtopositivism.1MorespeciÞcally,themostwidespreadversionofthecumulativeviewdrawsonasim-pliÞedversionoflogicalpositivism,theso-calledÔreceivedviewÕ,whichfoundaconsiderablefollowingasfromthe1920s.Inanutshell,theideawasthatscientistsworkbyapplyingthemethodsoflogicalanalysistotherawmaterialprovidedbyempiricalexperience.Toevaluatetheirresults,objectivecriteriaforacceptanceorrejectioncanbeestablished.More1AnillustriousandcharacteristicallyradicalexampleofthispositionisrepresentedbyPantaleoni1898.Accordingtohim,thehistoryofthoughtmustbeÔhistoryofeconomictruthsÕ(ibid.,p.217):Ôitsonlypurpose[…]istorelatetheoriginsoftruedoctrinesÕ(ibid.,p.234).InfactPantaleoniheldthataclear-cutcriterionforjudgingthetruthorfalsehoodofeconomictheoriesisavailable:ÔTherehasbeenatroublesomesearchforhypothesesthatarebothclearandinconformitywithreality[…]Factsandhypotheseshavethenbeenused,andwhatcouldbededucedfromthemhasbeendeduced.ThetheoremshavealsobeencheckedonempiricalrealityÕ(ibid.,p.217).Expressedintheseterms,PantaleoniÕscriterionmirrorsastillratherprimitiveandsimplisticversionofpositivism;theresolutionwithwhichitisstatedprobablystemsatleastinpartfromtheharshnessofthecontroversybetweentheAustrianmarginalistschoolandtheGermanhistoricalschool(cf.below,11.2).

Thehistoryofeconomicthoughtanditsrole3precisely,analyticstatements,namelythoseconcerningabstracttheoreti-calreasoning,areeithertautological,i.e.logicallyimpliedintheassump-tions,orself-contradictory,i.e.theycontainlogicalinconsistencies;intheformercase,theanalyticstatementisaccepted,inthelatterrejected.Similarly,syntheticstatements,i.e.thoseconcerningtheempiricalworld,areeitherconÞrmedorcontradictedbyevidence,andhenceacceptedorrejectedforÔobjectiveÕreasons.AllotherstatementsforwhichnoanalogouscriteriaofacceptanceorrejectioncanbefoundaretermedmetaphysicalandareconsideredexternaltotheÞeldofscience.Thisviewhascomeinforseverecriticism,discussedinthefollow-ingsection.2Neverthelessitremainsthebasisforthecumulativeviewofeconomicscience,or,inotherwords,theideathateachsuccessivegen-erationofeconomistscontributesnewanalyticorsyntheticpropositionstothecommontreasureofeconomicscience,whichÐasascienceÐisunivocallydeÞnedasthesetofÔtrueÕpropositionsconcerningeconomicmatters.Newknowledgeisthusaddedtothatalreadyavailable,andinmanycasesÐwheneversomedefectisidentiÞedinpreviouslyacceptedstatementsÐsubstitutesit.Hence,studyofasciencemustbeconductedÔonthetheoreticalfrontierÕ,takingintoconsiderationthemostup-to-dateversionandnotthetheoriesofthepast.Notwithstandingthisposition,itisgrantedthatthelattermaydeservesomeattention:asSchumpeter(1954,p.4)says,studyingeconomistsofthepastispedagogicallyhelp-ful,maypromptnewideasandaffordsusefulmaterialonthemethodsofscientiÞcresearchinacomplexandinterestingÞeldsuchaseconomics,ontheborderlinebetweennaturalandsocialsciences.Similarargumentsareproposedbyvariousotherhistoriansofeco-nomicthought,ofteninasimplisticwayandwithrhetoricalovertones.However,asGordon(1965,pp.121Ð2)pointsout,thefactthatthehis-toryofeconomicthoughtmayhelpinlearningeconomictheoryisnotasufÞcientreasontostudyit.Giventhelimitedtimeavailabletohumanbeings,onewouldalsohavetoshowthatacourseoflecturesdedicatedtothehistoryofeconomicthoughtcontributesmoretotheformationofaneconomistthananequalamountoftimedirectlydedicatedtoeconomictheory.Clearly,ifweacceptacumulativeviewofeconomicresearch,thiswouldberatherdifÞculttomaintain.Asaconsequence,accordingtoGordon(1965,p.126),Ôeconomictheory[…]ÞndsnonecessityforincludingitshistoryasapartofprofessionaltrainingÕ(whichdoesnotmeanthatthehistoryofeconomicthoughtshouldbeabandoned:ÔWestudyhistorybecauseitisthereÕ).2Forasurveyofthisdebate,seeCaldwell1982and,morerecently,Hands2001;forthelinkbetweentheÔreceivedviewÕinepistemologyandthecumulativeviewinthehistoryofeconomicthought,seeCesarano1983,p.66.

4TheWealthofIdeasInterestinthehistoryofeconomicthought,whenjustiÞedbyitsped-agogicalusefulness,isreducedwheneverthedevelopmentofeconomicsseesdiscontinuityintheanalyticaltoolbox.Thisishowsomeauthorsexplainthewaninginterestinthehistoryofeconomicthoughtasfromthe1940s.3However,wemayrecallthatasearlyasthe1930seconomistssuchasHicksandRobertsonwerearguingthattherewasnoreasontowastetimereadingtheclassicaleconomists;4theirattitudeisexplainednotsomuchbychangeintheanalyticaltoolboxasbychangeintheveryconceptionofeconomics,fromtheclassical(surplus)approachtothemarginalist(scarcity)view.Amongadherentsofthecumulativeview,Vinerproposesasubtledefenceofthehistoryofeconomicthought,onlyapparentlymodest.VinerpointstoÔscholarshipÕ,deÞnedasÔthepursuitofbroadandexactknowledgeofthehistoryoftheworkingofthehumanmindasrevealedinwrittenrecordsÕ.Scholarship,althoughconsideredinferiortotheoreticalactivity,contributestotheeducationofresearchers,beingÔacommitmenttothepursuitofknowledgeandunderstandingÕ:Ôoncethetasteforithasbeenaroused,itgivesasenseoflargenesseventooneÕssmallquests,andasenseoffullnesseventothesmallanswers[…]asensewhichcanneverinanyotherwaybeattainedÕ.5Educationinresearch,Vinerseemstosuggest,isaprerequisiteforexploitationoftheknowledgeofanalyticaltools.6Thus,evenifthehistoryofeconomicthoughtisconsideredtobeoflittleuseinlearningmoderneconomictheory,acrucialroleisattributedtoitintheeducationoftheresearcher.Theimportanceofthiswiderperspectivebecomesmuchclearer,however,outsideastrictlycumulativeviewofeconomicresearch,asweshallseebelow.First,however,itisworthstressingthatthecumulativeviewofthehis-toryofeconomicthoughtconsideredinthissectionisthemodernone,whichreachedacommandingpositioninthetwentiethcenturyparallelwiththemarginalistapproach.Asomewhatdifferentkindofcumula-tiveviewcanbefoundinthebriefdigressionsonthehistoryofeco-nomicthoughtmadebycertainleadingeconomistssuchasSmithandKeynes,whousethemtohighlighttheirowntheories,contrastingthemtothoseprevailingpreviously.ThusSmith,inbookfourofThewealthof3Cf.Cesarano1983,p.69,whoalsoreferstoBronfenbrenner1966andTarascio1971.4LetterbyRobertsontoKeynes,3February1935,inKeynes1973,vol.13,p.504;andletterbyHicks,9April1937,inKeynes1973,vol.14,p.81.5Viner1991,pp.385and390.6Schumpeter(1954,p.4;italicsintheoriginal)sayssomethingsimilarwhenstatingthatthehistoryofeconomicthoughtÔwillpreventasenseoflackingdirectionandmeaningfromspreadingamongthestudentsÕ.

Thehistoryofeconomicthoughtanditsrole5nations,criticisestheÔcommercialormercantilesystemÕandtheÔagricul-turalsystemÕ(namelythephysiocrats).ThecritiqueofthemercantilistsÐanabstractcategory,devisedinordertoplaceunderasinglelabelalongseriesofwriterswhoareoftenquitedifferentfromoneanother(cf.below,2.6)ÐgoeshandinhandwithSmithÕsliberalism,illustratedinotherpartsofhiswork;thecritiqueofthephysiocratsservestostress,bycontrast,hisowndistinctionbetweenproductiveandunproductiveworkersandhistri-partitionofsocietyintotheclassesofworkers,capi-talistsandlandowners.Similarly,MarxcontrastshisÔscientiÞcsocialismÕtoÔbourgeoisÕeconomics(thatofSmithandRicardo)andÔvulgarÕeco-nomics(thatofSayandofBastiatÕsÔeconomicharmoniesÕ);Keynescre-atesacategoryÐtheÔclassicsÕÐinwhichheincludesallpreviousauthorswho,likehisCambridgecolleaguePigou,excludethepossibilityofper-sistentunemploymentthatisnotreabsorbedbytheautomaticforcesofcompetitivemarkets.Clearly,wearenotconfrontedherewithinstancesofcumulativeviewsstressingthegradualaccumulationofeconomicknowl-edge,butratherwithhistoricalreconstructionsbymeansofwhichcertainprotagonistsofeconomicsciencestresstheleapforwardaccomplishedbytheirdisciplinethankstotheirowntheoreticalcontribution.Obviously,recallingthisfactisnottodenythevalidityofsuchhistoricalrecon-structions,sinceinthecaseofprotagonistslikeSmithorKeynesthesereconstructionsdoidentifykeystepsinthepathofeconomicscience.3.ThecompetitiveviewOverthepastfewdecadesanumberofeconomistshavereferredtoKuhnÕs(1962)ÔscientiÞcrevolutionsÕorLakatosÕs(1970,1978)Ôscien-tiÞcresearchprogrammesÕinsupportoftheideathatitisimpossibletochooseamongcompetingtheoreticalapproacheswiththeÔobjectiveÕcri-teriaindicatedbylogicalpositivism(logicalconsistency,correspondenceofassumptionstoempiricalreality).Thesecriteriahadalreadybeentheobjectofdebate.SomecriticismsspeciÞcallyconcernedtheclear-cutdistinctionbetweenanalyticandsyn-theticstatements.Indeed,analyticstatements,ifinterpretedaspurelylogicalpropositions,aredevoidofanyreferencetotherealworld;asaconsequence,theyareemptyfromthepointofviewoftheinterpreta-tionofreal-worldphenomena.7SyntheticstatementsinturnnecessarilyembodyalargemassoftheoreticalelementsintheverydeÞnitionofthe7Inotherterms,observationsarenecessarilyÔtheory-ladenÕ;cf.Hands2001,pp.103ff.Itisonthisground,forinstance,thatDobb(1973,ch.1)developshiscritiqueoftheexcessivelyclear-cutdistinction,proposedbySchumpeter,betweenhistoryofeconomicanalysisandhistoryofeconomicthought,towhichwewillcomebacklateron(5).

6TheWealthofIdeascategoriesusedforcollectingtheempiricaldataandinthemethodsbywhichthesedataaretreated;asaconsequence,thechoicesofacceptanceorrejectionofanysyntheticstatementcannotbeclear-cut,butarecon-ditionedbyalongseriesoftheoreticalhypothesesthatcannot,however,besubjecttoseparateevaluation.8Itispreciselytheimpossibilitytohaveneatlyseparateevaluationsbasedonunivocalobjectivecriteriaforana-lyticandsyntheticstatementsthatconstitutesacrucialdifÞcultyforthepositivisticviewdiscussedintheprevioussection.Anotherimportantcritiqueofthecriterionforacceptanceorrejec-tionproposedforsyntheticstatementsÐtheircorrespondenceornon-correspondencetotherealworldÐisdevelopedbyPopper(1934).Nomatterhowmanytimesasyntheticstatementiscorroboratedbycheckingitagainsttherealworld,saysPopper,wecannotexcludethepossibilitythatacontrarycasewilleventuallycropup.Thus,forinstance,thestate-mentthatÔallswansarewhiteÕmaybecontradictedbythediscoveryofasinglenewspeciesofblackswansinAustralia.Thescientistcannotpre-tendtoverifyatheory,thatistodemonstrateittobetrueonceandforall.Thescientistcanonlyacceptatheoryprovisionally,bearinginmindthepossibilitythatitmaybefalsiÞed,or,inotherwords,thatitbeshowntobefalsebyanew-foundempiricaleventcontradictingit.Indeed,inasubsequentbook(1969)PoppermaintainsthatthebestmethodforscientiÞcresearchconsistspreciselyintheformulationofapotentiallynever-endingseriesofÔconjecturesandrefutationsÕ.Inotherwords,thescientistformulateshypothesesandthen,ratherthanlookingforempir-icalconÞrmationÐwhichinanycasecouldnotbedeÞnitiveÐshouldratherseekoutrefutations.These,bystimulatingandguidingthesearchforbetterhypotheses,makeacrucialcontributiontotheadvancementofscience.9AnumberofleadingÞguresofpositivisticepistemologymaintainthatitisnotapplicabletotheÞeldofsocialsciences.Theinßuenceofsomehistoriansandphilosophersofscience,suchasKuhn,LakatosandFeyerabend,contributedthen,inthelastdecadesofthetwentiethcentury,toabandonmentofthepositivisticmethodologyintheÞeldofeconomictheory.Letusbrießyrecalltheirtheoriesandthecompetitiveviewofsciencethatfollowsfromthem.Inafewwords,accordingtoKuhn,thedevelopmentofscienceisnotlinear,butcanbesubdividedintostages,eachwithitsowndistinctive8ThiscriticismisknownastheÔDuhemÐQuineunderdeterminationthesisÕ(cf.Quine1951);accordingtoit,ÔnotheoryisevertestedinisolationÕ,sothatÔanyscientiÞctheorycanbeimmunizedagainstrefutingempiricalevidenceÕ(Hands2001,p.96).9FordebateontheutilisationofPopperÕsideasintheÞeldofeconomictheory,cf.DeMarchi1998.

Thehistoryofeconomicthoughtanditsrole7characteristics.IneachperiodofÔnormalscienceÕ,aspeciÞcpointofview(paradigm)iscommonlyacceptedasthebasisforscientiÞcresearch.Onsuchabasis,anevermorecomplextheoreticalsystemisbuilt,capableofexplaininganincreasingnumberofphenomena.Thisprocessofgrowthofnormalscience,however,isaccompaniedbytheaccumulationofanoma-lies,namelyofphenomenathatareeitherunexplainedorthatrequirefortheirexplanationanincreasinglyheavyloadofadhocassumptions.Agrowingmalaisederivesfromthis,whichfavoursaÔscientiÞcrevolutionÕ,namelytheproposalofanewparadigm.Thismarksthebeginningofanewstageofnormalscience,withinwhichresearchproceedswithoutcallingintoquestiontheunderlyingparadigm.LetusstressherethatKuhndoesnotconsiderthesuccessionofdifferentparadigmsasalogicalsequencecharacterisedbyagrowingamountofknowledge.Thedifferentparadigmsareconsideredasnotcommensurableamongthemselves;eachofthemconstitutesadifferentkeyforinterpretingreality,necessarilybasedonaspeciÞcsetofsim-plifyingassumptions,manyofwhichalsoremainimplicit.Noparadigmcanencompassthewholeuniverseinallitsdetails.Strictlyspeaking,itisincorrectbothtosaythattheearthgoesroundthesunandthatthesungoesroundtheearth:eachofthetwohypothesescorrespondstothechoiceofaÞxedpointasreferenceforthestudyoftheuniverse,orbet-terapartoftheuniversethatisincontinuousmovementrelativetoanyotherpossibleÞxedpoint.Inotherwords,sinceboththeearthandthesunmoveinspace,thoseofCopernicusandPtolemyarebuttwoalter-nativetheoreticalapproacheswhichexplaininmoreorlesssimpletermsagreaterorsmallernumberofphenomena.10WemayalsorecallinthisrespectthataheliocentricviewhadalreadybeenproposedbyAristarchusofSamosinthethirdcentury,nearlyÞvecenturiesbeforePtolemy:thus,paradigmsdonotnecessarilyfolloweachotherinalinearsequence,butcanreappearasdominantafterevenlongperiodsofeclipse.10AmongKuhnÕspredecessorsinthisrespectwemayrecallAdamSmithwithhisHistoryofastronomy(Smith1795).AconnectinglinkbetweenSmithandKuhnmightbelocatedinSchumpeter,whosetsaparttheHistoryofastronomyasÔthepearlÕamongSmithÕswritings(Schumpeter1954,p.182),andfurtheronconsidersthesamehistoricalcasethatwaslatertobestudiedbyKuhn:ÔTheso-calledPtolemaicsystemofastronomywasnotsimplyÒwrongÓ.Itaccountedsatisfactorilyforagreatmassofobservations.Andasobservationsaccumulatedthatdidnot,atÞrstsight,accordwithit,astronomersdevisedadditionalhypothesesthatbroughttherecalcitrantfacts,orpartofthem,withinthefoldofthesystemÕ(Schumpeter1954,p.318n.).Kuhn,likemostoftheprotagonistsoftheepistemologicaldebate,originallydevelopedhisideasasaninterpretationofthehistoryofnaturalsciences,speciÞcallyastronomyandphysics,andnotasamethodologicalrecipeforthesocialsciences.However,someatleastamonghisideascanbereadilyutilisedintheÞeldofeconomictheory.Foranattemptinthisdirection,cf.theessayscollectedinLatsis1976.

8TheWealthofIdeasKuhnpresentshisideaofscientiÞcrevolutionsasadescriptionofthepathactuallyfollowedbythedifferentsciencesratherthanasanormativemodelofbehaviourforscientists.Inopposition,anormativeattitudeisadoptedbyLakatos(1978).LakatosÕsÔmethodologyofscientiÞcresearchprogrammesÕconsistsinasetofworkingrulesforbothcritiqueandconstructionoftheories(neg-ativeandpositiveheuristic),organisedaroundaÔhardcoreÕofhypothesesconcerningaspeciÞcsetofissuesandutilisedasfoundationsforthecon-structionofatheoreticalsystem.Thehardcoreremainsunchangedevenwhenanomaliesarise,thankstoaÔprotectivebeltÕofauxiliaryhypotheses,andisabandonedonlywhenthescientiÞcresearchprogrammebasedonitisclearlyrecognisedasÔregressiveÕ,orinotherwordswhenitisclearlyrecognisedthatgoingaheadwithitismostlikelyawasteoftimeandeffort.TheacceptanceorrejectionofascientiÞcresearchprogrammeisthusconsideredbyLakatosacomplexprocess,andnotanactofjudgementbasedonacrucialexperiment,orinanycaseonwell-deÞned,univocal,objectivecriteria.Thusinterpreted,LakatosÕsviewisnotverydifferentfromÐalthoughadmittedlylessradicalthanÐthatproposedbyFeyerabend(1975)withhisÔanarchistictheoryofknowledgeÕ.Feyerabendstressestheneedfortheutmostopen-mindednesstowardsthemostdisparateresearchapproaches;atthesametimeheisfarfromacceptingwithoutqualiÞca-tionhisownmotto:ÔAnythingcangoÕ.Critiqueoftheideathatthereexistabsolutecriteriaoftruth(orbetterofacceptanceandrejectionoftheories)maycoexistwiththeideaofthepracticabilityofarationaldebatebetweendifferent,evenconßicting,pointsofview.Obviously,whendebatingthedifferentviewpointstheadvocatesofeachshouldbereadytodropthepretenceofusingasabsolutethecriteriaofjudgementbasedontheirownworld-view.Onthecontrary,provisionallyadoptingtherivalview-pointtocriticiseitfrominsidemayconstituteanelementofstrengthinthedebate.WearethusconfrontedwithaprocedureforscientiÞcdebateanalogoustothatcommonlyfollowedinlegalproceedings,whereprose-cutoranddefenceeachbringsthemostdisparateargumentsinsupportoftheirpositions.FeyerabendÕsviewswerebroughtintotheeconomicdebatebyMcCloskey(1985,1994),albeitwithsomechanges.McCloskeyspeaksofaÔrhetoricalmethodofscientiÞcdebateÕthatrejectsneat,mono-dimensionalcriteriafortheevaluationoftheories,andstresses,incon-trast,theroleoftheirrelativepowerofpersuasion.11Thisdoesnotmean11WithintheÞeldofthenaturalsciences,well-conductedexperimentsasaruleconsti-tutedecisiveproofofthesuperiorityofonetheoryoverothertheories.IntheÞeldofthesocialsciences,however,experimentsperformedincontrolledconditions(thatis,

Thehistoryofeconomicthoughtanditsrole9todenyanyvaluetothetheoreticaldebate:farfromit,themainmessagegivenbythismethodologyistheneedfortoleranceinthefaceofdifferentviewsoftheworldandhenceofdifferenttheoreticalapproaches.WemayalsorecallthatthusinterpretedtherhetoricalmethodineconomicscanbetracedbacktoAdamSmith.12InthecaseofKuhnandLakatosalike,economistshavebeenattractedbytheroleattributedtotheexistenceofalternativeapproaches,deducedfromthesuccessionofdifferentparadigmsorfromthecoexistenceofdifferentscientiÞcresearchprogrammes.13ObviouslyFeyerabendÕsideasleadinthesamedirection.Itisherethatthehistoryofeconomicthoughtcomesintoplay.Thosewhoacceptacompetitiveviewofthedevelopmentofeconomicthoughtandparticipateinadebatebetweencontendingapproachesareinducedtoinvestigatethehistoryofsuchadebate,lookingforthepointsofstrengthandweaknesswhichexplainthedominanceordeclineofthedifferentapproaches.Inparticular,thosewhosupportapproachescompetingwiththedom-inantonemayÞndthehistoryofeconomicthoughtveryuseful.14First,analysisofthewritingsofeconomistsinthepastoftenhelpsinclari-fyingthebasiccharacteristicsoftheapproachbeingproposedandthedifferencesbetweenitandthedominantone.15Second,thehistoryofeconomicthoughthelpsinevaluatingtheoriesbasedondifferentapproaches,bybringingtolighttheworld-views,thecontentoftheconceptsandhypothesesonwhichtheyarebased.OftenthishelpsinretrievingthenotesofcautionandthequaliÞcationsorigi-nallyaccompanyingtheanalysis,subsequentlyforgotteninunwarrantedgeneralisationoftheÞeldofapplicationofthetheory.16Third,recallingillustriousculturalrootssometimesservesatacticalpurpose,inordertocountertheinertiathatconstitutessuchastrongceterisparibus)arepracticallyimpossible.HencethegreatercomplexityinthislatterÞeldforcomparisonbetweendifferenttheories.12WereferherenotonlytotheLecturesonrhetoricandbelleslettres(Smith1983),butalsototheGlasgowlectures(theso-calledLecturesonjurisprudence:Smith1978).Onthissubject,cf.Giuliani1997.13See,forinstance,theessayscollectedinDeMarchiandBlaug1991.Foranoteofcaution,seeSteedman1991,whonotesthatLakatosÕsprogrammesrefertospeciÞcissuesratherthantobroadviewsoftheworld.14Cf.Dobb1973,Meek1977andBharadwaj1989asexamplesofthisinterestfollowingtheSrafÞanrevivaloftheclassicalapproach.15AnillustriousexampleisSraffaÕseditionofRicardoÕsWorksandcorrespondence(Ricardo1951Ð5).16Anexampleistheassumptionofmarketclearing.ItimpliesmarketsthatworkinaveryspeciÞcway,eitherliketheÔcallbidÕmarketsofold-stylecontinentalstockexchanges,orliketheÔcontinuousauctionÕmarketsofAnglo-Saxonstockexchanges.Kregel1992considerstheformerinrelationtoWalrasiangeneralequilibriumtheory,andthelatterreferringtoMarshalliantheory.Cf.below,chapters12and13.

10TheWealthofIdeasadvantagefortheprevailingmainstream.ObviouslyanappealtoauthoritydoesnotconstituteagoodscientiÞcargument;thisisalsotruefortheappealtoamajorityrule,aproclamationofintellectuallazinesssooftenrepeatedindefence,forinstance,ofthepersistentuseofone-commoditymodelsintheoriesofemploymentandgrowth,orofU-shapedcurvesinthetheoryoftheÞrm.Itmaybeusefultostressherethatthecompetitiveviewimpliesneitheranequivalencebetweencompetingapproaches,northeabsenceofscien-tiÞcprogress.17Itsimplyimpliesrecognitionoftheexistenceofdifferentapproachesbasedondifferentconceptualfoundations.Eachresearchergenerallyfollowsthelineofresearchwhichheorsheconsidersthemostpromisingone.18Suchachoice,however,isextremelycomplex,becauseoftheincommensurabilityofthedifferentconceptualsystems.Inpartic-ular,theclaimofthemainstreamapproachtoimposeevaluationcriteriaderivedfromitsownviewsmustberejected.WhatthecompetitiveviewspeciÞcallyrejectsistheideaofamono-dimensionalprocessofscientiÞcadvance.Therecanbeprogressbothwithineachapproach(whereindeeditisthegeneralrule,intermsofbothgreaterinternalconsistencyandhigherexplanatorypower)andalongthehistoricalsequenceofresearchparadigmsorprogrammes.Inthelattercase,however,theideaofprogressismoreimpreciseandgreatercau-tionisrequired.Anundeniableelementofprogressisprovidedbytheincreasingnumberofevermoresophisticatedanalyticaltoolsmadeavail-ablebydevelopmentsinotherÞeldsofresearch(newmathematicaltools,betterandmoreabundantstatisticalmaterial,highercomputingpowerfromnewcomputers).Butbetweensuccessiveresearchparadigmsorpro-grammestherearecommonlycrucialdifferencesintheunderlyingworld-view.Someaspectsofreality(causeandeffectrelationshipsincluded)aregivengreaterprominence,othersless,sothattherearedifferencesinthesetof(explicitorimplicit)19assumptionsonwhichtheoriesare17ThisopinionÐtherejectionofanyideaofscientiÞcprogressÐissometimesattributedtoFeyerabendÕsÔanarchistictheoryofknowledgeÕand,withintheeconomicÞeld,toMcCloskeyÕs(1985)ÔrhetoricÕ.However,thisopiniondoesnotnecessarilyfollowfromtheirmainpoints,therejectionofclear-cutandunivocalcriteriaforassessmentofdif-ferenttheoriesandresearchprogrammes,andtheproposalofanopenÐandmorallyseriousÐÔconversationÕamongdifferentlyorientedresearchers.18Thatis,ifweexcludeinstancesofcareer-orientedopportunisticchoices,whichsome-timesexplainadhesiontothemainstream.19Theassumptionswillnecessarilyremainatleastinpartimplicit:afulllistoftheelementsofrealityabstractedawayintheprocessofbuildingatheory(thatis,elementsnottakenintoaccountinthetheorybecausetheyareconsiderednotimportantfortheissueunderexamination)isimpossible.Inthissense,axiomaticmodelsrelyonalimitednumberofexplicitassumptionsbutÐafactalltoooftenoverlookedÐtheycruciallyimplyalarge,potentiallyunlimited,numberofimplicitsimplifyingassumptionswhenanattemptismadetorelatethemtotheeconomicrealitywhichtheysetouttointerpret.

Thehistoryofeconomicthoughtanditsrole11built,andhenceinthedomainofapplicabilityofthetheories.Analyticalvariablesorconcepts(suchasmarket,competition,naturalprice,proÞt,rent),althoughindicatedbythesamename,acquireevenwidelydif-ferentmeaningswhenusedwithindifferenttheories.ItishereÐintheanalysisoftheconceptualfoundationsofthedifferenttheories,andofthechangesinthemeaningoftheconceptswheninsertedindifferenttheo-reticalframeworksÐthatwecometorecognisejusthowessentialtheanalysisofconceptsistotheoreticalresearchwork.Aswewillillus-trateinthenextsection,thisinturnimpliesattributingacrucialroletothehistoryofeconomicthoughtintheveryactivityoftheoreticaleconomists.4.Thestagesofeconomictheorising:conceptualisationandmodel-buildingAmongthosewhostresstheimportanceofanalysingtheconceptualfoun-dationsaspartofresearchwork,weÞndoneofthemostillustriousand,indeed,mostwaryrepresentativesofthecumulativeviewineconomics.Schumpeter(1954,pp.41Ð2)subdivideseconomicresearchintothreestages.First,wehavetheÔpre-analyticcognitiveactÕ,orÔvisionÕ,whichconsistsinlocatingtheproblemtobedealtwithandsuggestingsomeworkinghypotheseswithwhichtostartanalysis,theaimbeingtoestab-lishifnotatentativesolutionthenatleastthewaytheproblemshouldbetackled.Second,wehavethestagedevotedÔtoverbalizethevisionortoconceptualizeitinsuchawaythatitselementstaketheirplaces,withnamesattachedtothemthatfacilitaterecognitionandmanipulation,inamoreorlessorderlyschemaorpictureÕ:whatwecancallthestageofconceptualisation,towhichSchumpeterattributesgreatimportance.Theabstractsystemofconceptsthusobtainedisolatestheelementsofreal-itythatareconsideredrelevanttotheissueunderconsideration.Finally,thethirdstageconcernstheconstructionofÔscientiÞcmodelsÕ.Letusalsorecallthatthelogicalsequenceofthedifferentstagesdoesnotnec-essarilycorrespondtotheiractualsequenceintheeconomistÕsresearchactivity.Aswesawintheprecedingsection,thedebatebetweencontendingapproachesconcernsaboveallthechoiceoftheconceptualsystemtobeusedinrepresentingeconomicreality.Thehistoryofeconomicthoughtplaysadecisiveroleinthisrespect.SinceitisimpossibletoprovideanexhaustivedeÞnitionofthecontentofaconcept,20thebestwaytoanalyse20Georgescu-Roegen1985,p.300,speaksinthiscontextofaÔpenumbraÕthatsur-roundsÔdialecticalconceptswhosedistinctivecharacteristicistooverlapwiththeiroppositesÕ.SraffaÕscritiquesofWittgensteinÕsanalyticalpositivismintheTractatuslogico-philosophicusarerelevanthere;onthis,cf.below,16.5.

12TheWealthofIdeasitistostudyitsevolutionovertime,examiningthedifferentshadesofmeaningitacquiresindifferentauthorsandinsomecasesinthedifferentwritingsofthesameauthor.Thisisinfactthecommonexperienceofallstudiesinthehumanities,fromphilosophytopolitics.Furthermore,byutilisingthehistoryofeconomicthoughtforanalysisofaconcept(andofaconceptualsystem)wecaninvestigatetwoaspectswhicharedecisiveforanylineofresearchineconomics:Þrst,whetheritispossibleÐand,ifso,howfaritisnecessaryÐtoadaptthecontentofconceptstothecontinuouschangesintherealitytobeexplained;second,howthemechanismofinteractionbetweentheconceptualisationstageandthestageofmodel-buildingoperates.TheÞrstpointÐtheinteractionbetweeneconomichistoryandeco-nomictheoryÐisawell-knownissue.Thesecondpointisrarelycon-sidered,butiscrucial.Infact,thedifÞcultieswhichariseinthestageofmodel-buildingandtheanalyticalsolutionstothosedifÞcultiesoftenimplymodiÞcationsintheconceptualfoundationsofthetheories;21inotherinstances,suchmodiÞcationsreßecttheevolutionoftherealworldtobeanalysed.22Thesystemsofconceptsunderlyinganytheorythuschangecontinu-ously,whichmakesitimpossibletoconceivetheevaluationofeconomictheoriesonamono-dimensionalscale.Asaconsequence,therecanbenounivocalmeasureoftheexplanatorypowerofthedifferenttheories.The-oreticaladvancesmayconstitutescientiÞcprogressundercertainaspectsbutnotunderothers.Mostimportantly,thestepsforwardcontinuouslymadeinthedirectionofahigherlogicalconsistencyandagrowinguseofmoreadvancedanalyticaltechniquesdonotnecessarilyimplyahigherexplanatorypower:theymaycallforfurtherrestrictionstothemean-ingofthevariablesunderconsideration,excludingcrucialaspectsofrealityfromtheÞeldofapplicabilityofthetheory.23Whenwearecon-frontedwiththisproblem,thehistoryofeconomicthought,byconcen-tratingattentionontheshiftsinthemeaningoftheconceptsusedinthe21AnexampleisprovidedbythechangesintheheuristicpowerofgeneralequilibriumtheorieswhenwemovefromWalrasÕsoriginalformulationtotheaxiomaticconstructionofArrowandDebreu(cf.below,chapter12).Thisexampleshows,amongotherthings,thattheneedtoanalysetheconceptualfoundationsoftheoriesandtheirchangesovertimeisnotlimitedtoanevolutionaryviewoftheeconomy,whichfocusesoninstitutionalchangesandpath-dependence,althoughobviouslytheinteractionbetweentheoryandhistoryisstrongerwithinthislatterapproach.22Anexample(illustratedinRoncaglia1988)isprovidedbytheevolutionintheclassiÞ-cationofeconomicactivityinsectorsfromPettytoSmith,viaCantillonandQuesnay.23Forinstance,asweshallseeinchapter10,themarginalisttheoryofconsumerequi-libriumcertainlyrepresentsastepforwardasfaraslogicalconsistencyandtheuseofsophisticatedtechniquesofanalysisareconcerned,butthisisaccompaniedbytheshrinkingoftheeconomicagenttoasentientmachine.

Thehistoryofeconomicthoughtanditsrole13theory,canhelpinevaluatingthemultifacetedpathfollowedbyeconomicresearch.5.PoliticaleconomyandthehistoryofeconomicthoughtPoliticaleconomy(oreconomics)isaninvestigationofsocietywithtwomaincharacteristics.First,itisascientiÞcinvestigation,whichfollowsspeciÞcmethodologicalrules(althoughnotnecessarilyunchangeableorunivocal).Second,itconsiderssocietyinaparticular,butfundamental,aspect:themechanismsofsurvivalanddevelopmentofasocietybasedonthedivisionoflabour.InsuchasocietyeachworkerisemployedinaspeciÞcactivity,collaboratingintheproductionofaspeciÞccommodity,andhastoobtainfromothereconomicagents,inexchangefor(partof)theproduct,thecommoditiesrequiredasmeansofproductionandsubsistence.Thesemechanismsconsistofinstitutions,habits,norms,knowledgeandpreferences,whichconstituteconstraintsandbehaviouralrules.Economistsinvestigatetheresults,bothindividualandcollective,ofspeciÞcsetsofconstraintsandbehaviouralrules.Asaninvestigationofsociety,politicaleconomyisasocialscience,withacrucialhistoricaldimension.Asascience,itimpliesadhesiontothemethodologicalcriteriaprevailingineconomistsÕworkingenvironments(whichamongotherthingsdetermine,inturn,thecriteriaofprofessionalselection);economistsmaythusbeinducedtoadoptmethodologicalrulesderivedfromthenaturalsciences,asisundoubtedlythecaseinthepresentstage.Hencewehaveanirresolvabletension,giventheimpover-ishmentwhichwouldresultforpoliticaleconomy,ontheonehand,fromabandoningthescientiÞcrulesoflogicalconsistencyand,ontheotherhand,fromdisregardingitscharacteristicsasasocialscience.Thehistoryofeconomicthought24playsacentralroleinfavouringapositiveresolutionoftheabove-mentionedtension.Ontheonehand,itbringstotheforetheessentialroleofthehistoricaldimensionineconomicenquiries.Ontheotherhand,itattributesacentralroletothecriterionoflogicalprecision,sidebysidewiththecriterionofempiricalrelevance,inselectingandevaluatingthetheoriesonwhichtofocusattentionandinlocatingaconnectinglineofdevelopment.24Orhistoryofeconomicanalysis:thedistinctionbetweenthetwoappearssomewhatarbitrary,whenweconsiderthestageofconceptualisationasanessentialpartofthethe-oreticalwork.Schumpeterhimself,afterdrawingaclear-cutdistinctionbetweenhistoryofthoughtandhistoryofanalysis,showsinhisbook(Schumpeter1954)onlyavaguerespectforthatboundary.HisdeclarationofprincipleinthisrespectisperhapstobeinterpretedmoreasajustiÞcationforthemanysimplifyingchoicesunavoidableevenforsuchaneruditescholar.

14TheWealthofIdeasAfairlyclearanswerthusemergestothequestionwestartedfrom.Thehistoryofeconomicthoughtisusefulnotonlyandnotsimplyonthedidacticlevel,ortoprovideaÔsenseofdirectionÕtoeconomicresearch,ormaterialforepistemologists.Itisanessentialingredientbothofthethe-oreticaldebatebetweencontendingapproaches,sinceithelpstoclarifythedifferencesandmodiÞcationsintheirrepresentationsoftheworld,andofthetheoreticalworkwithineachapproach,sinceitcontributestodevelopingtheconceptualfoundationsandclarifyingthechangesinterveningintheminresponsetotheoreticaldifÞcultiesandevolvingrealities.Thehistoryofthoughtthusalsoconstitutesaneducationindemocracy,inthesenseindicatedbyKula(1958),inhiscompellingconsiderationsontheroleofhistoryquotedatthebeginningofthischapter.IncontrasttothescientiÞcabsolutismwidespreadinmainstreameconomicteach-ing,thehistoryofthoughtoffersaneducationintheexchangeofideas,whichitalsofavoursthankstotheeffortitinvolvesinunderstandingtheideasofothers,theperceptionitfostersofthecomplexitiesoftheworld-viewsunderlyingdifferenttheoriesanddeterminingtheirpoten-tialitiesandtheirlimits,andthelinksitrevealswithotherÞeldsofhumanknowledgeandaction.6.Whichhistoryofeconomicthought?Obviously,theroleattributedabovetothehistoryofeconomicthoughthasimplicationsforthewaythedisciplineshouldbestudiedandtaught.Herewewilllimitourselvestoafewbriefremarks.First,thehistoryofeconomicthoughtasdiscussedabovebelongsmoretothebroadÞeldofeconomicsciencethantothehistoryofcultureorofideas.Second,thereisabasicdifferencebetweenhistoriansofeconomicthoughttakingacumulativeviewandthoseadoptingthecompetitiveview.Theformerseethedevelopmentofeconomicscienceasprogres-siveimprovementininternalconsistencyandtheÞeldofapplicabilityofthetheory;theythustendtofocusattentiononthewayeachauthortacklesproblemsthatpreviousauthorshadleftopen.Oftenthisfavoursreconstructionsofthehistoryofeconomicthoughtinwhichrefer-encestothehistoricalcontextappearlargelyirrelevant,andwhichfur-thermoregenerallydisregardlinksbetweeneconomic,philosophicalorpolitico-socialthoughtÐlinksconsideredvitalbeforetheintellectualdivi-sionoflabourcrystallisedintosmallacademichuntingreserves.2525Winch1962raisesthiskindofcriticismagainstmainstreamhistoriography.

Thehistoryofeconomicthoughtanditsrole15TheoppositeriskÐthatofconsideringthevicissitudesofeconomicthoughtovertimeastheexclusiveresultoftheevolutionoftheproductiveandsocialbaseÐisextremelyrare.AmoreconcreteriskisthatofÔhistorybasedonanecdotesÕ,whenattentionisfocusedonthesimpleopinionsoftheauthorsunderconsideration,disregardingthereasoningwhichledto,orwasdevelopedtosupportsuchopinions,andthussidesteppingthedif-Þcultiesintrinsictoahistoricalreconstructionofsimilarities,differencesandlogicallinksbetweendifferenttheories.Inordertoavoidtheserisks,weshouldrecognisetheexistenceofatwo-waylinkbetweenhistoricalevolutionandtheoreticalinvestigations.Ontheonehand,thematerialworldhasanimportantinßuenceontheworkofanysocialscientist,evenifnottothepointofdeterminingunivocallythepathfollowedbytheoreticalinvestigations.Ontheotherhand,thetheoreticaldebatemayattimesexertacrucialinßuencebothoneconomicpolicychoicesandÐmoreindirectlyÐonthebeliefsandopinions,andhencealsothebehaviour,ofeconomicagents,althoughthisinßuenceisconsiderablyconstrainedandconditionedbythematerialworld.Thehistoryofeconomicthoughthasanimportantroleinbringingtolightthesetwo-waylinks.Thismeansthatthereisroombothforhis-toricalresearchesÔinternalÕtotheprocessofdevelopmentofeconomictheory,andforÔoutward-orientedÕstudies,connectingeconomistsÕinves-tigationswithdevelopmentsinothersocialsciencesandhistoricalevo-lution.Inevitably,internalandoutward-orientedresearcheswilloftenproceedseparately;whatmattersisthateachresearcher,whicheverhisorherchosenemphasis,keepsaneyeondevelopmentsinthewiderareaofhistoricalresearchencompassingdifferentspecialisations.2626Thedistinctionbetweeninternalandoutward-orientedresearchesinthehistoryofeco-nomicthoughtissimilartoRortyÕs(1984)notionsofÔrationalreconstructionsÕandÔhistoricalreconstructionsÕ.Whiledistinguishingthesetwokindsofenquiriesintothehistoryofideas,Rortyconsidersthemascomplementary.TheepistemologistsÕpas-sionforneatmethodologicalcategories,whicharecertainlyusefulinassessingwhataresearcherisdoing,shouldnotleadusintohair-splittingdivisionofintellectuallabour,especiallywhentheaspectsconsideredwiththedifferentproceduresofanalysisaresoobviouslyinterconnected,ashappensinourÞeld.Evenwhatisconsideredthebestratio-nalreconstructionofthehistoryofeconomicthought,Blaug1962,stressestheneedforcautioninadoptingthisdichotomy;thus,afterstatinghisstandpointintheveryÞrstlinesofhisbook(ÔCriticismimpliesstandardsofjudgement,andmystandardsarethoseofmoderneconomictheoryÕ,ibid.,p.1)andprovidingacleardeÞnitionofthetwonotions(ÔÒHistoricalreconstructionsÓattempttogiveanaccountoftheideasofpastthinkersintermsthatthesethinkers,ortheirdisciples,wouldhaverecognizedasafaithfuldescrip-tionofwhattheyhadsetouttodo.ÒRationalreconstructionsÓ,ontheotherhand,treatthegreatthinkersofthepastasiftheyarecontemporarieswithwhomweareexchangingviews;weanalysetheirtheoriesinourtermsÕ,ibid.,p.7),BlaugnotonlyaddsthatÔbothhistoricalreconstructionandrationalreconstructionareeachperfectlylegitimatewaysofwritingthehistoryofeconomicthoughtÕ,butalsothatÔwhatisseparateinprinciple

16TheWealthofIdeasAnotherproblem,particularlyseriousforadvocatesofthecompeti-tiveview,istheriskofconcentratingattentionmoreorlessexclusivelyonthoseaspectsofeconomicanalysis(thatis,valuetheory)whichareofgreaterhelpinidentifyingthebasiccharacteristicsofthedifferentapproaches,butwhichoftenhidethegeneralviewsoftheindividualauthorsontheprocessofeconomicdevelopment.TheverymeaningofthetermÔvalueÕchangesfromonetheoreticalapproachtoanotherand,overtime,withineachofthem.Inanycase,itisatermthatdesignatesthecentralcoreofeconomicrelationsfromthepointofviewofthespeciÞcsystemofabstractionsadopted.Letusconsider,forinstance,thespeciÞcmeaningwhichthenotionofvaluehaswithintheclassicalandSrafÞanapproach,whichwillbeillustratedinmoredetaillater.ÔValueÕdoesnotmeanthemeasureoftheimportanceacommodityhasforahumanbeing(whichisthemeaningthatthetermÔvalueÕassumeswithinthemarginalistapproach,whenitisrelatedtoscarcityandutility);nordoesitrefertoaÔnaturalmorallawÕ(asinthemedievaldebateonthejustprice);nordoesitembodyanopti-malitycharacteristic(astheresultofconstrainedmaximisationofsometargetfunction).Thevalueofcommoditiesreßectstherelationsinter-connectingthedifferentsectorsandsocialclasseswithintheeconomy;furthermore,thecontentattributedtothetermsuggestsimplicitrefer-encetoaspeciÞcmodeofproduction,namelycapitalism.Infact,theanalysisdevelopedbytheclassicaleconomistsandSraffareferstoaspe-ciÞcsetofhypotheses(ÔlawofonepriceÕ;divisionintothesocialclassesofworkers,capitalistsandlandowners;uniformrateofproÞts)thatreßectthebasiccharacteristicsofacapitalisticeconomy.ItistruethatÔtherelationshipbetweenpricesanddistributionforagiventechnologyrelatestowhatmaybecalledtheÒskeletonÓofaneconomicsystem.Historically,thisproblemhasbeenatthecentreofthestudyofeconomictheoryandlogicallyitformstheÒcoreÓofthedevelopmentsofotherproblemsofanalysis,evenwhensomeofthesethe-oriesaredevelopedwithoutanydirect,formallinkstoitÕ(Roncaglia1975,pp.127Ð8).However,itisalsotruethatthepossibilityÐandopportunityÐtobuildseparatetheoriesfortheanalysisofdifferentissues,andespeciallytheimportanceofthestageoftheformationofasystemofconceptsineconomicscience,requirethatthehistoryofeconomicthoughtnotbeconÞnedtoillustratingasequenceoftheoriesofvalue.isalmostimpossibletokeepseparateinpracticeÕ(ibid.,p.8).LetusremarkinthiscontextthatreferencetoÔthestandardsofmoderneconomictheoryÕimpliesaunivocal,universallyagreed,deÞnitionofmoderneconomictheory:asweshallseeinchapter17,thisisfarfrombeingthecase.

Thehistoryofeconomicthoughtanditsrole17Inasense,thetheoryofvalueadoptedbyaneconomistpointsdirectlytohisorherrepresentationoftheworld.Byusingthedebatebetweenrivaltheoriesofvalueastheconnectingthread,andobservingtheshiftsthatthetheoryofvalue(erroneouslyconsideredbysomereconstructionsasanunchangingmonolith)undergoeswithineachapproach,wemayalsograspthedifferencesandthechangesintheconceptualrepresen-tationofsociety.Atthesametime,ontheothersideofthecontinuumconstitutingtheÞeldofworkoftheeconomist,wemayseehowaroundatheoryofvalue,andinstrictconnectiontoit,speciÞctheoriesaredevel-opedtointerpretspeciÞcÐbutnotnecessarilylessimportantÐaspectsofeconomicreality,fromtheoriesofemploymentandmoneytotheoriesofinternationalrelations.Letustrytoillustratewithanexamplethedifferentmeaningsofthetwoexpressions,ÔcentralroleinourhistoricalreconstructionÕandÔcrucialimportancewithinourworld-viewÕ.ThelabourtheoryofvaluehasacentralroleintheanalyticreconstructionofRicardoÕsPrinciples,butheisaboveallpoliticallyinterestedintheissueofeconomicgrowthanditsrelationshipwithincomedistributionbetweenthemainsocialclasses.AnotherexampleistheconnectionbetweentheWalrasiantheoryofcom-petitiveequilibriumandtheliberalideology.Inotherwords,thereissomemarginofindependencebetweenasystemofconcepts(representationoftheworkingoftheeconomy)andatheoryofvalue,andindeedbetweenthelatterandthespeciÞctheoriesconcerningthephenomenathat,fromapolicypointofview,constitutecentralconcernsfortheeconomist.Referencestohistory,andinparticulartoeconomichistory,maybeusefulinthiscontexttoexplainbothchangesinthemainpolicyinterestsprevailinginthedifferentperiodsandshiftsintheprocessofabstractionwithineachschool,aswellastoevaluatethedifferentsystemsofabstrac-tion.Inthisrespectitmayperhapsbeusefultorecallthatasystemofconcepts(whichistheresultofaspeciÞcprocessofabstraction,andwhichisutilisedforsimpliÞedrepresentationofarealworldwhosemostessentialcharacteristicsaretakentohavebeencaptured)canbeveriÞedneitherthroughdirectcomparisonwiththerealworld,norbycheckingwhetherforecastsdrawnfromitactuallycomeabout.ÔTherearemorethingsinheavenandearth,Horatio,thanaredreamtofinourphilosophyÕ:thehistoryofeconomicthought,withitsownvariousresearchstrategies,isofgreathelpinkeepingeconomistsfullyawareofthetruthofHamletÕsobservation.Notleastforthisreason,itisaÞeldwhicheveryeconomistshouldpractise.

2Theprehistoryofpoliticaleconomy1.WhywecallitprehistoryThebirthofpoliticaleconomydidnottakeplaceatanyprecisetime.Itwasaverycomplexprocessevolvingovercenturies.WemustlookbackatleasttotheclassicalGreekperiod,andfromtherelookaheadtothesixteenthandseventeenthcenturies,whichcanbeconsideredastheculminatingstageinthelongformativeprocessofourdiscipline.Politicaleconomybegantoberecognisedasanautonomousdiscipline,distinctfromothersocialsciences,verygradually,beginninginthesev-enteenthcentury.1Onlyinthenineteenthcentury,withthecreationoftheÞrsteconomicschairsinuniversities,wastheeconomistrecognisedasanautonomousprofessionalÞgure.2Obviously,referencestoissuesnowcommonlyconsideredasbelongingtoeconomicsalreadymadetheirappearanceinclassicalantiquityandtheMiddleAges.AuthorssuchasDiodorusSiculus,XenophonorPlato,forinstance,consideredtheeconomicaspectsofthedivisionoflabour,maintainingamongotherthingsthatitfavoursabetterproductquality.Onthewhole,however,foralongperiodÐatleastuptothesev-enteenthcenturyÐtheapproachtoeconomicissueswassubstantiallydifferentfrompresent-daypractice.Indeed,theveryeconomicmech-anismsregulatingproductionandincomedistributionhavesinceseen1Inthatperiodthetermpoliticaleconomybegantobeused;theÞrsttouseitasatitleforabook(theTrait«edelÕ«economiepolitique,1615)wastheFrenchmanAntoinedeMontchr«etien(c.1575Ð1621).Heistraditionallyconsideredasecond-linemercantilist,toberecalledonlyforthetitleofhisbook.Infact,albeitembeddedinafarfromsystematicdiscussionoftheeconomicsituationofthetime,someinterestingideasemergeinthisbook,suchascriticismofAristotleÕsthesisoftheindependenceofpoliticsfromotheraspectsofsociallife,accompaniedbythestatementthatworkisthesourceofwealth,whichinturniscrucialforsocialstability.Wereturntothesethemesbelow.2Tobeprecise,theÞrstchairinpoliticaleconomywasestablishedinNaplesin1754,forAntonioGenovesi;in1769MilanfollowedwithCesareBeccaria.Elsewhere(France,England)thingsmovedmoreslowly.AlfredMarshallÕsÞghtfortheinstitutionofadegreecourseineconomicsinCambridgeandtheprofessionalisationofeconomics,betweentheendofthenineteenthandthebeginningofthetwentiethcentury,describedinGroenewegen1995andMaloney1985,isbrießyrecalledbelow(13.4).18

Theprehistoryofpoliticaleconomy19radicaltransformation.Withoutgoingintothesubjectindepth,sufÞceittorecalljusthowmuchsheerviolence,authorityandtraditionweighedintheeconomiclifeofclassicalantiquity,basedonslavelabour,asinthatofthefeudalperiod,basedonserflabour,incomparisonwithmarketexchanges.Moreover,giventherelativelyprimitivetechnologyinuseinthosehistoricalperiods,humanlifewasdominatedbynaturalphenom-ena(suchasnaturalcalamitiesandepidemics),aswellasbywarsandthearbitraryexerciseofpoliticalpower.Undersuchconditionsaregularlifewassomethingtoyearnfor,tobepursuedbystickingtothebehaviouralrulessanctionedbytradition.Ifweaddtothisalargelysuperstitiousreli-gioussensibility,wecanunderstandhowrepetitivecyclesofworkandlife,daybyday,yearbyyear,weresystematicallypreferredtoinnovationandchange.Wecanalsounderstandwhythephilosophersofclassicalantiq-uityandtheologiansoftheMiddleAgesconsideredittheirtasknotsomuchtodescribeandinterpretthewaytheeconomyworks,butrathertoprovideadviceonmorallyacceptablebehaviourintheÞeldofeconomicrelations.Actually,politicaleconomywasbornfromtheconjunctionoftwomajorissues.Ontheonehandwehavethemoralissue:whichrulesofcon-ductshouldhumanbeingsÐespeciallythemerchantandthesovereignÐrespectinthedomainofeconomicactivities?OntheotherhandwehavethescientiÞcissue:howdoesasocietybasedonthedivisionoflabourfunction,whereeachpersonorgroupofpersonsproducesaspeciÞccommodityorgroupofcommoditiesandneedstheproductsofothers,bothassubsistenceandasmeansofproduction,tokeeptheproductionprocessgoing?Obviouslythetwoquestionsareconnected.Forinstance,ifwearelook-ingforobjectivegroundsforthemoralevaluationofhumanbehaviourintheeconomicdomain,theanswertothemoralissuedependsontheanswertothescientiÞcissue.Thislinkisreinforcedbytheidea(domi-nantintheAristoteliantradition)thatÔgoodÕiswhatÔconformstonatureÕ.Hencetheswayoftheformerquestionoverthelatter,asreßectedintheidea,stillwidespreadamongclassicaleconomistsintheÞrsthalfofthenineteenthcentury,thatthetaskoftheeconomistconsistsinidentifyingtheÔnaturallawsÕgoverningtheeconomy.Theserelationsbetweenethicsandeconomicsciencedependonthewaythemoralissuewasconceivedinthehistoricalphaseundercon-sideration.Atthetime,whatwascommonlyadoptedwasasubstan-tiallyÔdeontologicalÕapproachtoethics,moraljudgementsbeingbasedonabsolutecriteria,independentofcircumstances:killingisbad,help-ingthesickisgood.Whenautilitarianethicswaslateradopted,withmoraljudgementsmainlyfoundedonthefactualeffectsoftheactunder

20TheWealthofIdeasconsiderationinthespeciÞccircumstancesoftimeandspace,ethicscametoimplyasanecessaryprerequisiteanunderstandingofthewaysocietyfunctioned.However,thisconnectionÐunderlyingwhathasbeencalledÔconsequentialistethicsÕÐgainedrecognitiononlyintheeighteenthcentury,inparticularwithBentham,asweshallseebelow(6.7).Foralongtime,however,authorswritingoneconomicmattersdidnotdistinguishclearlybetweenthetwoissues:apointillustratedbytheambi-guitiesinthenotionofÔnaturallawÕitself.Thefactthatsuchambiguitiesarestillapparentintheworkoffront-lineprotagonistsoftheclassicalschoolsuchasAdamSmithandDavidRicardoisaninterestingexampleofthepersistenceofconceptsevenwhenradicalchangesintheperceptionoftheworldhaveintervened.Politicaleconomywasthusbornasamoralscience,andasasci-enceofsociety.Atthisstage,moreover,distinctionbetweenthedifferentaspectsnowincludedintheÞeldofeconomicswasinmanyinstancesmoreclear-cutthanthedividinglinebetweeneconomicsandtheothersocialsciences.Thus,forinstance,thedistancebetweenthestudyofeconomicinstitutionsandthatofpoliticalinstitutionswassmall;muchlargerwasthedistanceseparatingthestudyofinstitutionsfromthatofthebehaviourofthegoodpaterfamiliaswithrespecttoconsumptionactiv-itiesandsupervisionofthefamilybudget:forinstance,discussionontheeconomictasksofthepaterfamiliasgenerallyinvolvedreßectionsontheupbringingofchildren.AnimportantfactorintheprogressiveseparationbetweenthetwoÞeldsofresearch,asweshallseeinthenextchapter,wasachangeinperspectivepromptedbydiscoveriestakingplaceinthenaturalsciences:fromthediscoveryofthecirculationofblood,announcedbyHarveyin1616,uptotheshiftcominginoveracenturylaterwithLavoisier(1743Ð94)fromdescriptivechemistrytochemistrybasedonquantitativerelations.SuchdiscoveriesfavouredgradualrecognitionoftheexistenceofscientiÞcissues,concerningourunderstandingofthephysicalworld,tobetackledindependentlyofmoralissues,withmethodsofanalysisdifferentfromthosetraditionallyappliedtothelatter.EarlieronNiccol`oMachiavelli(1469Ð1527)hadtakenaturninthesamedirectionwithhisdistinctionbetweenpoliticalscienceandmoralphilosophy,betweenanalysisofthebehaviourprincesmustadoptinpursuitofpowerandmoraljudgementonsuchbehaviour.Theimportanceforourpurposesoftheformativestageofpoliticaleconomyderivesfromthefactthatitleftasinheritancetosuccessivestagesasetofideasandconcepts,togetherwithasetofÐoftenvagueandvariegatedÐmeaningsforeachofthem(aswesawaboveforthenotion

Theprehistoryofpoliticaleconomy21ofnaturallawsandasweshallseebelowwithrespecttothenotionofthemarket).Aroundtheseventeenthcentury,however,achangetookplaceinthewayeconomicissuesweretackled.Inordertounderstandit,weshouldconsidertheradicalchangesthathadintervenedintheorganisationofeconomicandsociallife.Inparticular,wemaytakeasanexampletheroleofexchanges.3Themarket,interpretedasexchangeofgoodsagainstmoney,wasalreadyinexistenceinPericlesÕAthensandCaesarÕsRome.However,exchangesthenaccountedforarelativelylimitedshareoftotalsocialproduction;furthermore,theconditionsunderwhichtheytookplacewerecharacterisedbyextremeirregularityduetoclimaticinßuencesoncropproduction,difÞcultiesoftransportation,andaboveallwidespreadinsecurityaboutpropertyrightsarisingnotonlyfromprivatecriminal-itybutalso,andcrucially,fromthearbitraryinterventionofthepolit-icalauthorities,whooftenexercisedadrasticandoftenunpredictableredistributivefunction.AsfarastheformeraspectisconcernedÐthelimitedshareofexchangesÐwemayrecall,forinstance,thatinthefeudaleconomyexchangesthroughthemarkettypicallyconcernedonlythesurplusprod-uct,namelythatpartoftheproductwhichisnotnecessaryasameansofproductionorofsubsistenceforthecontinuanceofproductiveactivity.Ontheotherhand,therewasalreadyanetworkofexchangesinvolvingluxuryproductsÐspices,lace,preciousmetalsÐconnectinggeographicalareasevenovergreatdistances;sidebysidewithit,awebofÞnancialrela-tionsgraduallydevelopedconnectingmajorcommercialcentres,basedmainlyonlettersofexchange.4Atthisstage,self-productionÐi.e.pro-ductionfordirectconsumptiononthepartoftheproducersthemselvesÐcharacterisedsmallruralcommunities.Inthesesmallcommunitiessomedegreeofproductivespecialisationandpaymentsinmoneycoexistedwithexchangesinkind.Self-productionlostgroundtoproductionforthemarketonlyasprivateownershipextendedoverlandandasartisanmanufacturingproductiongrew.Adifferentsystemofsocialrelationsandadifferenttechnologicalstructurewerethusborn.Withthisnewsystem,neitherinagriculturenorinmanufacturingweretheworkersnowownersofthemeansofproduc-tionorthegoodstheyproducedwhich,inanycase,wereusuallydifferent3Wemayalsorecallherethechangeinattitudetowardsmechanicalskill,fromcontempttoacceptanceofspecialisedpracticalknowledge,asanimportantcomponentofcul-ture,whichtookplacebetween1400and1700andiswonderfullydocumentedinRossi1962.4AmodelofthefeudaleconomybasedontheseassumptionsisanalysedinKula1962.

22TheWealthofIdeasfromthegoodstheythemselvesconsumed.Moreover,artisanmanufac-turingÐandlateronindustrialplantsÐwereincreasinglycharacterisedbyuseofspecialisedmeansofproduction,producedbyÞrmsotherthanthoseutilisingthem.AsfarasthesecondaspectisconcernedÐtheirregularityofexch-angesÐletusrecallonlyoneofthemostcharacteristicinstancesoftheabsenceofuniformityinconditionsofexchange:themultiplicityandcon-tinuousvariabilityofthestandardsofmeasurementforcommoditiesÐstandardsofweight,oflength,ofvolumeÐonlygraduallysupersededthroughacourseofeventsbeginning,signiÞcantlyenough,intheeigh-teenthcentury.5Itispreciselytheabsenceofregularityanduniformityineconomicactivitythatmaypossiblyaccountforthegenericremarksbywritersofthisperiodabouttheconditionsofdemandandsupplyasdeterminantsofmarketprices.Inthepresenceofamarkedvariabilityindemandandsupply,andintheabsenceofclearindicationsonthefactorsdeterminingthem,suchgenericremarkscannotbeconsideredasaddinguptoafullyßedgedtheoryofprices,letaloneanticipatingthemarginalisttheoriesthattakeequilibriumpricestocorrespondtothepointwheredemandandsupplyofthegivencommoditymeet.Asweshallseemoreclearlylateron,withinthemarginalistapproachdemandandsupplyaredeÞnedas(continuousanddifferentiable)functionsÐtheformerdecreasing,thelatterincreasingÐofthepriceofthecommodityitselfandpossiblyofothervariablessuchaspricesofothercommoditiesandtheconsumersÕincome.Onthecontrary,wewouldsearchtheearlier,genericremarksonsupplyanddemandinvainforanyideaofawell-speciÞedandstablefunctionalrelationbetweendemandorsupplyandothervariablessuchasthepriceofthegivencommodity.Indeed,uptotheendoftheseventeenthcenturyreßectiononeconomicissues,whennotaddressingspeciÞctechnicalissues(suchasthedevel-opmentofmethodsofaccountancyandtheinventionofdouble-entrybookkeeping,commonlyattributedtotheItalianLucaPacioli,c.1445Ðc.1514),essentiallyformedpartofthestudyofrulesforthegovernmentofsociety(wehaveonlytothinkofPlatoÕsRepublicorAristotleÕsPolitics,forexample).Moreover,politicalthoughtfocusedmoreonwhatshouldbethanonwhatreallywas:asoftennoted,separationbetweenethicsandtheÔobjectiveÕsciencesofsocietyhadtowaitforMachiavelli.This5Standardsofmeasurementwere,foralongstretchofhumanhistory,theobjectofharshsocialconßictregulatedbylocalconventions,generallytemporaryandfairlyßexible.Thecentralauthorityofthenewnation-statessucceededinimposinglegalstandardsofmeasurementonlyaftergreatefforts,whichcametofruitionstartingattheendoftheeighteenthcentury.ThismostinterestingstoryisdescribedinKula1970.

Theprehistoryofpoliticaleconomy23isnottosaythatthewritingsofthephilosophersofclassicalantiquityortheMiddleAgeshavenothingtosayinrelationtopoliticaleconomy;economicideasandobservationswereindeedthere,butembeddedinacontextthatfailedtoconstituteanysystematicanalysisofeconomicissues.WemayperhapsspeakofaÔconceptualsystemÕasfaraspoliticalthemesareconcerned,orforspeciÞceconomicissues;however,itwasnotuntilWilliamPetty(seechapter3)thattherewasanexplicitandconsciousdiscussionofthenotionsofprice,commodityandmarket,forinstance.Theaccelerationineconomicdebatefromthesixteenthcenturyonwardswasalsoconnectedwithamoregeneraltechnicalfactor,namelytheinventionoftheprintingpresswithmovabletype,whichledtoarapidandsigniÞcantreductioninthecostofbooks.62.ClassicalantiquityWecanÞndtracesofdiscussionofeconomicissuesgoingfarbackintime.TheBabyloniancodeofHammurabi(around1740),engravedonamonolith,conservedintheLouvremuseuminParis,provided,amongotherthings,normativeprescriptionsforeconomicrelations.TheÞrstwrittentextoftheOldTestament,whichcontainsawealthofconsid-erationsondifferentaspectsofeconomiclife,hasbeentracedbacktothetwelfth-to-ninthcentury.InIndiaKautilyaÕsArthasastra,dealingentirelywiththefunctioningofthestateinitseconomicaspects,belongstothefourthcentury,andisfullofreferencestoprevioustexts.InChina,theGuanzibroughttogetherwritingsdatingfromtheÞfthcenturyandtheÞrstcentury,dealingamongotherthingswitheconomicissues.7AmongthemanythemesdealtwithintheBible,themostimportantfromourviewpointconcernstheroleoflabourinhumanlife.Thisisacomplexissue,whichwewillhaveoccasiontocomebacktomorethanonce.InGenesisworkwasseenbothasexpiationfororiginalsinand,6GutenbergÕsBibledatesfrom1445;withinthirtyyearsthenewtechniquehadspreadalloverEurope(cf.Cipolla1976,pp.148Ð9).Theincreaseinthenumberofprintedworkswasveryrapid;itislikelythatanincreasingshareofthesepublicationsconcernedeconomicissues.Spiegel(1971,p.94)usesasanindicatorthecatalogueoftheKressLibraryatHarvardUniversity:around200printedworks(pamphletsandbooks)forthesixteenthcentury,2,000fortheseventeenth,5,000fortheperiod1700Ð76.Suchanindicatorprobablyimpliesaslightoverestimateoftheeffectivegrowthrate,duetothelowerrateofsurvivalofthemoreancientworks,butthepictureitprovidesisclear-cutandsubstantiallyvalid.7Cf.Kautilya1967(andDasgupta1993onthehistoryofIndianeconomicthought)andRickett1985Ð98forthecommentedtextoftheGuanzi.

24TheWealthofIdeaswithadecisivelypositiveconnotation,asanelementintrinsictotheverynatureofmanandthemeansforhisfulÞlmentaspartofadivineproject.GodHimselfÔworksÕ,andontheseventhdayrests.8WhenGodcreatesman,Heassignshimataskevenintheearthlyparadise.9Withoriginalsin,however,workassumesanegativeaspect:Ôcursedisthegroundforthysake;insorrowshaltthoueatofitallthedaysofthylife.[…]Inthesweatofthyfaceshaltthoueatbread.Õ10Work,however,representsnotonlyahardnecessityforsurvival:itisalsoanessentialaspectofgoodbehaviour,conformingtodivinelaw.11ThesimultaneouspresenceofÔcompulsorylabourÕandÔlabourasself-fulÞlmentÕconstitutesamostimportantcontributionofthebiblicaltra-ditiontomodernculture,andwemaynotethatinthisrespectthebiblicaltraditionprovedstrongerthanGreekculture,12whichappearsratheratypicalexpressionofthedominantclassesinaslavesociety:13work(asdistinctfromtheactivityoforganisingandsupervisingproductiveactivi-ties)wasviewedwithannoyance,ifnotindeedcontempt.AsFinley(1973,p.81)remarks,ÔneitherinGreeknorinLatinwasthereawordwithwhichtoexpressthegeneralnotionofÒlabourÓortheconceptoflabourasasocialfunctionÕ.Ingeneral,GreekculturefollowedÔanadministrative,notamarketapproach,toeconomicphenomenaÕ(Lowry1987a,p.12).Economicissuesweredealtwitheitherintheframeworkofdiscussionconcern-ingsoundmanagementofthehousehold(inthebroadsenseofafamily8ÔAndontheseventhdayGodendedhisworkwhichhehadmade;andherestedontheseventhdayfromallhisworkwhichhehadmadeÕ(Genesis2:2).9ÔAndtheLordGodtooktheman,andputhimintothegardenofEden,todressitandtokeepitÕ(Genesis2:15).10Genesis3:17Ð19.11ÔSixdaysshaltthoulabour,anddoallthyworkÕ(Exodus20:9;cf.alsoDeuteronomy,5:13).AstrongworkethicinspiredPaulÕsEpistlesinparticular.Theideaofworkasthesourceofdignityandapositivevalueinhumanlife,astheroadtoself-fulÞlmentofmanintheworld,resurfacedrepeatedlyinthecourseofthecenturies,inparticularamongutopianthinkersandcurrentsofthesixteenthandseventeenthcenturies.Somesuchcurrents,inparticularthoseconnectedtotheProtestantreform,setastheirobjectiveliberationoftheworkerfromthesubjugationtothemasters(andnottheliberationofmanfromtheÔserfdomoflabourÕ,whichistrulyutopian!):cf.Spini1992.AmongtheauthorsofÔutopianÕwritings,letusrecallThomasMore(1478Ð1535;UtopiaappearsinLatinin1516),TommasoCampanella(1568Ð1639;theCitt`adelsoleisdated1602,butwaspublished,inLatin,onlyin1623),andFrancisBacon(1561Ð1626;theNewAtlantisisdated1626).12Asweshallseemoreclearlybelow,thetwoelements,simultaneouslypresentinmanyeconomistsoftheclassicalperiod,werecounterposedinMarx:ÔcompulsorylabourÕistypicalofthepre-communistsocialformations,whilewithincommunismworkingactivitybecomesexclusivelythefreefulÞlmentofthehumanperson.Withthemarginalistapproach,apartfromanimportantexceptionrepresentedbyMarshall,thenegativecharacterisationofworkdecidedlyprevailed.13WhiletheBiblewastheexpressionofasubjectedpeople.

Theprehistoryofpoliticaleconomy25group,slavesincluded)orindiscussionofthepoliticalinstitutions.IntheÞrstÞeldÐhouseholdeconomicsÐweÞndtheOeconomiconbyXenophon(c.430Ðc.355),ortheOeconomicathatanoldtraditionattributedtoAristotleandthatwasprobablywrittenbetweenthethirdcenturyandtheÞrstcentury.TheverytermÔeconomyÕderivesfromoikos,house,andnomos,normorlaw,thusdesignatingtheÞeldofhouseholdman-agement.InthesecondÞeld,thatofeconomic-politicaldiscussion,weÞndtheRepublicbyPlato(c.427Ðc.347),forexample,orthePoliticsbyAristotle(384Ð322).However,thedistinctioncannotbeconsideredclear-cut:inGreekcultureweÞndnocontrastbetweentheviewpointofthefamilyadministratorandtheviewpointofgovernmentofthepolis.XenophonandPlatoexplicitlystatedthisfact;amongotherthings,theabilitytomanageoneÕsownbusinessisconsideredagoodguaranteewhenitcomestoattributionofapublicappointment,evenamilitaryone.14EfÞcientmanagementofthemeansofproduction(including,inpartic-ular,thesupervisionofslavelabour)wasconsideredadecisiveelementforobtainingagoodqualityofproduct,whilethepossibilityoftechnicalimprovementswasonthewholeoverlooked.ItisinthiscontextthatweÞnd,intheOeconomicaattributedtoAristotle,theoft-quotedadvice:Ônoone,indeed,takesthesamecareofanotherÕspropertyasofhisown;sothat,asfarasitispossible,eachmanoughttoattendtohisaffairsinperson.Wemaycommandalsoapairofsayings,oneattributedtoaPersian[…who]onbeingaskedwhatbestconditionsahorse,repliedÒHismasterÕseyeÓ.Õ15ThisreferencetotheÔmasterÕbringsustothenotionofproperty(or,perhapsbetter,ofpossessionordominance,inordertoavoidthefullidentiÞcationwiththenotionofprivatepropertycurrentincon-temporarysociety).ThisnotiondidnotconstituteaprobleminitselfÐitwastobecomesosomecenturieslater,inthetimesofthePatristicFathers,asweshallseeinthefollowingsectionÐbutsimplyanaspectofthemoregeneralproblemofpoliticalandsocialorganisation.InthisrespectweÞndsigniÞcantdifferencesbetweenthevariousauthors,andinparticularbetweenPlato,whofavouredcollectiveownershipofthemeansofproductionandacollectivisticorganisationofconsumptionactivities,andAristotle,whoinvokedarealisticviewofhumannature:14Cf.Xenophon[c.390]1923,p.189:ÔThemanagementofprivateconcernsdiffersonlyinpointofnumberfromthatofpublicaffairs.Inotherrespectstheyaremuchalike.ÕCf.Lowry1987a,pp.12Ð14.15(Pseudo)Aristotle1935,p.341:Oeconomica,I.6.3.ThispassagewasparaphrasedbyAdamSmithintheTheoryofmoralsentiments(cf.below,5.8),butinthenewcontextitwastoassumeadifferentmeaning:nottheadviceofthegoodpaterfamiliastotakepersonalcareofoneÕsownbusinesses,butthecrucialjustiÞcationforthechoiceoftheliberalÞeld.

26TheWealthofIdeasÔPropertythatiscommontothegreatestnumberofownersreceivestheleastattention;mencaremostfortheirprivatepossessions,andforwhattheyownincommonless,oronlysofarasitfallstotheirownindividualshare.Õ16Ontheotherhand,therewasageneralconvergenceofideasontheoriginsofsocialstratiÞcation,tobefoundinthedifferencesintheinnateabilitiesofdifferentpersonsandtheconsequentsubdivisionoftasks.Suchwas,ofcourse,thecaseofthedivisionbetweenpeasants,soldiersandphilosophersinPlatoÕsRepublic.HelocatedtheoriginofthestateinthedivisionoflabourbetweenspeciÞcrolessuchaspeasant,mason,textileworker;inturn,thedivisionoflabouroriginatedfromthefactthatÔourseveralnaturesarenotallalikebutdifferent.OnemanisnaturallyÞttedforonetask,andanotherforanother.Õ17AristotlefollowedPlatoinconsideringintrinsictohumannaturethefoundationsofsocialstratiÞcation.ThisheldÞrstofallforthebasicdifferenceintherolesofman,womanandslave:ÔThusthefemaleandtheslavearebynaturedistinct(fornaturemakes[…]onethingforonepurpose[…])Õ,AristotleperemptorilyassertedinthePolitics.18Uptothispoint,however,adistinctionofroleswithinsocietyratherthanadistinctionofworkingtaskswasbeingdiscussed.InAristotleÕsopinion,thissecondaspectconcernedtheslavesandnotthemasters:16Aristotle1977,p.77:Politics,II.3,1261b.Weshouldrecall,however,thatthesestate-mentswereaccompaniedbyopeningstoformsofutilisationofgoodsincommon,whichmaybestimulatedbythepublicauthorities:ÔItisclearthereforethatitisbetterforpos-sessionstobeprivatelyowned,buttomakethemcommonpropertyinuse;andtotrainthecitizenstothisisthespecialtaskofthelegislatorÕ(ibid.,p.89:Politics,II.5,1263a).17Plato1930,pp.151Ð3:Republic,II.11.OnthedivisionoflabourXenophonhadsome-thingtosay.(Xenophonwas,likePlato,adiscipleofSocrates,whowasrepresentedintheMemorabilia:Xenophon1923,andhencebelongedtothegenerationthatpre-cededthatofAristotle,whowasadiscipleofPlato).Amongotherthings,Xenophonconnectedthedivisionoflabourtothesizeofthemarketinafamouspassagefrequentlyquoted:Forinsmalltownsthesameworkmanmakeschairsandbuildshouses,andevensoheisthankfulifhecanonlyÞndemploymenttosupporthim.Anditis,ofcourse,impossibleforamanofmanytradestobeproÞcientinallofthem.Inlargecities,ontheotherhand,inasmuchasmanypeoplehavedemandstomakeuponeachbranchofindustry,onetradealone,andveryoftenevenlessthanawholetrade,isenoughtosupportaman;onemanforinstance,makesshoesformen,andanotherforwomen;andthereareplacesevenwhereonemanearnsalivingbyonlystitchingshoes,anotherbycuttingthemout,anotherbysewingtheupperstogether,whilethereisanotherwhoperformsnoneoftheseoperationsbutonlyassemblestheparts.Itfollows,therefore,asamatterofcourse,thathewhodevoteshimselftoaveryhighlyspecialisedlineofworkisfoundtodoitinthebestpossiblemanner.(Xenophon1914,p.333:Cyropaedia,VIII.2.5).18Aristotle1977,p.5:Politics,I.2,1252b.Immediatelybeforethis,Aristotlestated:Ôforonethatcanforeseewithhismindisnaturallyrulerandnaturallymaster,andonethatcandothesethingswithhisbodyissubjectandnaturallyaslaveÕ(ibid.).

Theprehistoryofpoliticaleconomy27ThetermÔmasterÕthereforedenotesthepossessionnotofacertainbranchofknowledgebutofacertaincharacter,andsimilarlyalsothetermsÔslaveÕandÔfreemanÕ.[…]TheslaveÕssciencesthenareallthevariousbranchesofdomesticwork;themasterÕsscienceisthescienceofemployingslaves.19PlatoandAristotlethuscharacterisedsocialandpoliticalstratiÞcationasafactofnature,stemmingfromintrinsicdifferencesexistingbetweenthemembersofsociety:athesiswithauthoritarianconnotationsthatwaslongtoholdsway,20butafarcryfromthethesisAdamSmithwouldlateradvanceontheissue(cf.below,5.7).Fromourviewpoint,how-ever,manyotheraspectsoftheirthoughtareinterestingandwouldbetakenupinsubsequenteconomicdebate,albeitoccasionallydistortedtoaccentuatetheirmodernity.Below,in4,wewillrecallAristotleÕsideasonmoneyandusury;here,wemaybrießymentionPlatoÕsreferenceintheLawstotheroleofpleasureandpainasaguidetohumanaction,21orAristotleÕsdistinctionbetweenvalueinuseandvalueinexchange.22NotquitesoeasytointerpretisAristotleÕsanalysisofexchangeassetoutin19Ibid.,pp.30Ð1:Politics,I.7,1255b.20ForinstanceThomasAquinasÐandbehindhimtheScholastictraditionÐspokeofanequitabledistributionoftalentsbetweenmenonthesideofProvidenceandacceptedasjustadistributionofincomesandwealthbasedontheinequalitiesofrank,merit,capabilities,craftandconditionofeachindividual(DeRoover,1971,pp.43Ð4;cf.ibid.forreferencestoThomasÕswritings).21Plato(1926,pp.67Ð9:Laws,I.644)saidthatÔeachofus[…]possesseswithinhimselftwoantagonisticandfoolishcounsellors,whomwecallbythenameofpleasureandpainÕ.However,contrarytowhatSpiegel(1971,p.20)appearstobelieve,thiswasnotasensisticviewinwhichtheconfrontationbetweenpleasureandpainquantitativelyevaluatedmechanicallydetermineshumanchoices:itisÔcalculationÕ(reasoning)thatevolvesintoÔlawÕ,ÔwhenithasbecomethepublicdecreeoftheStateÕ,andwhichgoverns,forthewiseman,thepositiveandnegativeimpulsesofpassions.22ÔWitheveryarticleofpropertythereisadoublewayofusingit;bothusesarerelatedtothearticleitself,butnotrelatedtoitinthesamemannerÐoneispeculiartothethingandtheotherisnotpeculiartoitÐtakeforexampleashoeÐthereisitswearasashoeandthereisitsuseasanarticleofexchangeÕ(Aristotle1977,pp.39Ð41:Politics,I.9,1257a).Aswecansee,inAristotlethedistinctionbetweenwhatwassubsequentlytobecalledvalueinuseandvalueinexchangehadanethicalconnotation:theÔproperÕuse,consumption,wascounterposedtotheÔimproperÕuse,exchange;thismirroredacertaincontemptformercantileactivity,typicalofthedominantclassesinasocietybasedonslavelabour.Infact,thepassagejustquotedispartofanillustrationoftheÔnaturalÕandÔunnaturalÕmodesofacquiringwealth(pasturage,agriculture,hunting,Þshingandevenpiracyarenatural;usuryiscondemnedasmostunnatural,butingen-eralallproÞtsfromcommerceÐbuyingandsellinggoodsinexchangeformoneyÐareconsideredunnatural).AccordingtoLowry(2003,pp.15and22;cf.alsothebibliog-raphyquotedthere),ÔAristotleclearlyformulatedtheconceptofdiminishingmarginalutilityÕandÔidentiÞedtheusesofmoneyasamediumofexchange,aunitofmea-sure,andastoreofvalueforfuturepurchasesÕ.BothMeikleÕs(seefollowingnote)andLowryÕsappearasexamplesofÔrationalreconstructionsÕ(cf.above,ch.1,note26),inter-pretingauthorsofthepastfromthestandpointofpresent-day(orlargelysubsequent)theories.

28TheWealthofIdeastheNicomacheanethicsaspartofhistheoryofethics,whichwasvariouslytakenupinScholasticanalysesofthejustprice.233.PatristicthoughtForreasonsofspaceweshallnotdiscussherethetextsoftheEpicureans(andEpicurushimself)ortheStoics,eveniftheirinßuenceisclearlyrecognisableinthewritingsofprotagonistsofthehistoryofeconomicthought(suchasMandevilleandSmithintheeighteenthcentury,inpar-ticular).ForthesamereasonwehavetoexcludeLatinliterature(withauthorsasimportantasCiceroandSeneca),althoughitisdirectlyrele-vanttomanyaspectsconcerninglaw,likepropertyrights.HereweshallonlymentionthedistinctionbetweenÔnaturalrightsÕandÔrightsofthepeopleÕthatsurfacesinthereßectionsoftheearlyChurchFathers.Letus,then,brießylookatPatristicthought,representedbythemostinßuentialChristianthinkers,intheperiodfromtheÞrstcenturyuptotheeleventhcentury.Duringthetwelfthandthirteenthcenturies,infact,anewculturalmodelgraduallytookover,whichfoundexpressionmainlyintheintellectuallifeoftheÔschoolsÕÐhencethetermÔScholasticÕÐandwascharacterisedbysystematicrecoursetocertainphilosophersofantiquity(mainlyBoethiusduringthetwelfthcenturyandAristotledur-ingthethirteenthcentury).24Onceagain,thePatristicphaseisinterestingnotfromtheviewpointofconstructionofasystem,afullyworkedoutandwell-organisedtreatmentofeconomicphenomena,butfortheinßuenceitexercisedonsubsequentdevelopmentsinsomeareas(inparticularthenotionofprivatepropertyandoftherelationshipbetweenprivateinitiativeandsocialsystems).25WeshouldÞrstofallrecallthatoriginallytheChristianreligionwasaminoritysect,oppressedwithpersecution,spreadingmainlyamongthe23BookVoftheNichomacheanethics(Aristotle1926,pp.252Ð323)consideredcommuta-tiveanddistributivejustice.HereAristotleexplainedamongotherthingswhyfrombartermenshiftedtotheexchangeofgoodsagainstmoney.GoodsaredistributedamongmenaccordingtotheirÔnatureÕ,henceaccordingtotherolethateachofthemiscalledtoplayinsociety;intheexchangebetweendifferentproductsweneedtorespectadequateproportions(butitisfarfromclearhowtheseproportionsshouldbedetermined).ForoppositeevaluationsofAristotleÕscontributiontoeconomics,cf.thenegativeonebyFinley1970andthepositiveMarxianre-evaluationbyMeikle1995.24LetusrecallforinstancethediffusionoftheLatintranslationoftheNichomacheanethicsmadebyRobertGrosseteste,bishopofLincoln,andhisassistants,completedaround1246:itisfromherethatsometextbooksdatethebeginningoftheScholasticperiod,eveniftheinterestinthephilosophersofclassicalantiquity,andhencethestimulustotranslatethem,wasaneffectofthevitalityoftheÔschoolsÕratherthanacauseoftheirbirth.25Foratreatmentofthisperiodcf.Viner1978andtheliteraturetherequoted.Cf.alsoSpiegel1971,pp.41Ð6.

Theprehistoryofpoliticaleconomy29lowerstrataofsociety.Inthisinitialstagethesearchformarginsofsurvivalnaturallyledtoashowofindifferencetowardspolitics:anacceptanceoftheexistingsocialstructureandeconomicsystemfollowingChristÕsteachingtoÔrenderuntoCaesarthethingswhichbeCaesarÕsÕ.26ThingschangedafterConstantineÕspolicyshiftandtheadventoftheChristianfaithasastatereligion.However,evenafterthispolicyshiftattentionstillfocusedonÔlifeafterdeathÕandstrictlyreligiousaspects,whileÔtheFathersacceptedthesocialandpoliticalinstitutionsoftheirtimeasfacts,substantiallyasunchangeablefactsÕ(Viner1978,p.13).ThisobviouslydoesnotmeanthattheChurchFathersneverconsid-eredpracticalissues:whileaddressingthemalwayswithintheframeworkofmoraldoctrine,invariouswaystheycontributedtoformingacli-mateofopinionthatwouldexertprofoundinßuenceinfollowingcen-turies.HerewewilltakeabrieflookattheFathersÕattitudetowardsprivateproperty,alms,slaveryandcommerce.Whenconsideringtheseissues,weshouldbearinmindadistinctioncrucialtothinkingintheperiod,namelythedistinctionbetweenidealsvalidforasmallminorityofbelieversandmoralpreceptsapplicabletothewholecommunityofbelievers.Thus,onthequestionofprivatepropertyanopinionwidelyheldamongtheChurchFatherswastoseeitasacreationofcivil,notdivine,law,andthatthemoralidealisconstitutedbysomeformofcommonprop-erty.JohnChrysostom(c.347Ð407)maintainedthatGodhadassignedearthlygoodsascommonpropertytoallmen;thesameopinionwasheldbyAmbrose(c.340Ð397),whosawtheoriginofprivatepropertyinanactofusurpation,andbyJerome(c.347Ðc.420),whoarguedthatarichmaniseitheranunjustpersonorheirtoanunjustperson.AugustineofHippo(354Ð430)consideredprivatepropertyasasourceofwarsandsocialinjustice.However,theadvicetocompletelydespoiloneselfofallpropertyÐasmanycenturieslaterSaintFrancisofAssisiwouldinfactdoÐwasconsideredaÔcounselofperfectionÕ,notapreceptapplicabletoall.Thegeneralnormconcerningprivateproperty,asindeedalltheotheraspectsofsociallife,consistedinrespectingexistinglaws.27Asa26Matthew22:21.Viner1978,p.9,speaksofÔotherworldlinessÕofthePatristicinthisstage.27Twoexceptions,recalledÐalsointheirlimitsÐbyViner1978,pp.17Ð20,areLactantiusandTheodoretusofCyr.Theformerwasaharshcriticofcollectivism(butthemainobjectiveofhisattackswasthecommunalityofwives),thelatteradefenderofsocialinequalities,includingthosebetweenmasterandslave.OntheothersidewehavethedifferenthereticalstreamsÐManichaeans,Donatists,Pelagians,CompocratiansandothersÐwhoconsideredthesalvationoftherichimpossibleandheldpovertyasaprecept,atleastforpriests.OnceagainseeViner1978,pp.38Ð45,forabalancedsummaryandfurtherreferences.

30TheWealthofIdeasmatteroffact,theroleattributedtolawsonprivatepropertyaftertheFall,hencetakingintoaccountthelimitsofhumannature,wasthatofsettinglimitstohumangreedandreducingconßictandsocialunresttoaminimum.DunsScotus(c.1265Ð1308)wentsofarastomaintainthataftertheFallprivatepropertyhadbecomeconsonantwithnaturallaw.28Frequentlyrepeatedexhortationstorespectthemoraldutyofalmsgiv-ingfollowedthesamelogic.TheidealofperfectionwasthattheChristianshouldnotacceptbeingricherthanothermen,henceheshouldgivetothepoorallinexcessofstrictsubsistencerequirements;inpractice,however,almswereassignedonlythetaskofrelievingfromthehardestindigenceÐaburdentherichcouldeasilybear,andcertainlynotsuchastomodifytheexistingsocialstratiÞcation.Slaverywasrecognisedasafact,partoftheexistingsocialsystem,andassuchnotcondemned.TheFatherswhodiscusseditÐAugustineandLactantius,forexampleÐlimitedthemselvestorecallingthatbeforeGodallmenareequal,regardlessoftheirplaceinsociety,andaslavemaybemoreworthyofParadisethanarichman.Thisdid,however,representastepforwardfromPlatoandAristotle:slaverywasnolongerconsideredanaturalinstitution;insofarasitconcernedtherighttoproperty,itfellwithintheÞeldofhuman,ratherthandivine,laws.ItiseasieratthispointtounderstandtheattitudeoftheFatherstowardseconomicactivity,andcommerceinparticular.TheattitudetowardslabourÐpositiveonthewhole,andinanycasebasedonitsrecogni-tionasasocialduty,alsousefulforkeepingmenawayfromsinÐlookedbacktoSaintPaulÕsposition(seeabove,2).Thequestforluxuryorwealthwascondemned,especiallyasitdivertedfromthepursuitofeter-nalsalvation,whichwasanabsolutepriority.CommercewasconsideredwithdifÞdence,asalikelysourceofmoralrisks,butwasnottheobjectofdirectcondemnation:whatwasimportantwasthatitbeconductedinanhonestway,withinaChristianlife.29IntheMiddleAgestheChurchbecameoneofthelargestlandownersintheworld;in1208,PopeInnocentIIIcondemnedtheWaldensesfortheirthesisthatprivatepropertyisanobstacletoeternalsalvation(cf.Viner1978,p.108).Subsequently,inthesixteenthcentury,theexponentsoftheso-calledSalamancaschool(fromFranciscodeVitoria,1492Ð1546,toTom«asdeMercado,c.1500Ð75)vigorouslyassertedtheusefulnessofprivateproperty(cf.Chafuen1986).Cf.alsoWood2002,pp.17Ð67,whoillustratesthechangeofattitudetowardsproperty,povertyandwealthwhichintervenedbetweenAugustineÕstimesandtheÞfteenthcentury.28Cf.Pribram1983,p.11.29Finally,somereferenceshouldbemadetotheanti-populationthesesofJerome(cf.Viner1978,pp.33Ð4)andCyprian,bishopofCarthage(c.200Ð58:cf.Spiegel1971,p.46),insomerespectsaforerunnerofMalthus(cf.below,6.2),whoopposedthebiblicalimperativeÔBefruitful,andmultiplyÕ(Genesis1:28)frequentlyquotedthenasinthesubsequentdebates.

Theprehistoryofpoliticaleconomy31ThethesesoftheFathersillustratedabovebecametheofÞcialdoc-trineoftheChurchinthefollowingcenturies,throughthemediationofThomasAquinas(c.1225Ð74).Hearguedthatprivatepropertydoesnotviolatenaturallawandfavourssociallyusefulbehaviour(athesisalreadyproposedbyAristotle),whilecommonpropertyconstitutesanidealofperfectionsuitedonlytothefew(forinstance,withinmonasticorders).30Similarly,ThomasconsideredthepursuitofmercantileproÞtslegitimateinmanyinstances.WithThomasAquinaswecometothefullbloomofScholasticism.4.TheScholasticsAswesawintheprevioussection,itwasthemoralissuethatdominateddebateoneconomiclifeinclassicalantiquityandthroughouttheMiddleAges.Accordingtooneofthemajorhistoriansofeconomicthoughtinthatperiod,Pribram(1983,p.6),ÔmedievaleconomicsconsistedofabodyofdeÞnitionsandpreceptsdesignedtoregulateChristianbehaviourinthespheresofproduction,consumption,distribution,andexchangeofgoodsÕ.Incomparisonwithpoliticaleconomyasweknowittoday,boththeobjectiveandthemethodofanalysisweredifferent.Theprimaryobjec-tive,aswehaveseen,wastoÞndrulesofmoralconduct,nottounder-standthefunctioningoftheeconomy.31Themethod,inlinewiththeobjective,wasbasedontheprincipleofauthority,namelyonthededuc-tionofrulesofconductfromÞrstprinciplesthatamountedtoarticlesoffaith.ThefundamentaltaskwastoverifywhetherconsiderationsoneconomicissuesaccordedwiththeseÞrstprinciplesorwithcommentsonthesacredwritingsendowedwithspecialauthority,suchasthoseoftheFathers.However,theologicaldebateduringtheMiddleAgescameupwithagreatmanypointersfordeÞnitionoftheconceptualframeworkthat30ThestandingoftheCatholicChurchsubsequentlychanged.IntheencyclicalQuodapostolicimuneris,1878,andRerumnovarum,1891,PopeLeoXIIIproclaimedthattherighttopropertyconformstothelawsofnature.31AnimplicationdeservingconsiderationofthisfactistheimportanceoftheindividualÐofhiscanonsofbehaviour,oftheobjectiveofsalvationoftheindividualsoulÐinScholasticwritings,inthiscontrastingwiththeclassicaleconomists(forinstance,RicardoorMarx)whofocusedonaggregatesofindividuals,suchassocialclasses.Schumpeter1954,pp.86Ð7,stressedtheattentionpaidbytheScholasticwriterstotheindividualasacrucialaspectfortheprocessofbirthofpoliticaleconomy.Weshould,however,addthatinadifferentcontextanindividualisticspiritalreadypermeatedtheRomanlaw(while,ontheotherhand,thecelebratedapologuebyMeneniusAgrippa,withitscomparisonbetweenthebodypoliticandthehumanbody,hadalreadybecomeacommonplaceforanyoneinvokingareductioninsocialtensions).

32TheWealthofIdeasconstitutesthefoundationforanyabstractanalysisoftheeconomy.Inmanyrespectsthedebateforeshadowedlinesofanalysisthatweretosur-faceagaininSmithandvariousothereconomistsoftheclassicalperiod.Suchwasthecaseofcertaineternalcommonplaces,includingtheviewofthesocialbodyasanautonomoussubject.ThisindeedwasverymuchthecaseoftheChurch,seenasthecorpusmysticum,asuniversitasofthefaithful:asuperiorrealityabovetheindividualChristianorsocialbodiesofsecularorigin.32Fromhereitwasbutashortsteptotheideathatthestateislogicallysuperiortothefamilyandtheindividual.TheoriginsofthisideadatebacktoPlatoinsomerespectsandtoAristotleinothers:thetwoGreekphilosophersmaybeconsideredthefoundersoftheorganicdoctrineofthestate.33However,asPribram(1983,pp.7Ð8)stresses,ÔTheAris-totelianconceptionofthepoliticalcommunityasanintegratedwholeendowedwithrealexistencewasnotsimplytakenoverbytheScholas-tics.TheyacceptedonlytheAristotelianpropositionthatitwasaÒnaturalnecessityÓformantoliveinsociety.ÕScholasticwriters,hence,adoptedamoremoderateversionoftheorganicdoctrinethanAristotleÕsorigi-nalconception:apointworthstressing,alsotoshowthepossibilityofintermediatepositionsinthefaceoftheclear-cutdichotomybetweenmethodologicalindividualismandorganicismcommonlyacceptedinthetwentiethcentury,especiallybydintoftheliberalreactiontototalitarianregimes.Insomerespects,thenotionofhumansasintrinsicallysocialanimals,alreadypresentinAristotle,togetherwithamoderateformoforganicismandtheattentionfortheindividualtypicalofScholasticthought,foreshadowedthepositionheldbyexponentsoftheScottishEnlightenment,andbyAdamSmithinparticular,whichwillbeconsid-eredbelow(5.3).Aparallelwiththedebatebetweenmethodologicalindividualismandorganicismmaybelocated,withinmedievalphilosophy,indiscussionoftheso-calledproblemofuniversals,andmorepreciselyinthecounter-positionbetweenÔnominalismÕandÔrealismÕ(or,asPopperpreferredto32ThedoctrineofthesupremeauthorityoftheChurchinalltemporalandspiritualissueswasconsecratedbyPopeBonifaceVIIIÕsbullUnamSanctam(1302).33Popper1945,vol.1,insistedonPlatoÕsrole,whileRussell1945,especiallyp.186,insistedonAristotleÕs.BothPopperandRussellstressedtheauthoritarianismintrinsictotheorganicviewofsociety,whichwasexempliÞedinmoderntimesbyMarxismandnazism.Accordingtotheorganicview,infact,inordertounderstandsocietyitisneces-sarytotakeintoaccountcollectiveentitiessuchasÔtheproletariatÕorÔthenationÕ,andinpoliticalactionavalenceisattributedtotheseentitiessuperiortothatattributabletotheindividualscomposingthem.Onthecontrary,theso-calledmethodologicalindivid-ualism(whichlaterprevailedinmarginalisttheory,particularlyintheAustrianschool:cf.below,ch.11)maintainedthatanysocialphenomenonshouldbeanalysedstartingonlyfromindividualbehaviour.

Theprehistoryofpoliticaleconomy33say,ÔessentialismÕ).34LetusconsiderthisdebateinextremelysimpliÞedterms.35Accordingtothenominalists,universaltermsÐthosethatdonotdes-ignateindividualentities,forinstanceÔhorseÕorÔhumanityÕÐaresimplynamesusedtodesignateasetoraclassofindividualobjects:amereßatusvocis,asRoscelinofCompi`egne(c.1050Ðc.1120)apparentlyputit,whileindividualsalonewereendowedwithreality.Ontheotherhand,realistslikeWilliamofChampeauxassociatedtheuniversaltermwiththeexistenceofapropertycommontoasetofobjects,andhencewithaÔrealessenceÕpresentinidenticalforminindividuals,distinguishableonthebasisofavarietyofincidentalqualities.ApupilofbothRoscelinandWilliamofChampeaux,PierreAb«elard36tookapositionstronglycriticalofthemoreextremeversionsofbothnominalismandrealism.AccordingtoAb«elard,theuniversaltermwasborntodesignate(andcommunicate)aneffectiveaspectofreality,henceithasacausacommunisandcannotbeconsideredasasimpleßatusvocisdevoidofobjectivefoundations;atthesametime,itissomethingdifferentfromacollectiverealityorfromawell-deÞnedsetofindividuals:Ôtotheuniversalnametherecor-respondsacommonandusefulimageofmanythings,whiletothesin-gularnametherecorrespondsapreciseanduniqueconceptwhichreferstoauniquereality.Õ37Ab«elardtherefore,thoughcriticaloftherealisticview,defendedthevalidityofuniversalterms:anÔanalyticalÕvalidity,wemightsay.If,followinginthewakeofPopper,weweretotrytotranslateAb«elardÕspositionontheproblemofuniversalsintermsofthemoderndichotomybetweenmethodologicalindividualismandorganicism,wemightsaythat34Cf.Popper1944Ð5,p.27.Popperhimself(ibid.,pp.26Ð34)proposedsuchaconnec-tion,sidingwithnominalism.However,PopperdidnotpointoutspeciÞcreferencestoindividualmedievalphilosophers;inhisbrieftreatment,moreover,heappearedtocom-pletelyignoreAb«elardÕsviews,presentingthedebatebetweennominalistsandrealistsasaclear-cutopposition.35Cf.FumagalliandParodi1989,particularlypp.165Ð85.HereweleaveasideauthorsevenasimportantastheFranciscanDunsScotus,arealist,andWilliamofOckham(c.1300Ð49),anominalist(or,assomeprefer,ÔterminalistÕ).Thedebatebetweennom-inalistsandrealistswasalsorecalled,intermsclosertoPopperÕsthantothoseheresummarilyproposed,bythehistorianofeconomicthoughtKarlPribram(1877Ð1973),aleadingÞgureintheAustriancultureoftheperiodbetweenthetwoWorldWars,whomayhavehadsomeinßuenceonHayekÕsandPopperÕsindividualism(cf.Pribram1983,pp.20Ð30;PribramÕsrolewasstressedbySchumpeter1954,p.85n.).36Oneofthegreatestmedievallogicians,PierreAb«elard(c.1079Ð1142),professoratParisforanumberofyearsandthenamonk,isalsoknownforhistragicloveentanglementwithhispupil,H«elo¬õse,andfortheletterstheyexchangedfollowingtheirforcedseparation.37QuotedinFumagalliandParodi1989,p.171;cf.alsoibid.:ÔtheÒcommonstateÓ[…]isnotasubstancebutawayofbeingÕ.WethushaveaÔprocessofdistinctionoftheworldofnamesfromtheworldofthingsÕ(ibid.,p.172):thetermÔroseÕwouldretainameaning,albeitnegative,eveninaworldinwhichrosesnolongerexisted.

34TheWealthofIdeasAb«elardwouldhaverejectedtheextremeversionsofboth,andwouldhavemaintainedthelegitimacyofananalysisconductedonthebasisofaggregatecategories,whichwouldavoiddispersingattentiononthemultiformvarietyofindividualaccidents,butwithoutattributingtosuchcategoriesthenatureofessence,ofsomethinglogicallysuperiortotheindividuals,andinanycasewithallthecautionduetothefactthattheuniversaltermoffersaconfusedimage,unlikethepreciseimagewehavewiththeÔsingularnameÕ.Drawingparallelsbetweendebatesoversuchgreatdistancesoftimeisobviouslyoflimitedvalue;however,evenintheextremelysimpliÞedversionillustratedheretherichnessofpastdebatehelpsusunderstandthelimitationsofthemethodologicalpositionprevalenttoday,namelymethodologicalindividualism,andoftherepresentationofaclear-cutdichotomybetweenindividualismandorganicism.Indeed,theScholas-ticwritersandAb«elardpointtoanintermediateroadbetweenthetwoextremes,wheretheimportanceofthecommunity(or,moregenerally,ofsocialentities)isrecognisedbecauseofthesocialnatureofindividu-als,andwherethelegitimacyofananalyticaluseofaggregates(universalterms)isalsorecognised,withoutthisimplyingconsideringthemasrealentitiessuperior(i.e.politicallyprior)toindividuals.Alongthisinterme-diateroadwewilllaterÞndClassicaleconomistssuchasAdamSmithandJohnStuartMill,orinmorerecenttimesJohnMaynardKeynes.385.UsuryandjustpriceAfterourbriefdigressionintotheÞeldoflogicandepistemology,letusgobacktostrictlyeconomicthemes.Thedominantissues,betweenthetwelfthandthesixteenthcenturies,werethejustpriceandusury,alwaysconsideredfromthestandpointofethicsandestrangedfrominterpre-tationofthefunctioningoftheeconomicsystemasawhole.39Inthissectionwebrießysurveythedebateonsuchthemes,focusingattentiononthemajorprotagonists,suchasThomasAquinasatthebeginningoftheperiodconsideredhereandThomasWilsontowardsitsend.ThomasAquinas(c.1225Ð74)iscommonlyconsideredthemostimportantphilosopherandtheologianofthelateMiddleAges.Hisinßu-enceasateacherinvariouscities(fromParistoRome,fromAnagnitoNaples)wasonlysurpassedbythatofhismainwork,theSumma38Withoutattributingtoomuchimportancetothis,wemaynotethattheyoungKeynesreadandlikedAb«elard:cf.Skidelsky1983,p.113.39Cf.DeRoover1971,pp.16Ð19.Wood2002,p.1,speaksofÔtheologicaleconomyÕ:Ômedievaleconomicideasareheavilyimbuedwithquestionsofethicsandmorality,withthemotivesratherthanthemechanicsofeconomicsÕ.

Theprehistoryofpoliticaleconomy35theologiae,writtenbetween1265and1273,whichwastoremainforcenturiesacentralreferencepointforCatholicdoctrine.CharacteristicofthisworkwasanoriginalfusionbetweentheChristiantraditionandAristotleÕsphilosophy.40Aristotlehimselfconsideredasunnatural,andhencetobecondemned,anywealthstemmingfromcommerce;inparticularhecondemnedcom-merceinmoney,i.e.loanswithinterest.41IntheChristiantraditionwealsoÞnddecidedoppositiontointerest-bearingloans;inthisrespectapassagefromtheSermonontheMountisoftenquoted,whenJesussaysÔlend,hopingfornothingagainÕ.42ThomasAquinasadoptedamoremoderateattitude:condemnationofinterestinprinciple43wasfollowedbyadetailedcasuistry,inwhichcasesofloansatinteresttobecondemnedaredistinguishedfromcasesinwhichitwasjustiÞed(inparticular,casesinwhichwecanspeakofadamnumemergensforthelender,soastojus-tifyapositivebutrelativelymoderaterateofinterest,whilejustiÞcationsbasedonlucrumcessansarerejected,sincethesewouldopenthewaytolegitimisingacompetitiverateofinterestÐasinfactgraduallyhappenedinsubsequentcenturies).44TheroadfollowedbyThomasÐcasuistry,oranalysisofspeciÞccases,withdifferentanswerstothequestionofthelegitimacyoftheloanatinterestaccordingtothecircumstancesÐwasadoptedinsubsequentcenturiesinalongseriesofwritingsthatshowamongotherthingshowlittlerespectwasaccordedtotheprohibitionofusuryandhowmuchinventivenesswasshownbytheÞnancialoperatorsofthetimeinÞnd-ingnewkindsofcontractstocircumventtheprohibitions.45Giventhemethodadopted,thesewritingsdidnotleadtogeneralisationsandhence40OnthepersonalityandeconomicthoughtofThomas,cf.Nuccio1984Ð7,vol.2,pp.1469Ð576,andtheamplebibliographyquotedthere.41ÔAsitisso,usuryismostreasonablyhated,becauseitsgaincomesfrommoneyitselfandnotfromthatforthesakeofwhichmoneywasinvented.Formoneywasbroughtintoexistenceforthepurposeofexchange,butinterestincreasestheamountofthemoneyitself[…]consequentlythisformofthebusinessofgettingwealthisofallformsthemostcontrarytonatureÕ(Aristotle1977,p.51:Politics,I.10,1258b).42Luke6:35;weÞndanalogousexpressionsintheGospelsofMatthewandMark.Cf.alsoEzekiel18:8and18:13.43Infactinterestconstitutespaymentfortheuseofacommodity,money,thevalueinexchangeofwhichisalreadypaidwiththepledgetoreturnanequalamount.Amoreradicalbutsubstantiallyanalogousthesiswasthatinterestisthepaymentforthetimethatexpiresbetweentheloanandthereturnofthemoneylent:hence,itwascondemnedbecausetimebelongstoGod.44Cf.Viner1978,pp.88Ð96.45Fromthisviewpoint,thewritingsonusuryareacrucialsourcefortheeconomichisto-rian,sincetheyserveasevidencetoidentifythethencurrentmarketpracticesandthedevelopmentofÞnancialinstruments,fromthebillandtheletterofexchangetoinsur-anceagreementsandforwardcontracts,uptocompositecontractscombiningdifferentamongtheprecedingelements.

36TheWealthofIdeastotheoreticalcontributionsworthyofnote.Whatwemaysayingeneralisthattheseauthors,ThomasÞrstandforemost,werewellawareoftheroleofmoneyasmeansofexchangeandstandardofmeasurement,butnotasareserveofvalue.Ethicalandlegaldebateoftenintersected,46andthedebateonusurythusprovedrelevanttothepracticalchoicebetweendifferentÞnancialinstitutions.Indeed,theimportanceofthisdebatewassuchthatsomecommentatorsconsideritÐwiththevariousanswersgiventotheques-tionofthelegitimacyofusuryÐacentralelementinexplainingtherateoftransitiontocapitalism.47Whatiscertainisthatthecondemnationofusurywasnotaccompaniedbyhostilitytowardscommercialactivityingeneral,aswasthecasewithAristotle.TheScholasticssimplycalledforcorrectbehaviour:inparticular,withoutfraudorcoercion,butalsowith-outtakingadvantageofthecounterpartÕsweakerpositioninbargaining.Transitiontowardsthelegalisationofinterestwasslow.ConfrontationbetweenÔrigoristsÕandÔlaxistsÕwentonforcenturies;theinitialdomi-nanceoftheformerverygraduallygavewaytowidespreadacceptanceofthethesesofthelatter,especiallyaftertheReformation.Animpor-tantrolewasplayedbytheprocessthatViner(1978,pp.114Ð50)callsÔsecularisationÕ,namelytheabandonmentofrecoursetoRevelationandtheshiftofemphasisfromtranscendentaltotemporalvaluesthattookplaceduringtheRenaissance.48Attheendofthesixteenthcentury,however,westillÞndstrongoppo-sitiontousury.Evenasitwassubstantiallybeinglegalisedwehave,forinstance,thesevereAdiscourseuponusuryebyThomasWilson,pub-lishedin1572.Amodernedition,dated1925(reprintedin1963),con-tainsalongintroductionbyTawney.Heillustratesthemainkindsof46Asfarascanonicallawisconcerned,theCouncilofNicaea(312)onlyprohibitedclergyfrominvolvementinloansatinterest;graduallyregulationsbecamemoresevere,extend-ingtheirÞeldofapplicationtoall;then,fromthefourteenthcentury,amoveintheoppo-sitedirectionbegan,withincreasinglyshrinkingdeÞnitionsofusury(condemnationofwhichinprinciple,however,wasconÞrmedbyPopeBenedictXIVintheencyclicalVixpervenitin1745,andwhichstillapplies).PopeLeoXIIIattheÞfthLateranCouncil(1515)declaredtheinstitutionofmontespietatisacceptable,whereaninterestontheloanswaschargedtocoverexpensesandtheriskoflosses,bydeÞningusuryasÔaproÞtthatisacquiredwithoutlabour,costorriskÕ(quotedinWood2002,p.204).47Tawney(1926)focusedattentiononthisaspectmuchmorethanWeber(1904Ð5)didinhiscelebratedstudyoftheroleoftheProtestantreformfortransitionfrommedievalculturetoaculturesuitedtocapitalisticdevelopment.Incontrast,Spiegel(1991,p.66)maintainsthatthemedievalprohibitionoftheloanatinterestfavoureddifferentformsofassociationbetweenprivateinvestorsforthesharingofrisks,thusstimulatingthebirthofcapitalisticÞrms.48AsPribram1983,p.30,remarked,Ôindependentlyofthedecisionsofsecularjurisdiction,religiousadviceoneconomicbehaviourcontinuedtobeheededinalmostallcountriesuntilfarintothesixteenthcenturyÕ.

Theprehistoryofpoliticaleconomy37credittransactionsutilisedatthetime(thosewhichconcernpeasantsandsmallartisans,impoverishednobles,theÞnancingofmanufacture,for-eignexchangemarkets,Þnancialinstitutionsforerunningmodernbanks),thehistoryofthedebateandthecompromisethathadbeenreachedshortlybeforepublicationofWilsonÕsessay,withtheActof1571.ThisActdeclaredallloansforinterestatarateabove10percentdevoidoflegalvalue,whileitdidnotprohibitloansatlowerinterestratesÐwithout,however,providinganylegalprotectionforthem.Thiscom-promiseopenedthewaytotheviewthatnotallloansatinterestshouldbeconsideredasusury,butonlythosewhich,exploitingtheborrowerÕsneed,appliedÔexcessiveÕinterest.49Atthedoctrinallevel,thelegitimacyofloansatinteresthadbeenafÞrmedamongothersbyJohnCalvin(1509Ð64),althoughonlyforcom-mercialloans,whilethemoralcondemnationremainedforconsumptionloans,generallygrantedtomeetsituationsofneedandhenceexploit-ingthebargaininginferiorityoftheborrower.Spiegel(1971,p.83)alsorecallsaFrenchlawman,CharlesDumoulin(hisbookdatesfrom1546)who,however,maintainedthelegitimacyofloansatinterestwhileatthesametimearguingtheexpediencyofamaximumlimittotherateofinterestsetbythepublicauthorities.IntheSalamancaschool,activeinSpaininthesixteenthcenturyandveryinßuentialthroughoutEurope,variousauthorsextendedthelegitimacyofinteresttopracticallyallkindsofcontractandallsituations.50TheBelgianJesuitLessius(LeonarddeLays,1554Ð1623)proposedanotherjustiÞcationforinterest,thecarentiapecuniae(scarcityofmoneyincirculation).51ReactiontotheregulationofloansatinterestonlyarrivedwiththeriseofliberalismÐwemaymentionTurgot(1769),andespeciallyBenthamÕsDefenceofusury(1787)ÐwhileAdamSmithhimself,inThewealthofnations,stilljudgedlegallimitstotheinterestrateopportune,maintainingthatotherwiseÔprodigalsand49ThedeÞnitionofusurybasedonimpositionofarateofinterestonloansmarkedlyhigherthantheaveragerecentlyresurfacedinItalianlegislation(Law108of1996),whichtestiÞestothevitalityÐespeciallyinaCatholiccountryÐofmedievaleconomicideas,notwithstandingtheeconomistsÕcogentcriticisms.Asamatteroffact,usuryistodaymainlycharacterisedbywaysofcollectionthatinvolveillegalpracticesandimplyadangerousconnectionbetweenusurersandpettydelinquency(andoccasionallyorgan-isedcrime).Prohibitionofinterestratesmarkedlyaboveaverageisobviouslyignoredbyillegalusury,whichatthesametimeexploitstheabsenceofcompetitionfrombanksinthesectorofhighriskloans,especiallythoseofmodestsumsforwhichcollectionexpensesmaybeproportionallyhigh,alsoduetotheslownessofciviljustice,andforwhichthereforerelativelyhighinterestratesmaybeactuariallyjustiÞedbytheriskofnon-reimbursementoftheloan.50Cf.Chafuen1986,pp.143Ð50.51Cf.DeRoover1971,p.90,whosomewhatboldlyassociatesthiselementwithKeynesÕsliquiditypreference(cf.below,14.5).

38TheWealthofIdeasprojectorsÕreadytopayevenveryhighinterestrateswouldcrowdÔsoberpeopleÕoutoftheloanmarket.52InEngland,theusurylawswereonlyabolishedin1854.Letusnowturntothejustprice,anotherthemethatgoesbackatleasttoAristotle(cf.above,2).Thedivisionoflabourmakesexchangesnec-essary,throughwhicheverybodygivesandreceives:exchangeisaßuxusetreßuxusgratiarum,agivingandreceivingofgraces,asAlberttheGreatnicelyputit.53Aproblemthusarose,concerningthetermsofexchange.FollowingthetraditionoftheRomanlawdoctrineandcertainChurchFatherssuchasAmbroseandAugustine,ThomasidentiÞedthejustpriceasthepriceprevailinginthemarketsintheabsenceoffraudormonop-olisticpractices.ThisseemstohavebeenthemostwidespreadopinionalsoamongauthorscomingafterThomas,andinparticularamongtheRomanists,canonistsandThomists;thethesiswasopposedbyadver-sariesofThomism,suchastheScotistsandthenominalists.54Wemust,however,stressthatreferencetothemarketpricehadanormative,notadescriptivevalue,sinceatthetimethecompetitivemarketwastheexcep-tion,whiletheruleconsistedinthepossibilityofexchangeopentofewparties.55Amongotherthings,letusrecallthatinthetwelfthÐthirteenthcenturies,atleastinItaly,thepoliticalauthorities(municipalities,corpo-rations)activelyintervened,settingcompulsoryprices,ormaximumlim-itsforprices,ofmanyamongthemaincommoditiessubjecttoexchange.Moreover,becauseofthecloseregulationofproductivetechniqueschar-acterisingtheartsandcraftscorporations,referencetonecessarycostsofproductiondidnotimplycompetitionwhicheliminatesthelessefÞcient52Smith1776,p.357.BenthamÕsreplyonthispoint(1787,ÔLetterXIIIÕ)wasbasedonidentiÞcationoftheSmithianÔprojectorsÕwithentrepreneurs,protagonistswiththeirinitiativesoftechnologicalchange.HereweÞnd,intheoppositiontotheSmithianviewoftechnicalprogressasawidespreadprocess,enactedbyawiderangeofagents,andintheexaltationoftheinnovativeroleoftheentrepreneur,ananticipationoftheSchumpeteriannotionoftheentrepreneur-innovator(cf.below,15.2).53QuotedbyLangholm1998,p.101.AsDunsScotus(quotedibid.,p.102)remarked,voluntaryexchangeisconsideredadvantageousbybothsides,buyerandseller,andthere-foreimpliesanelementofgift.(LangholmÕsbook,probablythebestworkonmedievaleconomicthought,isalsoapreciousmineofquotationsfromoriginalsources.)54Cf.DeRoover1971,pp.25ff.,52ff.ThomasÕsthesiswasalsotakenupbyexponentsoftheÔSalamancaschoolÕ:cf.Chafuen1986,pp.92ff.AmongtheopponentsoftheÔmarketviewÕ,Wood2002,p.143,recallsÔJeanGerson(d.1428)who[…]recommendedthatallprices[…]shouldbeÞxedbythestateÕ.55Cf.DeRoover1958.ThetermÔcompetitionÕitselfmadeitsappearanceonlyintheseventeenthcentury,whilethetermÔmonopolyÕgoesbacktoAristotleÕsPolitics(1977,p.57:I.11,1259a),andÔoligopolyÕtoThomasMoreÕsUtopia(1518,pp.67Ð9).Cf.DeRoover1971,p.16,andSpiegel1987.Langholm1998,p.85,stressesthatÔThemodernmechanisticconceptionofthemarket[…]wasforeigntothemedievalmasters.Theirframeofreferencewasamoraluniversethatobligedanybuyerorsellertoactforthecommongoodandagreetotermsofexchangeaccordingly.ÕCf.alsoibid.,p.163.

Theprehistoryofpoliticaleconomy39producers,56buttolegalcostscorrespondingtorespectforexistingregulations.Referencestocostofproduction,andinparticulartothequantityoflabournecessarytoproduceacommodity,asanelementtobetakenintoaccountindeterminingthejustprice,donotadduptorealanticipationoftheclassicaltheoryofvalue.57Indeed,whileitistruethatreferencestocostofproductionandparticularlytolabourcostswerenumerous,theseweredecidedlyout-numberedbyreferencestoutilityandrarity,asweshallnowseemoreclosely.Moreover,thecoststructurewasclearlydeterminedbysocialstratiÞcation,whichwasassumedasagivendatumthattheÔjustpriceÕhadtorespect:insubstance,theScholasticwritersconsideredasÔjustÕthatpricethatallowedproducerstomaintainastan-dardoflivingbeÞttingtheirpositioninsociety.58Inasense,referencestocostsofproductionseemedmorerelevanttomattersofdistributivejusticethancommutativejustice.Asalreadymentioned,prevalentwerereferencestoutilityinthebroadsenseoftheterm.59Firstofall,inthewakeofAristotleandofsomeChurchFatherssuchasAugustine,ThomasandothersconÞrmedthatthevalueofgoodsdoesnotreßecttheÔnaturalÕhierarchy(inanimateobjectsÐvegetalworldÐanimalworldÐhumanbeings),buttheabilityofgoodstosatisfyneeds(indigentia).60Moreprecisely,asPeterofJohann56Incontrasttotheoft-repeatedobservationsbySchumpeter(1954,p.93,referringtoThomasAquinas,thentoDunsScotus;p.98,referringtoÔthelatescholasticsÕ).57IncontrasttowhatTawney(1926,p.48),amongothers,believed;hewentsofarastostateemphatically:ÔThetruedescendantofthedoctrinesofAquinasisthelabourtheoryofvalue.ThelastoftheSchoolmenwasKarlMarx.Õ58ThiswasThomasAquinasÕsview(cf.DeRoover1971,pp.43Ð4);wemayrecall,amongothers,thesimilarviewheldbyHeinrichvonLangenstein,theologyprofessorattheUniversityofVienna,whodiedin1397.Thismeansassumingasagivendatumthesocialstructureofrewardsforthedifferentkindsoflabour,withevenwidedifferentialsthatreßectthedifferentsocialstatusofdifferenteconomicactivities.Thisaspectcon-stitutedacrucialdistinctionbetweenappealstolabourcostsinjustpricetheoriesandinclassicallabour-valuetheories,whichatleastasaninitialapproximationrefertoanundifferentiatedcommonlabour.59Langholm1998,pp.87,131,insistsonthecomplementarinessoftwoelements,costandcommonestimate.However,thetwoelementsmayalsobeconsideredinopposition:forinstanceJuandeMedina(1490Ð1546)criticisedScotusÕthesisthatthejustpriceshouldcoverproductioncosts,maintainingthatthefactthatthecommonestimateofacommoditymaybeinferiortoitscostispartoftherisksofcommerce(cf.Chafuen1986,pp.100Ð1).60Thepointisimportant:itimpliestheethicalpriorityoftheeconomicscaleofvaluesovertheontological(cf.Viner1978,p.83).ÔOtherwise,asBuridanremarks,aßy,whichisalivingbeing,wouldhaveahighervaluethanallthegoldintheworldÕ(DeRoover1971,p.41).IndigentiawasrecalledamongothersbyThomas(cf.DeRoover1971,pp.46Ð7,fortextualreferences).DeRoover(ibid.,pp.47Ð8)thenrecallsthatBuridan(JeanBuridan,rectorofParisUniversityaroundthemiddleofthefourteenthcentury,d.c.1372)solvedtheÔparadoxofvalueÕforwhichgoldisworthmorethanwater,

40TheWealthofIdeasOlivi(1247Ð98:henceanauthorimmediatelyfollowingThomas,andprecedingBuridanbynearlyacentury)noted,wemustrefertothreesourcesofvalue:virtuositas,complacibilitasandraritas,namelyabilitytosatisfyhumanneeds,correspondencetothepreferencesofthepersonutilisingthegoodandscarcity.61Theproblemofthejustpriceshouldnotbeconfusedwiththatofthelegitimateprice:followingthetraditionofRomanlawdoctrineandofcanonicallaw,anytransactionagreedonbytheparticipantsfreefromcompulsionwasconsideredaslegitimate:Tantumvaletquantumvendipotest(ÔAthingisworthasmuchasitcanbesoldforÕ:amottofrequentlyrepeated,withsmallvariations,interaliainJustinianÕsDigest).62Thelegitimacyofanactofsalevoluntarilyagreedonmightbecontestedonlyinthecaseoflaesioenormis(bigdamage),orinotherwordswhenthepriceagreedonwassodifferentfromthepriceprevailinginthemarketastorenderwhollyanomaloustheactofexchange.Accordingtothemedievaljustpricetheoreticianswhoacceptedreferencetothemarketprice,themottooftheLatinjuristsshouldbemodiÞedsoastoexplicitlyconnectthejustpriceintheindividualactofexchangetotheaverageprice:theglossatorAccursius(1182Ð1260)proposedtheexpressionTantumvaletquantumvendipotest,sedcommuniter(ÔAthingisworthasmuchasitcanbecommonlysoldforÕ).63Aswehaveseen,referencetotheÔcommonÕormarketpricedidnotimplyrecognisingcompetitivemechanisms.Theprocessoftransitiontowardsmoderntheorywaslongandimpliedradicalchangesinthepre-vailingculture,includingthetransferoftheeconomicproblemfromtheÞeldofethicstothatofscientiÞcthinking(cf.below,3.2).Someele-mentsofthetransitionwere,however,foreshadowedinthefullripenessofScholasticthought:suchastheideathatjusticeintheÞeldofeconomicactivityinvolveskeepingfaithwiththeformofthecontractsandnotwithdespitebeinglessuseful,referringtotheabundanceandscarcityofthecommodities;accordingtoDeRoover,thetreatmentofvalueofferedbyBuridanremainedunsur-passedbysubsequentauthors,SmithandRicardoincluded,uptotheÔmarginalistrevolutionÕ.61DeRoover1971,pp.48Ð9;DeRoover(ibid.)associatesvirtuositaswithÔobjectiveutilityÕandcomplacibilitaswithÔsubjectiveutilityÕ,andrecallsthatBernardinefromSiena(1380Ð1444)andAntoninusarchbishopofFlorence(1389Ð1459)reproposeOliviÕstheses.Buridan,instead,focusedattentionsolelyonÔobjectiveutilityÕ.Chafuen(1986,p.91)andLangholm(1987,p.124)remarkthatwhilethedistinctionbetweenthetwocrucialaspectsÐscarcityandutilityÐshouldbeattributedtoOlivi,theterminologyattributedtohimisinfacttobefoundinamanuscriptofhis,butasaglossatthemarginofthesheet,inBernardineÕshandwriting.TheremarksbyOliviandtheothersarethentakenupbythescholarsoftheÔSalamancaschoolÕ:cf.Chafuen1986,pp.91Ð7.OnBernardinefromSienaandAntoninusfromFlorencecf.Nuccio1984Ð7,vol.3,pp.2573Ð684and2733Ð813.62Cf.Langholm1998,p.78andff.63QuotedinDeRoover1971,p.53.

Theprehistoryofpoliticaleconomy41theircontent,oncetheyhavebeenfreelyagreedonbythoseconcerned;andtheprogressivedepersonalisationofthenotionofthemarket.646.BullionistsandmercantilistsIntheperiodoftheformationandriseofthenation-states,anewkindofthinkingoneconomicphenomenaßankedthatofthetheologiansandphilosopherswiththeÔcounsellorsoftheprinceÕ.Obviouslytheseauthorsadoptedintheirwritingstheviewpointoftheeconomicpoweroftheprince,asacomplementtoandnecessaryprerequisiteofhismilitarypower.SigniÞcantly,agroupofauthorsofthisperiodwasdesignedascameralists,sincetheyapproachedeconomicissuesasmembersofthechamberofthecounsellorstothesovereign.Thenotionofnationalwealththustookonacentralroleineconomicthinking.Thecameralistsconstitutedanimportantstepinthetransitiontowa-rdsthebirthofeconomicscience,supersedingundifferentiatedtreatmentofthemoralandthescientiÞcprobleminanalysisofeconomicphenom-ena.Wemaydistinguishtwokindsofinterpretationsfortheeconomicviewsprevailinginthisperiod.Ontheonehand,thelaissez-faireview,fromthephysiocratsandAdamSmithon,65reactedtotheviewpointofthecounsellorsoftheprince,accusingthemofholdingabasicallyerroneousnotionofwealth:theso-calledÔchrysoedonisticviewÕ,namelythesimplisticidentiÞcationofwealthwithgoldandpreciousmetalsingeneral.Hencethetermbullionists,utilisedforauthorssuchasThomasGreshamandJohnHalesinsixteenth-centuryEngland.6664ThetermÔdepersonalisationÕisproposedbyLangholm1998,p.99.65ThetermÔmercantilesystemÕwasusedbyMirabeauandotherphysiocratsÔinordertodescribeaneconomicpolicyregimecharacterisedbydirectstateintervention,[…]morecommonlyknownasÒColbertismÓÕ(Magnusson2003,p.46).Cf.Smith1776,pp.429ff.SmithÕscriticismsconcernedallaspectsoftheÔmercantileÕ(orÔcommercialÕ)system:thenotionsofproÞt,wealth,foreigntrade,theroleofmoney;butineachoftheserespectsSmithappearedtohaveconstructedforhimselfascapegoat,atleastinpartacaricature,inordertoputemphasisbycontrastonthedifferentaspectsofhistheoreticalbuilding.66ThomasGresham(1519Ð79)isuniversallyknownfortheso-calledÔGreshamÕslawÕaccordingtowhichÔbadmoneydrivesoutgoodmoneyÕ:ÔbadÕmoney,clipped(thatis,fromwhichsomeparticlesofgoldhavebeenÞledaway)orofaworsealloy,isusedforthepaymentswhileÔgoodÕmoneyistreasured,andhencedisappearsfromcirculation.AsamatteroffactthisÔlawÕwasawell-knownfact,alreadyrecognisedinpreviouswritings(forinstancebytheFrenchtheologianNicholasOresme,1320Ð82,whoalsoanticipatedLeibnizÕsviewoftheworldasagiganticclocksetinmotionbyGod:cf.Spiegel1971,p.74).ToGreshamweshouldratherattributetheunderstandingofthemechanismoftheÔgoldpointsÕ,namelyofthelimitstotheoscillationsoftherateofexchangebetweenconvertiblecurrenciesaroundthecentralvaluedeterminedbytheratiobetweenthe

42TheWealthofIdeasOntheotherhand,beginningwiththeGermanhistoricalschoolandSchumpeter1914,67weseearevaluationoftheseauthors,creditedwithalesssimplistic,andmoreorlessjustiÞedview.ThepreoccupationwithmonetaryissuescouldbejustiÞedbythefactthatthestockofmetal-licmoneymightbeconsideredanindexofnationalwealthinaperiodwhentherewasvirtuallynostatisticalinformationonacountryÕsyearlyproduction.Inaddition,abundanceofmoneystimulatestrade.Theaccu-mulationofrealcapitalwasasaruleprecededoraccompaniedbyaccu-mulationofmoneycapital.Inanycase,ÔThescholarsÕattentionfocusesoncapitalmovementsandontheircauses,onpolicymeasurestoattractmoneycapitalintothestate,ongoodmoney;theyworryabouttheleveloftheinterestrateincomparisontothatofothercountries,sincerelativelyhighinterestratesfavourinßuxofcapitals.Õ68Moreover,thissecondinterpretativecurrentstressesthat,apartfromverbalhomage,thecentralroleattributedtopreciousmetalswassoonÐattheturnofthesixteenthtoseventeenthcenturyÐdecidedlycutdowntosize.Stillearlier,in1516,ThomasMoreÕsUtopiahadalreadystatedthecaseinnouncertaintermsagainsttheexcessiveimportanceattributedtogoldandsilver.AnexamplewewillbefocusingoninthenextsectionconcernstheItalianAntonioSerra.Asweshallsee,in1613hepublishedaTrattatodellecausechefannoabbondaredÕoroedÕargentoliregniovenonsonminiere(Treatiseonthecausesthatmakekingdomsrichingoldandsilver,wheretherearenomines),thecontentofwhich,foranybodywhodoesnotstopatthetitle,makesitclearthatSerraidentiÞedthewelfareofacountrywithitsnationalproductmorethanwiththequantityofpreciousmetalsownedbyitsinhabitants.OnthesamelinesasSerraÐandpossibly,atleastinsomerespects,undertheinßuenceofhisworkÐweÞndtheinßuentialauthorThomasMun(1571Ð1641),anEnglishmanandamanagingdirectoroftheIndiaCompany.69IndefendingtherightoftheCompanytoexportpreciousquantitiesofthepreciousmetalembodiedineachofthem.(OnthispathhewasfollowedbyDavanzati,towhomwewillbrießyreferin7.)Alivelydialogue,probablywrittenin1549butpublishedonlyin1581andthenreprintedrepeatedly,knownasAdiscourseofthecommonweal(Anonymous1549)isattributedtoJohnHales(d.1571)oralternativelytoThomasSmith.Withrespecttothiswork,however,theaccusationofchrysoedonismappearsfarfromdemonstrated,ifweavoidisolatingindividualstatementsfromtheircontext.67Forawidertreatment,cf.Schumpeter1954,pp.335Ð76.Positiveevaluationsofthemercantileliteratureweremorefrequentinthe1930s;cf.inparticularHeckscher1931and,onsomewhatdifferentlines,Keynes1936,ch.23.68Vaggi1993,p.24.69Hisbest-knownwork(Mun1664)waspublishedposthumously,editedbyhisson,andwaslaterincluded,togetherwiththeonlyknownwritinghepublishedinhislifetime(Mun1621),inthecollectioneditedbyMcCulloch(1856)forthePoliticalEconomyClub.OnMun,cf.ForgesDavanzati1994andthebibliographyquotedthere.

Theprehistoryofpoliticaleconomy43metalstotheEastinexchangeforlocalcommoditiesoftendestinedtobere-exportedtootherEuropeancountries,Munmaintainedthattheexportofmoneyallowedthecountrytoincreaseitswealth.Infact,throughinternationaltrade,thecommoditiesavailabletothecountryareincreased,evenmorethanthroughmanufacturingand,atastilllowerlevel,agriculture.Withhiswritings,MunwasreactingtotheinßuentialthesisadvancedbyGerardMalynes(1586Ð1641),accordingtowhomtheEnglishdepres-sionatthebeginningofthe1620swastobeattributedto(merchantsÕandJewsÕ)speculationsontheforeignexchange,whichhadloweredthevalueoftheEnglishcurrency.Mun(andMisselden,d.1654)maintainedthatthefalloftheexchangeratewascausedbythenegativebalanceoftrade.70MunÕscritiqueofMalynesÕsthesisisstrikinglysimilartoSerraÕs1613critiqueofpreviousinterpretationsofthefeeblenessoftheNeapolitancurrency,illustratedinthenextsection.71MunÕswritingsmaybetakenasthereferencepointforthetransitionfrombullionismtomercantilism.Infact,wethusmovefromamoreimmediatenexusbetweenwealthandpreciousmetalstoamoresophis-ticatedview,characterisedbyafullydevelopedtheoryofthebalanceoftrade,whichlookedatthebalanceoftheforeigntradeofacountryasawhole,ratherthantobilateralbalancescomputedforeachforeigncoun-trytakeninisolation.Thistheory,togetherwiththecentralroleofthestateintheeconomy,constitutesoneofthemaincommonelementsÐorsotheywereseenÐwhichhistoriansofeconomicthoughthavereferredtoinordertoincludeunderthesameheadingÐi.e.mercantilismÐauthorswhowereoftenquiteheterogeneousandactiveoveralongperiodoftime,stretchingfromthesixteenthtotheeighteenthcentury,uptothepublicationofAdamSmithÕsWealthofnations.72ItishowevernowrecognisedthatthetermÔmercantilismÕmustbeappliedverygingerly.HistoriansofeconomicthoughtsuchasSchum-peter(1914,1954),Heckscher(1931)andJudges(1939)insistedonthefactthatwecannotspeakofaÔmercantilistschoolÕinarigoroussense,for70ÔItisacertainruleinourforraigntrade,inthoseplaceswhereourcommoditiesexportedareoverballancedinvaluebyforraignwares,broughtintothisRealm,thereourmonyisundervaluedinexchange;andwherethecontraryofthisisperformed,thereourmonyisovervaluedÕ(Mun1664,p.208).71ItshouldbeaddedthatwhileMunfocusedonthebalanceoftrade,Serraalsoconsideredtradeinservicesandcapitalmovements.72Forasurveyofsomeinterpretationsofmercantilism,cf.Wiles1986;themostin-depthanalysis,stillcompulsoryreading,isHeckscher1931;heinterpretedmercantilismasaÔsystemofpowerÕ.Amorerecentanalysis,richandthorough,isPerrotta1991;cf.alsotheessayscollectedinMagnusson1993,inparticularPerrotta1993,concernedwithSpanishmercantilists,oftenforgottenintheAnglo-Saxonliterature,buthistoricallyquiteimportantinthetransitionfromScholastictomercantilistthought.Cf.alsoMagnusson2003.

44TheWealthofIdeastwokindsofreasons.First,onthepositiveside,theeconomicthinkingofthetimeweareconsideringismuchlesssimplistic,moredifferentiatedandricherincontributionsthanthereductiveinterpretationsmightleadustobelieve.Secondly,onthenegativeside,theauthorsofthisperiodfailtoattainacoherentsystemofinterpretationofeconomicreality,notonlyattheanalyticallevelbutalsoontheplaneofdeÞnitionofconcepts.Ingeneral,immediatepracticalinterestsdominatedovertheoreticalwork.InordertosizeupthecontributionthattheseauthorsleftasheritagetothesubsequenttraditionweshouldÞrstofallrecogniseitsvariety;moreover,weshouldadmitthat,evenifmostofthemcannotbeincludedinthecategoryofpurelaissez-faireexponents,thisdoesnotnecessarilyconstituteacrime.Onthecontrary,itispreciselyintheopinionstheyexpressedontheroleofthegovernmentthatweÞndoneofthemostinterestingaspectsoftheeconomicdebateofthetime.Inparticular,wemayattributetotheÔmercantileÕliteratureanimpor-tantroleofculturalsupporttotheriseofthenation-states,againsttheuniversalismoftheCatholicChurchandthemedievalempireontheonehand,andthelocalismofthefeudalpowerstructureontheother.Fortheauthorsofthetime,theobjectivewasnotsomuchindividualwell-being(asitwastobeforAdamSmith:cf.below,5.4),butratherthepolitico-militarypowerofthestate.Theactiveroleattributedtointerven-tionofpoliticalauthorityintheeconomicÞeld,withinthisframework,concernedtheexpediencyofstimulatingnationalproductiveactivityincompetitionwithothercountries:fromdiscriminationinforeigntradetosupportfornationalmanufacturesthroughasystemofcustomsdutiesonexportsofrawmaterialsandonimportsofmanufactures,uptocreationofstate-ownedmanufactures(suchasthemanufacturesroyalesinFranceandtheStGobelintapestries).73AnothersalientfeatureofmercantilismwastheÔfearofcommoditiesÕÐor,inparallel,theÔdearthofmoneyÕÐwhichweremanifestationsofahistoricalstageoftransitionbetweenproductionforself-consumptionpredominantinthefeudaleconomy,andproductionforthemarket,whichwastodominatewithincapitalism.Theseviewsdidnotsimplyexpresstheopinionsoftherisingmercantilebourgeoisie,butalsoshowed73ThissetofpolicieshasbeenlabelledColbertismfromthenameofJeanBaptisteColbert(1619Ð83),thepowerfulministerofÞnanceofLouisXIVfrom1661uptohisdeath,havingfortenyearsbeenthemaincollaboratorofCardinalMazarino.Togetherwithmeasuresconcerningcontrolofpricesandproductivetechniques,Colbertalsosup-portedabolitionofbarrierstoFrenchinternaltradeandÞscalreformsbasedondirecttaxationofconsumption,asatoolfortaxingthedifferentsocialclassesmoreequitablythandidthethenprevalentsystemofdirecttaxation(whichlargelyexemptednobil-ity,clergyandthekingÕsfavourites);butonthislatterfronttheinterestsinvolvedwerestrong,theresultsobtainedbyColbertpracticallynil.

Theprehistoryofpoliticaleconomy45anotablecapacitytointerprettherequirementsofeconomicandsocialdevelopment:asSmithlaterstressed,progressinthedivisionoflabourisregulatedbygradualenlargementofthemarketsfortheproductsoftheindividualÞrms;inotherwords,marketexpansionconstitutedaprerequi-siteforthedevelopmentofthesystemofcapitalisticÞrms.Furthermore,asaÔsystemofnationalpowerÕmercantilismexpressedtheneedfortherightpoliticalandeconomicinstitutionsfortheriseofthemarketecon-omy,fromacertainandequitableÞscalsystemtothelandregistry,andmoregenerallylawssupportingthecertaintyofprivateproperty,uptothedevelopmentofabankingandcreditsystem.74InterpretationofthespeciÞcproposalsforeconomicpolicyandthespeciÞctheoreticalthesesalikecantakeonavarietyoftones,oftensim-plybecausedifferentauthorsoftheperiodarebeingconsidered.Thus,forinstance,ifweconsiderthetheoryoftheÔbalanceoftradeÕ,ontheonehandwehavetheideathatapositivebalanceofforeigntradeisthecauseÐthemainifnotthesolecauseÐofnationalwealth,whileontheotherhandwehavethethesis(tobefound,forinstance,inSerraÕsTreatise)thatanactivebalanceoftradeisanindicatorofthewealthofacountry,i.e.ofitsproductivestrengthandhenceofitscompetitivenessininternationalmarkets.Thislatterviewseems,however,tohavebeenprevalent,con-sideringtherelationshipofcauseandeffectthatmanyauthorsoftheperiod(Serra,Montchr«etienandMunbeingamongtheÞrsttodoso)establishedbetweennationalproductandthebalanceoftrade.75WithinthedebateonforeigntradewealsoÞndthethesisofahierarchyofthevariouskindsofactivity.Infactanumberofauthorsarguedtheexpediency,forthepurposeofdevelopingnationalwealth,ofexportingmanufacturesinexchangeforrawmaterials,orluxurygoodsinexchangeforsubsistencegoods,orproductsofskilledlabourinexchangefortheproductsofunskilledlabour.76Furthermore,amongthesectorsofeco-nomicactivityforeigntradewasgivenÞrstplace,inorderofstrategicimportance,followedbymanufacturesandthenbyagriculture.77Leav-ingasidethejustiÞcationsadducedinsupportofsuchtheories,wemay74WeÞndproposalsofthiskindinanauthorlikeWilliamPettyÐcf.below,3.3ÐwhobelongedtothemercantileperiodbutwhoinourinterpretationmaybeconsideredratherastheÞrstoftheclassicaleconomists,atleastontheanalyticalplane.75FromthispointofviewSpainwasconsideredanegativeparadigm:availablegoldandsilverderivingfromminesinthecolonieswasabsorbed,asifbyablackhole,byabalanceofpaymentsdeÞcitattributedtopoornationalproduction.OntherelationshipbetweentheSpanisheconomicsituationandtheeconomicthoughtofthetime,cf.Perrotta1993.76Cf.Perrotta1991foraseriesofexamples.77ThishierarchywasfollowedbyMun(andthenbyWilliamPetty),anddifferedfromtheonelaterproposedbythephysiocrats:cf.below,4.4.Itisobviousthat,whenconfrontedwiththeproblemofidentifyingthefactorsdeterminingnationalwealthatagivenmomentintime,oncewehaveidentiÞedwealthwithnationalproduct,any

46TheWealthofIdeasrecallthatthishistoricalperiodwascharacterisedbythedevelopmentofmarketsasnationalandinternationalexchangenetworks,andbytheaccumulationofentrepreneurialwealth,aboveallinthehandsofthebigmerchantsattheoutset.AnotherinterpretationonlypartlyjustiÞedbythewritingsofcertainmercantilistauthorsfocusesonthenotionoftheproÞtuponalienation,i.e.proÞtderivingfromsaleandhencebornofthecirculationprocess,orinotherwordscommerce.Accordingtothisthesis,quitesimply,proÞtsstemfrombuyingcheapandsellingdear.Itwasathesisinconsonancewiththestageofmercantilecapitalism,whichamongotherthingsexplainedtheprivilegedroleattributedtoforeigntrade.Infact,thegainsobtainedbyonepartytotheactofexchangecorrespondtothelossesoftheotherparty,sothatwhenbuyersandsellersbelongtothesamecountrythegainsofsomeexactlyoffsetthelossesoftheothers.Therefore,trademaybethesourceofgainsforthewealthofacountryonlywhenweconsiderexchangeswithothercountries.However,whenitistakentotheextremeÐproÞtsstemsolelyfromtheactofexchange,withabasicqualitativedistinction,notonlyadistinctionofdegree,betweentradeandothereconomicactivitiesÐthisthesisprovesbotherroneousasarepresentationofthewaytheeconomicsystemworks,andmisleadingasaninterpretationofmercantilistauthors,oratleastalotofthem.78Evenbehindthisthesis,however,wecandetectcrucialsignsofthetimes,whichtodayÕseconomiststendtoforget:theimportanceofmilitarypowerininternationaleconomicrelations;thespreadofthecolonies;andthemonopolisticnatureofthebigtradingcompanies.Ifweincludeinforeigntradealsothetransferenceofwealthenactedbyforce,theimportancethatthissectortookonforwhatMarxcalledÔoriginalaccumulationÕbecomesclear,andtheimpressionofunequalexchangethatthetheoryofproÞtuponalienationconveysappearsfullyjustiÞed.7.ThebirthofeconomicthoughtinItaly:AntonioSerra79TheeconomicvitalityofmunicipalItaly,theÞnancialactivityofFlorentinebankersandtheroleofmaritimerepublicsÐparticularlysectorisinprincipleonthesamelevelasanyothersector,asAdamSmithstressedinoppositiontothephysiocrats.However,whenconfrontedwiththeÔdynamicalÕproblemofthedevelopmentofthewealthofnationsovertime,theuseofhierarchiesbetweenproductivesectorsmayprovideinterestingpointers;mercantileanalyses,inparticular,hadthedistinctivemeritfromthispointofviewofpreparingthegroundfortheSmithiandistinctionbetweenproductiveandunproductivelabour(cf.Perrotta1988).78Asamatteroffact,atthebeginningoftheeighteenthcenturythethesisofmutualadvantageforcountriesparticipatingininternationaltradelargelyprevailed(cf.Wiles1987,pp.157Ð60,forsomeexamples).79ThissectionutilisesmaterialfromRoncaglia1994,whichcontainsafullertreatmentofSerra,histhoughtandfortune.

Theprehistoryofpoliticaleconomy47VeniceÐininternationaltradewereaccompaniedbyaßourishingofmercantiletractsandwritingsthatincidentallytouchedoneconomicissues.However,therewereveryfewauthorsofanyinterestforahis-toryofeconomics.Amongthem,letusrecallGaspareScarufÞfromtheEmiliaregion(1515Ð84;hisAlitinolfodatesfrom1582),andespeciallytheFlorentineBernardoDavanzati(1529Ð1606),authorofaNotiziadeicambi(1582)andofLezionedellemonete(1588).IntheÞrstofthesetwotracts,DavanzatiillustratedthemechanismsofinternationalÞnanceofthetime,whileinthesecondheconsideredmoneyasasocialconven-tionandstressedthepossibilitythatitsintrinsicvaluemaybeinferior,evenfarinferior,toitsexchangevalue.Aquantitytheoryofmoney,onlyvaguelysketchedout,associatedtheexchangevalue(hencethelevelofcommodityprices)withthequantityofmoney:athesiswhichwasnotnew,havingbeenproposedbyvariousauthorsparticularlyinFranceandSpain,butwhich,intheabsenceofanotionofthevelocityofcirculation,remaineddevoidofasufÞcientlywell-deÞnedanalyticalstructure.80Acontributionfarmorerelevanttoeconomicscience,whichwewillnowconsider,emergedfromadifferentenvironment,characterisedbyeconomicdecline.Thisnotwithstanding,itisasystematicandveryper-ceptiveanalysisoftheeconomy,touchingonabroadrangeofeconomicissues:farsuperiortolatermercantilistliterature(includingMun1621,1664),andpossiblydisregardedinEnglishhistoriesofeconomicthoughtbecauseofthelanguagebarrier.Henceourchoicetoprovidearatherdetailedaccountofhiscontribution.On10July1613,aprisonerintheNeapolitanprisonofVicaria,DoctorAntonioSerrafromCosenza,signedthededicationofhisbook,IlbrevetrattatodellecausechepossonofarabbondareliregnidÕoroedÕargentodovenonsonominiereconapplicazionealRegnodiNapoli.Thebookofferedeco-nomicpolicyadviceaimedatimprovingtheconditionsoftheNeapolitankingdom,seentobelaggingfarbehindotherpartsofItalyindevelop-ment.OfAntonioSerrahimselfweknowhardlyanythingeventodayÐinpractice,onlywhatcanbegleanedfromhisbook,namelythathewas80MoreorlessrudimentaryformulationsofthequantitytheoryofmoneywerealreadypresentintheliteraturebeforeDavanzati:inSpain,inthefamousSalamancaschooltheDominicanmonkNavarro(MartindeAzpilcueta,1493Ð1586)in1556,andsubse-quentlyTom«asdeMercadoin1569;inFrance,JeanBodin(1530?Ð96)in1568.InareporttothePrussianparliamentof1522,whichremainedunpublisheduntilthenine-teenthcentury,Copernicushadalsoreferredtotherelationshipbetweenquantityofmoneyandprices.Cf.Spiegel1971,pp.86Ð92,andChafuen1986,pp.67Ð80.Coper-nicusÕinsightwastrulynotable,sincetheinßuxintoEuropeofgoldandsilverfromtheSpanishcoloniesinAmerica,whichdrewattentiontotherelationshipbetweenquantityofmoneyandprices,camesomedecadeslater:cf.Vilar1960;Cipolla1976.Thesefor-mulationsdidnotconstituteatheoryinthestrictsenseoftheterm,butwentwellbeyondthevaguereferencesweÞndinpreviousliterature,forinstanceinPlinytheYounger.

48TheWealthofIdeasfromCosenzaandthathewasinprisonin1613.Thereasonforhisimprisonmentisuncertain;equallyuncertainishisprofession,unknownthedatesofhisbirthanddeath.Hisworksurfacedfromobliviononlyacenturyafteritspublication,thankstoGaliani,whohadwordsofhighpraiseforitinhisDellamoneta.81ThetrueartiÞceroftheresurrectionoftheBrevetrattatowasBaronPietroCustodi,whodeclaredthatheconsideredSerraÔtheÞrstwriterofpoliticaleconomyÕ(Custodi1803,p.xxvii),andassignedhimtheÞrstplace,vio-latingthechronologicalorder,inhisfamouscollectionofScrittoriclassiciitalianidieconomiapolitica(ClassicalItalianwritersofpoliticaleconomy,inÞftyvolumes,1803Ð16).LetusÞrstofallconsiderthestructureandcontentofthebook.Afterthededicationandthepreface,theBrevetrattatoisdividedintothreeparts.TheÞrst,andforusthemostinteresting,discussesÔthecausesforwhichkingdomsmayaboundwithgoldandsilverÕ,asthetitleofchapter1went:thatis,insubstance,thecausesÐevenifnotthenatureÐoftheeconomicprosperityofnationsinthebroadestsenseoftheterm,alsothroughcomparisonofconditionsprevailingintheKingdomofNapleswiththoseprevailinginotherpartsofItaly,particularlyVenice.Thesec-ondpartissubstantiallyconcernedwithrefutingtheproposalsadvancedafewyearsearlierbyMarcoAntonioDeSantis(1605a,1605b)withtheaimofreducingtheexchangeratetoattractmoneyintothekingdomfromoutside.ThethirdpartpresentedsystematicdiscussionofthedifferentpolicymeasuresadoptedorproposedÔinordertomakemoneyabundantwithintheKingdomÕ.Theeconomicprosperityofacountry,Serraexplained,dependsonÔownaccidentsÕ,i.e.originalcharacteristicsspeciÞctoeachcountry,andÔcommonaccidentsÕ,orinotherwordsmoreorlessfavourablecircum-stancesthatmaybereproducedanywhere.Amongtheformer,SerramentionedÔabundanceofmaterialsÕ,i.e.endowmentofnaturalwealth,particularlyfertilelands(SerracommonlyutilisedthetermÔrobbeÕ,mate-rials,foragriculturalproducts),andÔthesiteÕ,namelylocalisationÔwithrespectofotherkingdomsandotherpartsoftheworldÕ.TherearefourÔcommonaccidentsÕ:Ôquantityofmanufactures,qualityofpeople,largeamountoftradeandcapabilityofthoseinpowerÕ.Inotherterms:manufacturingproduction,moralqualitiesandprofessionalskillsofthepopulation,extentoftrade(especiallyinternationaltransittrade),andpolitico-institutionalsystem,thelatterbeingthemostimportantofthe81Galiani1751,pp.339Ð40;thepassagequotedisintheauthorÕsnotestothesecondedition,dated1780.

Theprehistoryofpoliticaleconomy49fourelements,ÔsinceitmaybesaidtobetheefÞcientcauseandthesuperioragentforalltheotheraccidentsÕ(Serra1613,p.21).HavinganalysedtheseelementsintheÞrstsevenchaptersoftheÞrstpart,Serranotedthat,asfarastheÔownaccidentsÕwereconcerned,theKingdomofNapleswasatanadvantage(exceptforthesite),particularlyincomparisonwithVenice:ifNapleswassomuchpoorerthanVenice,thiscouldonlydependonÔcommonaccidentsÕ.Inshowinghowthishappened,andforwhatreasonsgoldandsilverßowedoutoftheKingdomofNaples,SerrareconstructedwithgreatingenuitythesituationofthecountryÕsbalanceoftrade,althoughwithoutsystematictreatmentofthisnotion.ThesecondpartoftheBrevetrattatowasthelongestofthethree,andtheleastclearinexposition.Halfofit(theÞrstÞvechapters)wasdedicatedtoconfutationofDeSantisÕthesisthatÔthehighrateofexchangeinNaplescomparedwithotherplacesinItalyistheonlycausethatmadetheKingdompoorinmoneyÕ,sinceitcausedlettersofexchangetobeusedforpaymentsfromoutsidetheKingdom,whilemoneywasusedforpaymentstooutsidetheKingdom.82Serradeniedthattheasymmetrycouldderivefromthemechanismofthelettersofexchange;thepaucityofmoneyintheKingdomdependedontheunderlyingimbalanceinwhatwewouldnowcallthebalanceofpayments.Asamatteroffact,ifwetranslateintoourterminologywhatSerramaintainedinhischapter10,theinßuxofcurrencycorrespondingtoexportsofagriculturalproductswasmuchmorethanoffsetbyoutßowsforinterestremittancesonpublicdebtandproÞtremittancesonproductiveactivitiesunderthecontrolofÔforeignersÕ,especiallyGenoeseandFlorentinemerchant-bankers.TheremainingchaptersofthesecondpartoftheBrevetrattato,fromthesixthtothetwelfth,linedupthepointsagainstDeSantisÕproposaltoÞxalowexchangebetweenNaplesandotherÞnancialcentres.83Finally,partthreediscussedeconomicpoliciesthatcouldbeappliedtoimprovethesituationoftheKingdom:administrativeregulationsonÞnancialandcurrencymarkets,somealreadytriedout(suchasabanonexportsofmoneyandpreciousmetals,reductionoftheexchangerate,useofforeigncurrencyasinternalmeansofpayment,overvaluationofforeigncurrencyand/orobligationtoconsignittothenationalmint)andothersÐourauthorprudentlysaidÐthathadonlybeenproposed(increaseinthefacevalueofnationalmoney,reductionofitsgoldorsilvercontent).TheÞfthchapterbrießydiscussedÔtherightproportionbetweengoldand82ÔTheleveloftheexchangeÕisthepriceinnationalcurrencyofaletterofexchangedenominatedinforeigncurrency.83OnSerraÕscontributiontothetheoryofexchanges,cf.Rosselli1995.

50TheWealthofIdeassilverÕ.Althoughnotinprincipleopposedtoadministrativemeasures,Serraadvancedsomefairlydrasticcriticismofsuchinterventions:whennotactuallycounter-productive,theywereatanyrateineffective,sinceÐaswehaveseenÐtherealproblemconcernedthepassivebalanceofpayments.IntheÞnalchapters,SerrastressedhowdifÞcultitwastotacklesuchbasicproblems,pointingasthemainobjectivetodevelopmentofpro-ductiveactivityintheKingdom.Thus,Serraconsideredtheunbalanceinthecurrencymarkettostemfromanegativebalanceofpayments,inclusiveofso-calledinvisibleitems.Inturn,thissituationwasseentoderivefromafeebleproductivestructureandthescantentrepreneurialspiritofthesubjectsoftheKingdomofNaples:thethemethatSerrachosetoopenhisBrevetrattato.Therewas,then,adecisiveconnectionbetweenscarcityofmoneyintheKingdomanditsfeebleproductivestructure,anditispreciselythisconnectionthatconstitutesananswertoimputationsthatSerraidentiÞedwealthwithmoneyandpreciousmetals:84athesiswhichhasnotextualfoundationinhiswork,wheretheproblemofwhatconstituteswhatAdamSmithwaslatertocallÔthewealthofnationsÕwasnottackleddirectly,andwhichwasinfactcontradictedbytheprimaryroleattributedtoproductiveactivity.Asfrequentlyhappensinthehistoriographyofeconomicthought,thecontrastingevaluationsofSerraÕscontributiontothedevelopmentofeco-nomicsciencedependedonthevariouspositionsoftheparticipantsinthetheoreticaldebate.Inthisrespectwecandistinguishtwoextreme,con-ßictingthesesalreadypresentinthehistoricalliteratureofthenineteenthcentury.Ontheonehandwehavetheextremelaissez-faireapproachofFrancescoFerrara,whocondemnedSerraoutofhandtogetherwithanyotherauthorswhodidnotinprinciplerejectanykindofpublicinterven-tionintheeconomy.85Ontheotherhand,weÞndthenationalismandempiricalreformismofauthorssuchasCustodiandPecchio,andalso84Cf.Say1803,p.30;McCulloch1845,p.189;Ferrara1852,p.xlix.TheoppositeopinionwasheldbyEinaudi1938,pp.132Ð3,andSchumpeter1954,pp.353Ð4.WeshouldrecallthatEinaudiwasastaunchcriticofbullionistviews,goingsofarastodatethebirthofeconomicsciencepreciselyatthestagewhen(withBotero,PettyandCantillon)identiÞcationbetweenpreciousmetalsandwealthwasrejected(Einaudi1932,pp.219Ð25).85FerrarahadbeencriticisedfornothavingincludedSerraandotherItaliansintheÞrsttwovolumesofhisBibliotecadellÕeconomista(Þrstseries),dedicatedinsteadtothephysiocratsandSmith.AnsweringtothiscriticismintheprefacetothethirdvolumeoftheÞrstseriesoftheBiblioteca(dedicatedtotheÔItaliantractsoftheXVIIIcenturyÕ:Genovesi,Verri,Beccaria,Filangieri,Ortes),Ferrara1852,pp.xliiiÐlvii,expressedadecidedlynegativejudgementofSerraÕsqualitiesasaneconomist,classifyinghimasabullionist(ÔgoldandsilverwereforhimtheonlyandsupremepossiblewealthÕ,ibid.,p.xlix)butsavinghim(ibid.,pp.lvÐlvi)asapatriotinspiredwithcivicpassion,maintainingthatSerraÕsworkactuallyaimedatinsinuatingintothereader,throughcomparisonbetweenNaples

Theprehistoryofpoliticaleconomy51List,whomaintainedthecrucialimportanceofSerraÕsworkastheÞrstmanifestationofanewscience,preciselybecauseofthereferencemadetotherealeconomyandtheroleofindustry,initsoriginalsenseofspiritofinitiative,forthewell-beingofthenation.86Itis,indeed,amistaketoundervalueSerra,classifyinghimasoneamongthemanymercantilistauthorsofthetimeresponsibleforsucherrorsinrepresentationoftheeconomicsystemascannolongerbeacceptedafterAdamSmithÕscritique.Aswehaveseen,infact,Serraattributedacentralroletonationalproductiveactivity,andthuscouldhardlybeassociatedwiththecharacterisationofmercantilismthathasthewealthofnationsstemming(mainly,ifnotsolely)fromforeigntradeÐacharacterisationwhich,moreover,wasalsofaultedbyvariousotherauthorsofthetime.87However,itisalsodifÞculttoaccepttheoppo-siteinterpretativeposition,whichwentsofarastoconsiderSerrathefounderofeconomicscience.Tothisendtheimportanceattributedtorealphenomena,inparticulartomanufacturingproduction,iscertainlynotsufÞcient,sinceinhisworkwewouldlookinvainforasufÞcientlyclearexpositionofthenotionofsurplusthatconstitutedinthefollowingtwocenturiesthebasisforthedevelopmentofclassicalpoliticaleconomy;equallyinvainwouldwelookforeventheslightesttraceofanytheoryofvalueanddistribution.88Itis,however,clearthatSerracanhavehadscantinßuenceifanyatallontheinitialstagesinthedevelopmentofpoliticaleconomy,giventheminimalcirculationofhisworkbeforeitwasreprintedinCustodiÕsseries.SerrawasnotamercantilistinthedisparagingsenseattributedtothelabelbythefollowersofAdamSmith,whohadinfactcreatedit,inbookIVoftheWealthofnations,asascapegoatforhisanimadversionsonthefeudalobstaclestoeconomicinitiative.Serrawasanauthorasimmunefromsectarianinterventionistideasashewasfromextremelaissez-faireviews,andVenice,theideathattherepublicwasaformofgovernmentsuperiortoabsolutemonarchy,andconsideringitÔlikelythatGalianihadintended,byextollingthemeritsoftheeconomist,torefertothepoliticianÕ(ibid.,p.lvi).(Thelegend,widespreadinthenineteenthcentury,ofSerraasapatriot,imprisonedbecauseofhispoliticalposition,hasnofactualsupportwhatsoever.)86Cf.Custodi1803;Pecchio1832,pp.45Ð50;List1841,pp.265Ð7,271.87Cf.Perrotta1991.88SerraÕsreferencestotheÔquantityofmanufactures[…]thatexceedstheneedsofthecountryÕortotheÔsurplusmaterialsÕ(Serra1613,p.11)areinsufÞcientinthisrespect.Moreover,itisnotdifÞculttoÞndprecursorsofSerraonspeciÞcpointsthatdrewpraisefromthecommentators.Forinstance,SerrawasprecededbytheanonymousGenoesecriticofDeSantis(Anonymous1605)intheimportanceattributedtoinvisibleitemsinthebalanceofpayments.Again,hewasprecededbyauthorssuchasBotero1589fortheimportanceattributedtoÔmanÕsindustryÕ,andbyScarufÞ1582forthehostilitytomeasuresforbiddingtheexportofmoneyandpreciousmetals.

52TheWealthofIdeaswhoadmittedpublicinterventionintheeconomywhendirectednotatcontainingtheinterestsofindividualagentsbutratheratprovidingthemwiththerightsystemtooperatein.Hewasanauthorwhodidnotiden-tifywealthwithmoneyandpreciousmetals,butwho,unlikethemostschematicamongtheclassicalauthorsoftheeighteenthÐnineteenthcen-turies,puthisÞngerÐalmostintuitively,wemightsayÐontherelationshipofinterdependencebetweenÞnancialandrealaspectsoftheeconomy.Hewasanauthornotyetconstrainedbytheclassicalnotionofhomooeco-nomicus,whofounditnaturaltoconnectpolitical,socialandeconomicaspects.Serrawasanauthorofcommendablementality:Ôfavourabletoactivism,opentorecognisetheroleoffreewill,idealistic,incontrasttothefatalistic,mechanicalandmaterialistic[mentality]…oftheclassicaleconomistsÕ.89Serra,tosumup,wellrepresentedthepotentialitiesoftheformativestageofeconomicscience,displayingopennesstoavarietyofpossiblelinesoftheoreticaldevelopment.Re-readinghisBrevetrattatoservestoremindusthatconstructingwell-deÞnedconceptualandana-lyticalstructuresmayincurthecostofneglectingcertainelementsthatplayanimportantroleinourunderstandingofreality.89Tagliacozzo1937,p.xxxiv.

3WilliamPettyandtheoriginsofpoliticaleconomy11.LifeandwritingsSirWilliamPettywasbornon26May1623,thetwentiethyearofthereignofJamesI,inthevillageofRomsey,Hampshire(England),anddied26December1687inLondon.Tosaythathislifewaseventfulisanunder-statement.2Thesonofaclothier,hewasaship-boyonamerchantshipattheageofthirteen,buttenmonthslaterhewasputashoreontheFrenchcoastwithabrokenleg.HesupportedhimselfbygivingLatinandEnglishlessons,andsoonsucceededingainingadmissiontotheJesuitcollegeinCaenwherehestudiedLatin,Greek,French,mathematicsandastron-omy.AfterservingintheRoyalNavy,whenthecivilwarbrokeout,hejoinedotherrefugees,ÞrstinHolland(1643),andtheninParis(1645Ð6),wherehestudiedmedicineandanatomy.Whenhisfatherdiedin1646hereturnedtoRomsey,buthesoonwenttoLondon,wherehetriedunsuccessfullytoexploitoneofhisowninventions,amachinecapableofproducingduplicatecopiesofawrittentextsimultaneously,forwhichhehadobtainedapatentin1646.In1648,afterafewmonthsÕstudy,hewasawardedthedegreeofdoctorofmedicineatOxfordUniversity.Herehiscareerquicklyblossomed,favouredbythepoliticalunrestoftheperiodthatledtothedismissaloftheoldprofessorswhowereconsideredtobesupportersoftheking.In1650Pettybecameprofessorofanatomy.InthefollowingyearhemovedtothechairofmusicatGreshamCollege,1InthischapterIusematerialdrawnfrommybookonPetty(Roncaglia1977),wherethereadercanÞndfurtherdetailsonthesubject.LetusrecallherethatÔpoliticaleconomyÕisthetermbywhicheconomicsciencewascommonlydesignated,untilMarshallshiftedtothenowdominanttermÔeconomicsÕ;incontemporaryeconomicliterature,thetermÔpoliticaleconomyÕhasbeenrevivedbythosestreamsofresearch(suchastheMarxists,thepost-Keynesians,theSrafÞansorneo-Ricardians)whichlaystressonthesocialnatureofeconomicactivity.2ForPettyÕsbiographyseeFitzmaurice1895;weshouldtakeintoaccountthattheauthor,adescendantofPetty,avoidedstressingtheworstfeaturesofhisillustriouspredecessor,buttheinformationheprovidedissufÞcientforperceivingthedifferentsidesofPettyÕsverycomplexpersonality.53

54TheWealthofIdeasLondon.3AshorttimelaterheleftEnglandagain(thoughmanagingtoretainhisformerappointmentsandemoluments),thistimeforIrelandasthechiefmedicalofÞceroftheEnglisharmysenttherebyCromwell.AfterthevictoriesovertheIrish,PettywasentrustedwiththetaskofconductingageographicalsurveyoftheIrishlands,astheÞrststepfordistributingthemamongtheEnglishsoldiers,thestatedomainandtheÞnanciersofthemilitaryexpeditions.Thiswasamostcomplextask,butPettysucceededincompletingitinonlyfouryears,between1655and1658.Intheprocess,hebecameaveryrichman,withlargepropertiesinIreland,andalsothankstothetradeindebentures(representingrightstothelandstobedistributed)soldbythesoldiers.Fortherestofhislife,Pettywasbusywiththeadministrationofhislands,togetherwithunendinglegalcontroversiesoverhisIrishtitlesandtaxes,andmovedcontinuouslybetweenEnglandandIreland.In1660Ð2hetookpartinthefoundingoftheRoyalSocietyfortheImprovingofNaturalKnowledge.In1667hemarriedawidow,ElizabethWaller,withwhomhehadÞvechildren;hehadalsofatheredatleastoneillegitimatedaughter,wholaterappearedonthesceneinLondonasadancer.OnlyasmallpartofPettyÕsmanuscripts(containedinmanylargeboxesknownastheÔBowoodpapersÕnowdepositedattheBritishLibrary)waspublishedduringhislifetimeunderhisownname.4WiththeexceptionoftheTreatiseoftaxesandcontributions(1662),themainwritingsrelatingtoeconomicmatterswerepublishedafterhisdeath,whenthe1688rev-olutionrenderedthepoliticalclimatemorefavourabletohisideas.ThusPoliticalarithmetickwaspublishedin1690,VerbumsapientiandPoliticalanatomyofIrelandin1691,Quantulumcumqueconcerningmoneyin1695,thoughtheywerewrittenin1664,1676,1672and1682,respectively.Amongtheworkspublishedinhislifetime,theNaturalandpoliticalobser-vationsuponthebillsofmortality,commonlyconsideredastheÞrsteverworkofdemography,appearedin1662underthenameofJohnGraunt(1620Ð74),oneofPettyÕsbestfriends,althoughitismostlikelythatPettyhimselfwastheauthorofatleastpartofthework,probablytryingtohelpGraunttoensurehisadmissiontotheRoyalSociety.3Thetransitionfromthechairofanatomytothatofmusicislessstrangethanitmayappear,ifwebearinmindnotonlythemultifacetednatureoftheintellectualsofthosetimes,butalsothefactthatatthetimemathematicalrelationswereanessentialpartinthestudybothofhumananatomyandofthelawsofharmony.ThomasHobbes,forexample,studiedthegeometricalproportionsamongthevariouspartsofthehumanbody,andDescartes(1596Ð1650)intheCompendiummusicaeinvestigatedthemathematicalratiosthatconnectconsonances,tonalitiesanddissonances.(Theconnectionbetweenmusicandmathematicshasitsrootsinclassicalantiquity:Pythagoras,inthesixthcentury,studiedthemathematicalproportionsexpressingintervalsinmusicalscalesasnumericalratios:cf.Cammarota1981,p.17.)4Anextremelyaccuratebibliography,obviouslyexcludingrecentpublications,isthateditedbyCharlesHullandpublishedintheappendixtoPetty1899,pp.633Ð60.

WilliamPettyandtheoriginsofpoliticaleconomy55AcollectionofPettyÕseconomicwritings,includingsomeunpublishedmaterial,appearedin1899,editedbyCharlesHull,underthetitleTheeconomicwritingsofSirWilliamPetty.In1927and1928theMarquisofLansdowne,adescendantofPetty,editedotherpreviouslyunpublishedmaterial:ThePettypapers,intwovolumes,andThePettyÐSouthwellcor-respondence.Animportantmanuscript,Adialogueonpoliticalarithmetic,waspublishedin1977inaJapanesereview.5AperceptiveoverviewoftheÔPettypapersÕarchives,andacomprehensivebibliographyofsigniÞcantsecondaryliteratureonPetty,areprovidedinAspromourgos(2001).2.PoliticalarithmeticandthemethodofeconomicscienceWilliamPettyiscommonlyrememberedasthefounderofpoliticalarith-metic.6Thisisnotsomuchabranchofstatistics,asanextensiontotheÞeldofsocialsciencesofthenewideas,andnewviewoftheworld,thatweretakingrootintheÞeldofnaturalscience.Withpoliticalarithmetic,infact,Pettyaimedtointroducethequantitativemethodintotheanalysisofsocialphenomena,soastoallowamorerigoroustreatmentofthem:[Algebra]cameoutofArabiabytheMooresintoSpaineandfromthencehither,andW[illiam]P[etty]hathapplyedittootherthanpurelymathematicallmat-ters,viz.:topolicybythenameofPoliticallArithmitickbyreducingmanytermesofmattertotermesofnumber,weight,andmeasure,inordertobehandledMathematically.7Thismethodologicalinnovationreßectedwhatwashappeningatthetimeinthenaturalsciences.Theseventeenthcenturywitnessedthenew,quantitativeapproachtophysicstakingoverfromtheoldviewofphysicsasadescriptionofthesensiblequalitiesofphysicalobjects;inallÞeldsofscientiÞcresearch,measurementofquantitiesbecamethecentralobjectofenquiry.Thiswasmirroredinthematerialistic-mechanicalviewofmanandtheworld,supportedinparticularbyThomasHobbes(1588Ð1679),withwhomPettyhadstudiedanatomyinParisin1645.InHobbesÕsview,themethodofenquiryÐthelogicofquantities(logicasivecomputatio)Ðreßectedtheverynatureoftheobjectofenquiry.Thedevelopmentofthesenewmethodologicalcriteriawasaccompa-niedbyaradicalcritiqueoftraditionalculturedominatedbyAristotelianthought.Bacon(1561Ð1626)hadprecededHobbesinthisrespect,andwasoneofthefewauthorswhomPettycitedandforwhomheexpressed5Morerecently,twofragmentsofalgebraicanalysisappliedtoeconomicissueshavebeenpublishedinAspromourgos(1999);thesefragmentsconÞrmtheinterpretationofPettyÕsmethodillustratedin2.6Cf.forinstanceMarx1905Ð10,vol.1,pp.344Ð52;Schumpeter1954,pp.210Ð15;Cannan1932,pp.14Ð17.7Petty1927,vol.2,p.15:lettertoSouthwellof3November1687.

56TheWealthofIdeasgreatadmiration.Inoppositiontothesyllogistic-deductivemethodoftheAristoteliantraditionandtheRenaissancetraditionofpureempiricism(techniciansandalchemists),Baconproposedtheinductivemethod,afusionofempiricismandrationalism:themenofexperimentareliketheant;theyonlycollectanduse:thereasonersresemblespiders,whomakecobwebsoutoftheirownsubstance.Butthebeetakesamiddlecourse;itgathersitsmaterialfromtheßowersofthegardenandoftheÞeld,buttransformsanddigestsitbyapowerofitsown.Notunlikethisisthetruebusinessofphilosophy;foritneitherreliessolelyorchießyonthepowersofthemind,nordoesittakethematterwhichitgathersfromnaturalhistoryandmechanicalexperimentsandlayitupinthememorywhole,asitÞndsit;butlaysitupintheunderstandingalteredanddigested.8ThiswaspreciselythemethodfollowedbyPetty,whodidnotlimithimselftodescribingsocialphenomenainquantitativetermsbutalso,andcrucially,attemptedtogivearationalexplanationtotheassembleddata.Indeed,heoftenwentsofarastoattempttoreconstructthedatarequiredforaninvestigationonthebasisofcomplicatedchainsofdeduc-tivereasoningofanarithmetic-quantitativenaturethatpermittedthescarceavailableinformationtobeexploitedforamyriadofdifferentpur-posesandwhichthemselvesconstituteanexcellentappliedexampleofthenewlogicofquantities.Furthermore,Pettyemphasisedhisdecisiontogroundhisownanal-ysisonobjectivedata.ThispositionwasalsorepresentativeofawidelyacceptedtendencywithinthenewscientiÞcapproach,butPettyÕsexplicitafÞrmationsonthesubjecttookonparticularimportancebecausehisinvestigationswereundertakenintheareaofsocial,ratherthannatural,sciences.Inthisrespect,afamouspassagefromthePrefaceofhisPoliticalarith-metick(1690)canbeconsideredashismanifesto.TheMethodItaketodothis,isnotyetveryusual;forinsteadofusingonlycomparativeandsuperlativewords,andintellectualArguments,Ihavetakenthecourse(asaSpecimenofthePoliticalArithmetickIhavelongaimedat)toexpressmyselfinTermsofNumber,Weight,orMeasure;touseonlyArgumentsofSense,andtoconsideronlysuchCauses,ashavevisibleFoundationsinNature;leavingthosethatdependuponthemutableMinds,Opinions,AppetitesandPassionsofparticularMen,totheConsiderationofothers.9Wehavehereaclear-cutoppositiontothelogical-deductivemethodoftheScholastics,whichwasstilldominant,althoughnotall-powerful,inscientiÞcresearchintheseventeenthcentury.Itisnecessary,however,toqualifythispointbyrecallingthatforPettyiswasnotonlyamatterofrecordinganddescribingrealityÔintermsofnumber,weight,ormeasureÕ,8Bacon1620,pp.92Ð3:Book1oftheAphorisms,No.95.9Petty1690,p.244.

WilliamPettyandtheoriginsofpoliticaleconomy57butratheramatterofexpressingrealityinsuchtermsinordertointerpretitbyidentifyingitsmaincharacteristicsandplacingatthebasisofhisowntheoryÔonlysuchcauses,ashavevisiblefoundationsinnatureÕ,thatis,objective,ratherthansubjective,causes.SomewhathiddeninBacon,butalreadydevelopedbyHobbesandotherscientists,wasthetendencytodirectresearchtowardsidentiÞca-tionofprecisequantitativerelationshipsbetweenthephenomenaunderstudy.TheÞrstwhohadclearlyexpressedthistendencywasGalileo(1564Ð1642),accordingtowhomÔthisgreatbookwhichisopeninfrontofoureyesÐImeantheUniverseÐ[…]iswritteninmathematicalcharactersÕ;10knowledgeoftheworldthereforerequirestheconstructionofarithmeticorgeometricmodels(Hobbesinsistedinparticularonthelatterinhiswork).11Pettyalsoadoptedsuchapointofview,althoughinamorequaliÞedform,andevenproposedsomequantitativerelation-ships,suchasthoserelatingthepriceofcommodities(e.g.diamonds)totheirmainphysicalcharacteristics(cf.below,4).Furthermore,aviewoftheworldsimilartothatofGalileoandHobbeswasreßectedintheformulaÔnumber,weight,ormeasureÕwhichPettyrepeatedlyutilised.12Politicalarithmeticwasconsiderednotonlyasthemostappropriate10Galilei1623,p.121.Thiswasnotasideissue:intheÞrststagesofthetheologicalcontroversyoverCopernicusÕandGalileoÕsthesis,thattheearthmovesaroundthesun,theJesuit,thenCardinal,RobertoBellarmino(1542Ð1621)hadsuggestedthattherewouldhavebeennothingwronginproposingthisasausefulhypothesis,butnotasatruestatementaboutreality(cf.Rossi1997,pp.118Ð20).RejectionofCardinalBellarminoÕsposition,whichatthetimecouldappearasasubtleÐtypicallyJesuitÐpoliticalcompromisebutwhichinfactpointedtowardsamodernepistemologicalview,wasexpressedbyNewtonwiththewell-knownmotto,hypothesesnonÞngo(ÔIframenohypothesisÕ).11InthesamedirectionwentDescartes(hismainwork,theDiscoursdelam«ethode,isdated1637),founderofanalyticalgeometryÐhisnamehasbeengiventotheCartesianaxesÐwhoconceivedoftheuniverseasofamechanism.YoungerthanPettyweretheGermanphilosopherGottfriedWilhelmvonLeibniz(1646Ð1716)andtheEnglishmanIsaacNewton(1643Ð1727),inventorsofdifferentialcalculus.12SuchaformuladerivesfromtheBible:ÔYouorderedallthingsbymeasure,number,weightÕ,itissaidintheBookofWisdom,xi:20.Themottobyitselfisopentovarioususes;forinstance,itwasusedinawaycompletelydifferentfromPettyÕsbyPufendorf(1672,p.731),whorepresentedthetheoreticalpositionoftheÔnaturallawÕstreamofthought.PettyÕsfollowersÐtheÔpoliticalarithmeticiansÕGregoryKing(1648Ð1712)andCharlesDavenant(1654Ð1714)Ðappeartohaveinterpreteditprevailinglyinthelimitedmeaningofdescriptionofquantitativephenomena.Itistruethatthereistheso-calledÔKingÕslawÕ,connectingincreasesinthepriceofcorntodecreasesincropscomparedtothenormallevel;howeverÐleavingasidetheissueofwhethersuchaÔlawÕshouldbeattributedtoKingortoDavenant,withLauerdale(1804)andTooke(1838Ð57)favour-ingtheÞrst,andJevons(1871,pp.180ff.)optingforDavenantÐweareinanycasecon-frontedwithasimplepresentationofdatatowhichnoanalyticalreasoningwasattached.ToPetty,politicalarithmeticmeantsomethingmoreanddifferent:itaimedatdiscover-ingthequantitativerelationsthatconstitutetheverybasicstructureofsocialrealityÐinanalogytowhatphysicallawsdoaccordingtoGalileoÐsinceitidentiÞedtheelementsessentialtowhathadbeenselectedastheobjectofinvestigation,andabstractedfromtheelementsthatwereconsidereduselessorofminorimportance:thosethat,asRicardo

58TheWealthofIdeasinstrumentforthedescriptionofreality,butalsoforrepresentingit,pre-ciselybecause,accordingtothematerialistic-mechanicalconceptionsup-portedbyGalileoandHobbes,aquantitativestructureisembeddedinrealityitself.AnotheressentialfeatureofthenewmethodologicalapproachadoptedbyPettywasthesharpseparationbetweenscienceandethics,necessaryforthedominanceofmanovernatureassertedbyBaconinhisInstauratiomagnaandenthusiasticallyadoptedbyHobbes:themoralproblemcouldnotariseforscienceinitself,sinceitissimplyameans,butonlyfortheendsthatmanproposedtoattainbymeansoftheutilisationofitsresults.Thispositionhasremaineddominantuptothepresentday,althoughwithrecurringcrises(consider,forinstance,thedebateonbiotechnologies),andhasbeenofdecisiveimportanceforthedevelopmentofhumansciences.133.NationalstateandeconomicsystemMoney,internationaltradeandtheÞscalsystemwerealreadysubjectsofeverydaydebateinPettyÕstime.WhatprimarilydifferentiatedPettyÕstreatmentofthesesubjectsfromthatofhiscontemporariesandpredeces-sors,beyonddifferencesinthepositionshesupported,wasthemethodthatheappliedtoanalysethem:amethodthathedubbedÔpoliticalarith-meticÕandÔpoliticalanatomyÕ.TheobjectofPettyÕsanalysiswastheÔbodypolitickÕ,thatis,thestate,inthecombinedsenseofpoliticalsystemandeconomicsystem:commontermsnowadaysbutwhichPettyneverused.Nor,indeed,dideitherPettyorhiscontemporariesfeeltheneedtodis-tinguishbetweenthetwoaspects.Thebirthofcapitalismisgenerallyconnectedtothebirthofthenation-state.AuniÞedconceptionofthenation-state,givingparticularattentiontotheproblemofthepoliticaluniÞcationofthecityandthecountryside,wasdevelopedbyMachiavelli.Fromthecomplexnetworkofsocialinter-dependenceshesingledout,asbeingofgreatestimportance,thoseamongcitizensofthesamestate,andbetweenthesovereignandhissubjects.wastoputitacenturyandahalflater,onlyÔmodifyÕtheanalysisbutdonotchangeitssubstance.WithananalogousmeaningPettyusedthetermÔpoliticalanatomyÕ,asthestudyofÔstructure,symmetryandproportionsÕoftheÔbodypolitickÕ:onceagainPettyindicatedthathisaimwastoprovideaselectiveinterpretationofthecomplexitiesoftherealworld,focusingattentiononwhatheconsideredastheessentialcharacteristicsofthefunctioningoftheÔbodypolitickÕ.13Withintheselatterones,thecrucialpointoftransitionwasrepresentedbyNiccol`oMachiavelli(1469Ð1527;hismainwork,Ilprincipe,isdated1513),whosewritings,notbyaccidentincludedintheindexofforbiddenbooks,enjoyedaverylargecirculationinthesixteenthandseventeenthcenturies.

WilliamPettyandtheoriginsofpoliticaleconomy59Pettyadoptedasimilarview,withhisnotionoftheÔbodypolitickÕ.Thisimpliedabi-directionalchoiceconcerningthelevelofaggregation.Alowerlevelofaggregationwasrejectedbecauserelationsamongcitizensofasinglestate,andbetweenthesovereignanditssubjects,arecon-sideredasfundamentalwithrespect,forexample,torelationsbetweeninhabitantsofthesamevillageorbetweenajusticeofthepeace(oranyotherlocalgovernmentofÞcial)andthosewhoareunderhisjurisdiction.Ahigherlevelofaggregationwasrejectedbecausethesystemofinter-nationalrelationsamongcitizensofthevariousstateswasconsideredasbeingsubordinatetotheinterrelationsamongthestatesthemselves.However,thenotionoftheÔbodypolitickÕdidnotyetcorrespondtothemodernnotionofaneconomicsystem.MachiavelliwasÔonly[…]abletoexpresshisprogrammeandhistendencytorelatecityandcountrysideinmilitarytermsÕ.14Analogously,inPettythenotionofÔbodypolitickÕindicatesthefactthatthewebofrelationsandexchangesthatconsti-tutethelifeofaproductivesystemaresubordinatetoauniquepoliticalauthority.NeitherMachiavellinorPettyperceivedtheinterrelationsthatexistbetweencityandcountryside,orbetweenagricultureandindustry,fromthepointofviewofproduction.Theywerethuscompelledtoiden-tifytheunifyingelementinthepoliticalsuperstructure.15Asweshallseeinthenextchapter,itwaspreciselytheabilitytogobeyondthislimit,andtodiscoverthetechnologicalrelationsofproductionthatlinkthevarioussectorsoftheeconomy,whichconstitutedQuesnayÕsmajorcontributiontothedevelopmentofeconomicscience.MachiavelliÕsandPettyÕswritingsreßectedthestill-limiteddevelop-mentoftheproductivestructureoftheirperiod.Themining,manu-facturing,agricultural,cattlebreedingandÞshingactivitiesthatPettyhadlaunchedonhisIrishproperties,forinstance,werelargelyverticallyintegrated,withonlyveryroughbookkeepingdistinctionsbetweendiffer-entstagesoftheproductiveprocessesanddifferentsectors.Inaddition,changesinpoliticalinstitutionswerenecessaryforthetransitionfromfeu-dalismtocapitalism,forexampleinordertoguaranteeprivatepropertyinthemeansofproductionandthepossibilityofbuyingandsellingthem.Thiswasespeciallytrueforland,bothbecauseoftheprimaryimportanceofagricultureintheeconomyofthetime,andbecauseoftheconnec-tionbetweenitspossessionandfeudalrights,whichimposedobstaclestoitsunfetteredtransferability.LetusrecallinthisrespectPettyÕsinsistent14Gramsci1975,p.1575.Townandcountrysidecorrespondbyandlargetomanufacturesandagriculture,thetwosectorsintowhichinitiallymodernproductiveactivitywasclassiÞed.Cf.below(4.5)whereCantillonisdiscussed.15Cf.Roncaglia1988.

60TheWealthofIdeassupportforthecreationofalandregistry,andingeneralforastan-dardisationofdeedsforlandedproperty.ThestillpartialnotionoftheeconomicsystemadoptedbyPetty,inthewakeofthenotionofthestateproposedbyMachiavelli,shouldbeunderstoodasanexpressionofapar-ticularhistoricalphase,thatofthetransitionfromfeudalismtoindustrialcapitalism.16ThenotionoftheÔbodypolitickÕbrießyillustratedhereunderlayPettyÕsspeciÞcviewsonsubjectssuchasmoney,foreigntradeandtaxes.PettyÕswritingswerenotsystematictreatises,butimmediateinterventionsinthethencurrentpoliticaldebates.Oftenthesewritingswerebriefworkingnotes,ormemorandafortheking,aimedatdemonstratingpolicytheses,suchastheeconomicstrengthofEnglandrelativetoFranceandhencethepossibilityforagreaterpoliticalautonomyoftheEnglishking.Asfarasmoneyisconcerned,wemaystressanimportantdiffer-encebetweenPettyÕsviewsandthosedominantatthetime.Thisdif-ferencebecomesevidentinhissubstitutingthetraditionalcomparisonbetweenmoneyandblood17withanotherparallelism:betweenpoliticalandhumananatomy:MoneyisbuttheFatoftheBody-politick,whereoftoomuchdothasoftenhinderitsAgility,astoolittlemakesitsick.ÕTistrue,thatasFatlubricatesthemotionoftheMuscles,feedsinwantofVictuals,ÞllsupunevenCavities,andbeautiÞestheBody,sodothMoneyintheStatequickenitsAction,feedsfromabroadinthetimeofDearthatHome;evensaccountsbyreasonofitsdivisibility,andbeautiÞesthewhole,althomoreespeciallytheparticularpersonsthathaveitinplenty.1816Foreachstageinhistory,thecentralobjectofanalysisfortheeconomistmaybeidentiÞedinthatlevelofaggregationthatcorrespondstothequalitativejumpbetweeneconomicintegrationandnon-integration:thehuntingtribe,theagriculturalvillage,thefeudalcastlewithsurroundinglands,theprincipalitylinkingtownandcountryside,andÞnallythenation-state.However,deÞnitionoftheeconomicsystemascorrespondingtothenation-stateisalsorelativetoaspeciÞchistoricalstage,anddoesnotconstituteanimmutablelawofnature:theprocessofenlargementoftheareaofintegrationmaynotstopatthenation-state,buttendtoembracethewholeofthemarketeconomies.Asamatteroffact,thetendencytowardsdemolitionofcustomsbarriersandtotheuniÞcationofjurisprudenceintheÞeldofbusinessisattheheartofincreasingworldwideeconomicintegration,bothasinternationaldivisionoflabourandasuniÞcationofthemarkets(so-calledÔglobalisationÕ).17AsusedforinstancebyHobbes1651,p.300.Aswehavealreadyrecalledinthepreviouschapter,liberalhistoriansofeconomicthought,fromSmithhimselfonward,wentsofarastoattributetoPettyÕscontemporaries,classiÞedasmercantilists,theidentiÞcationofwealthwithpreciousmetals;tothis,theyopposedtheclassicalnotionofmoneyasaveil,accordingtowhichthequantityofmoneyincirculationinaneconomicsystemisirrelevantfortheexplanationoftheÔrealÕvariablesoftheeconomy,suchasincomeandemployment.18Petty1691b,p.113.AnotherinterestingdeÞnitionofmoneywasgivenbyPettyinabriefglossaryofeconomicterms:ÔMony.Isthecomonmeasureofcommodityes.Acomonbondofeverymanuponeveryman.TheequivalentofcommodityesÕ(Petty1927,vol.1,p.210).

WilliamPettyandtheoriginsofpoliticaleconomy61AccordingtoPetty,ÔthebloodandnutritivejuycesofthebodypolitickÕareconstitutedbytheÔproductofhusbandryandmanufactureÕ.19Thiscomparisonpointsinthedirectionoftheclassicalnotionoftheeconomicsystembasedonthedivisionoflabourasfunctioningthroughacircularprocessofproduction,exchange,reconstitutionofinitialinventoriesofmeansofproductionandconsumptiongoods,andnewproductionpro-cess.Weshouldrecallinthisrespectthatthediscoveryofthecirculationofblood,madebyHarveyatthebeginningoftheseventeenthcentury,20hadgeneratedlivelyinterestandthatPetty(likeQuesnayafterhim)wasaphysician.PettydidnotprovideanexplicitandsystematictreatmentofthethreefunctionsofmoneyÐunitofmeasure,mediumofexchange,storeofvalueÐbutrecognisedthem(whichisnotparticularlystriking,sincewemaysaythesameforanumberofhispredecessorsandcontemporaries),anddiscussedperceptivelyaspectsofeachofthem.Inparticular,togetherwithLocke(cf.below,4.2),Pettymaybesingledoutforhisnotionofthevelocityofcirculation(thoughthetermisnotused),estimatedonthebasisoftheinstitutionalcharacteristicsoftheeconomicsystemsuchasthepaymentperiodsforwages,rentsandtaxesandutilisedfordeter-miningtheoptimalquantityofmoney.Inordertoreducethequantityofpreciousmetalsnecessaryformonetarycirculation(inotherterms,inordertoincreasethevelocityofcirculation)Pettyrepeatedlyproposedtheinstitutionoflandbanks(followedinthisbyNicholasBarbon,1690).Connectedtohisideasonmoneyarethoseconcerningforeigntrade.Petty,agreeingwithhiscontemporaries,considereddesirableasurplusinthebalanceoftradeasameansofinducinganinßuxofpreciousmetalsintothecountry.Infacthemaintainedtherelativesuperiorityofgold,silverandjewelstoothergoods,duetotheirdurabilityandtotheirroleasameansofexchangeandastoreofvalue.However,heconsideredthepositivebalanceoftradetargetassubordinatetothatofahighlevelofinternalemploymentandproduction.Hethusrecommendedreducingimportsthroughsubstitutionofdomesticallyproducedgoods,whichsat-isÞesboththeobjectiveofapositivetradebalanceandincreaseddomes-ticemployment.Atthesametimeherefusedtocondemnimportationofevenluxuriesandnon-durableconsumptiongoods,ifthispermitsexportofdomesticallyproducedgoodswhichwouldotherwisenotÞndamarket,thusindicatingthatahighandincreasinglevelofproductiveactivitywasconsideredtheprincipalobjective.Tothisendhealsoconsid-eredfavourablyimportationofforeigncapitalandimmigrationofskilled19Petty1662,p.28.20WilliamHarvey(1578Ð1657)announcedhisdiscoveryin1616,butpublisheditonlytwelveyearslater(Exercitatioanatomicademotucordisetsanguinis,1628).

62TheWealthofIdeasforeignlabourers,condemninganylegislationprohibitingorhinderingsuchmovements.21Asfortaxation,PettyconsideredareformoftheÞscalsystemastheÞrststepforensuringuniformityofconditionswithinthecountryandcertaintyofrulesfortheeconomicgame:twoprerequisitesforthedevel-opmentofaneconomybasedonprivateinitiative.ThelargestpartoftheTreatiseoftaxesandcontributions,oneofPettyÕsmainworks,isconcernedwiththesystematicexaminationofthevari-oustypesofgovernmentincome,andhereturnedtothisissueinvariousplacesinhisotherwork.Hepaintedapictureofanintricatelabyrinthofoftenself-contradictoryregulations.PettyconsideredsuchasituationtobeoneofthemajorÔimpedimentsofEnglandÕsGreatnessÕ,whileatthesametimeinsistingthattheseobstaclesÔarebutcontingentandremov-ableÕ(Petty1690,p.298),sincetheyderivedfromthestratiÞcationcausedbycontinuousadditionstotheinitialsystemwhich,asaresult,nolongerserveditsoriginalpurposeandhadlostitsinitialcoherence.Thus,theburdenoftaxationwasbornealmostexclusively,andwithvaryingandunpredictableintensity,bythelandowneranddependedonÔthecasualpredominancyofPartiesandFactionsÕ(withgreatanguishforPetty,con-stantlyinvolvedinÞghtingwiththeÔFarmersofpublicrevenueÕandingeneraldefendinghispersonalinterestasabiglandownerinIreland).Inaddition,thecostofcollection,subcontractedtoprivateagents,wasveryhighandbroughtfurtherelementsofinjusticeanduncertaintyintothesystem(ibid.,p.301).Pettydidnotproposetorationalisethesystembyreturningittoitsoriginalstate,consciousoftheirreversiblechangesthatovertimehadintervenedintheeconomy.Thus,forexample,inconsid-eringpublicofÞces(thatis,positionsassignedtoprivatecitizensatthepleasureofthesovereign,toprovidepublicservicesremuneratednotfromthepublicpursebutbychargeslevieddirectlyonusers),Pettypointedoutthatthesepositionshadmultiplied,duetosocietyÕsincreasingcom-plexity,andhadexpandedinsizewhileassumingincreasinglyaroutinecharacter,sothatmuchoftheoriginaljustiÞcationforthehightariffscharged,achievedthroughthegrantingofpositionsoflegalmonopoly,hadbeeneliminated.Pettyproposedproportionaltaxation,leviedonconsumption,sinceonlythatconstitutesÔactualÕriches.22TheproportionalitycriterionisÔjustÕ,leavingincomedistributionunaffectedbytaxation(andinPettyÕs21Ontheseaspectscf.forinstancePetty1662,pp.59Ð60;1690,pp.271,309;1691b,p.119.22Cf.Petty1662,pp.91Ð2.InthisPettywasprecededbyHobbes,andwastobefollowedbyalongseriesofeconomists,uptoLuigiEinaudiandNicholasKaldorinthetwentiethcentury.

WilliamPettyandtheoriginsofpoliticaleconomy63opinionthedifferencesinwealthandincomearenecessarytoeconomicgrowth).Besides,taxesonconsumptionencourageparsimony,avoiddou-bletaxation(ÔforasmuchasnothingcanbespentbutonceÕ)andeasethegatheringofstatisticsontheeconomicconditionsofthenation,whichareessentialforgoodgovernment.Fiscalregulationsmustbecertain,simple,clearandevident(alsoinordertoavoidcontroversiesandlegalproceed-ingsthatconstituteasocialwaste),impartialandwithlowcollectioncosts.4.CommodityandmarketWesawabove(1.4)thattheÞrststageofeconomictheorisingconsistsinformulationofasetofkeyconcepts,whicharethenutilisedinasecondstageofanalysisforconstructionoftheoreticalsystems.PettyÕscontri-butiontoeconomicsciencereferredprimarilytotheÞrststage.Inthissectionwewillconsideranaspectofcrucialimportance,the(obviouslyinterrelated)notionsofcommodity,marketandprice,andwewillillus-tratetheformtheseconceptsassumedinPettyÕswritings.Asforthenotionsofcommodityandmarket,wemayrefertothefewpagesofabriefessaywrittenintheformofadialogue,theDialogueofdiamonds,thatremainedunpublishedupto1899,whenHullpublisheditinhiseditionofPettyÕseconomicwritings.23Theprotagonistsofthedialoguearetwo:MrA,representingPettyhimself,andMrB,aninexperiencedbuyerofadiamond.Thelatterseestheactofexchangeasachanceoccurrence,adirectencounterproducingarelationshipofconßictbetweenbuyerandseller,ratherthanaroutineepisodeinaninterconnectednetworkofrelationships,eachcontributingtotheestablishmentofstablebehaviouralregularities.TheproblemisadifÞcultonebecausethespeciÞcindividualgoodsincludedinthesamecategoryofmarketablegoodsÐdiamondsinourcaseÐdiffertheonefromtheotheronaccountofaseriesofquantitativeandqualitativeelements,evenleavingasidedifferingcircumstances(oftimeandplace)ofeachindividualactofexchange.Thus,intheabsenceofanormwhichmightallowtheestablishmentofauniquereferencepointforthepriceofdiamonds,MrBconsidersexchangeasariskyact,sinceitappearsimpossibleforthebuyertoavoidbeingcheated,inwhatforhimisauniqueevent,bythemerchantwhohasamoreextensiveknowledgeofthemarket.Intheabsenceofawebofregularexchanges,thatisofamarket,thecharacteristicsandcircumstancesofdifferentiationmentionedaboveoperateinsuchawayastomakeeachactofexchangeauniqueepisode,wherethepriceessentiallystemsfromthegreaterorlesserbargaining23Petty1899,pp.624Ð30.

64TheWealthofIdeasabilityofsellerandbuyer.Theexistenceofamarket,onthecontrary,allowstransformationofalargepartoftheelementsthatdistinguisheachindividualexchangefromanyotherintosufÞcientlysystematicdifferencesinpricerelativetoanidealtypeofdiamondtakenasareferencepoint.Thereisthusarelationshipbetweentheemergenceofaregularmarketontheonehandand,ontheotherhand,thepossibilityofdeÞningasacommodityacertaincategoryofgoods,abstractingfromthemultiplicityofeffectiveexchangeacts,atheoreticalpricerepresentativeofthemall.MrA,theexpert,isinfactawareoftheexistenceofprecisequantitativerelationshipsbetweenthepricesofdifferenttypesofdiamonddeterminedbyweight,dimension,colouranddefects.Afterexplainingthemannerinwhicheachelementisquantitativelyassessedthroughdeterminationofgradingscalesforthequalitativeelements,hethengoesontoexplainhoweachsingleelement,andthentheircombinations,affectsprices(oncethepriceofaspeciÞckindofdiamondassumedasareferencepointhasbeensomehowdetermined:anissuetakenupbelow,in5).Thus,forexample,ÔThegeneralruleconcerningweightisthisthatthepricerisesinduplicateproportionoftheweight.Õ24Asimilarruleappliestothedimension.TheaverageofthepricesobtainedonthebasisofthesetworulesdeterminestheÔpoliticalpriceÕ(anotiontobeconsideredbelow)asgivenbybothweightanddimension.Thiswillbethepriceforadia-mondwithoutdefectsandwithgoodcolour.AdjustmentcoefÞcientswillthenbeappliedtodeterminethepriceofdiamondsexhibitingdefectsorlessvaluedcoloration,scalesforsuchcoefÞcientsbeingprovidedbythemarket.Naturallytheblindapplicationoftheserulestodeterminediamondpricesmayleadonoccasiontoabsurdresults,whosecorrectionwillrequiretheapplicationofadjustmentsdeterminedbyexperienceaswellasbysimplecommonsense.PettyÕswritingsthusofferarepresentationoftheprocessofabstrac-tionleadingtotheconceptsofmarketandcommodityfromthemultipleparticularexchangesthatoccurintheeconomy.TwoqualiÞcationsare,however,necessary.First,adiamondisacommoditywhosepriceisdeterminedmorebyscarcitywithrespecttodemandthanbyitscostofproduction;wehavehereamarketisolatedfromothermarkets,atleastasfarasproductiveinterrelationsareconcerned.24Petty1899,p.627.Thisrule,togetherwithsimilarones,wasalsoproposedbyPettyintheDiscourseconcerningtheuseofduplicateproportions(1674),inwhichhetriedtorepresentintermsoffunctionstherelationsbetweenpairsofvariables,whenthereareempiricalregularitieslinkingthephenomenabeingconsidered,andsuchphenomenaareliabletoquantitativeexpression.ThisattemptplacesPettyamongtheforerunners,ifnotthefounders,ofeconometrics.

WilliamPettyandtheoriginsofpoliticaleconomy65Second,PettyonlyimplicitlyspeciÞedtheanalyticalconsequencesofthefactthatthemarketitselfisanabstraction.Letusconsiderthispoint,andtrytointegratethehintsofferedbytheDialogueofdiamonds.Aswehavejuststated,themarketisanabstraction,inthesensethateachindividualactofexchangeconcernsaspeciÞcdiamond,exchangedataspeciÞctimeandplace,ataspeciÞcprice.Themarketexistsasaconceptwhichisuseful,indeedindispensable,toanunderstandingofthefunctioningofamercantileandthencapitalisticeconomicsystem,preciselybecauseitispossibletoabstractfromthemyriadofindividualexchangesagivensetofrelationshipswhichcanbeconsideredasrepre-sentativeofactualexperienceandwhichcanprovideaguidetobehaviour.Thesameconsiderationsapplytotheconceptofthecommodity.Infact,realityiscomposedofaninÞnitenumberofspeciÞcindividualobjects.Wegroupthemintocategories,suchasdiamonds,onthebasisofsomeafÞnitiestowhichweattributecentralimportancewhileignor-ingelementsofdifferentiationconsideredasofsecondaryimportance.Inotherwords,thecommodityisnotanatomofeconomicreality,butisitselfanabstraction,thatalreadyimpliesacertainlevelofaggregation.Themostopportunelevelofaggregationisdeterminedbytheextentoftheinterrelationshipsbetweenthevariousactsofexchange.Thuswecanspeakofdifferentindividualdiamondsasbelongingtoasinglecommod-ity,withitsownspeciÞcmarket,becausethelinksamongvariousindi-vidualexchangesofparticulardiamondsaresuchastorenderacceptablethehypothesisthattheyareoneandthesamegood,sincetheypermitreductionofalldifferencesofweight,dimensionandqualitytoquanti-tativepricedifferences.Onsimilargroundswemayspeakofthemarketforapples,orofthefruitmarket,orofthemarketforfoodingeneral:apples,fruitorfoodmaybeconsideredinturnasacommodityaccordingtothelevelofaggregationthoughttobemostadequate,keepinginmindtherelationshipsthatcomeintoplaywithinthegroupofproducersandwithinthegroupofbuyers.2525AtypicalexampleofthepossibilityofdeÞningacommodityonthebasisofthelevelofabstractionimplicitinaparticularanalyticalframeworkwasofferedbyPetty(1662,p.89)whoidentiÞedÔcornÕwithÔfoodÕingeneralwhenhespokeofÔCorn,whichwewillsupposetocontainallnecessariesforlife,asintheLordsPrayerwesupposethewordBreaddoth.ÕThisidentiÞcationwaslateradoptedimplicitlybyRicardointheEssayoncornof1815(Ricardo1951Ð5,vol.4,pp.1Ð42),whowasquicklycriticisedbyMalthus(lettertoRicardodated12March1815,ibid.,vol.6,p.185).Morerecently,PettyÕshypothesiswasexplicitlyreferredtobyMarshall(1890,p.509n.2)andbySraffa(1925,p.61n.).Thesituationissubstantiallydifferentinthemoderntheoriesofintertemporalgeneraleconomicequilibriumwithcontingentmarkets(cf.below,17.2),accordingtowhichthesamephysicalgoodconstitutesasmanydifferentcommoditiesasthepossibleinstantsinwhichthegoodismadeavailable,multipliedbytheÔstates

66TheWealthofIdeasSomeabstractionisalsonecessaryinformulatingtheconceptofpricesoastodealwiththeanalyticalproblemofdeterminingrelativeprices,namelyexchangeratiosbetweendifferentcommodities.IndeedaÔpriceÕcorrespondstoaÔcommodityÕ;itrepresentsamultiplicityofvalues,eachrelativetoanindividualactofexchange,whensuchactsofexchangeconcerngoodssufÞcientlysimilaramongthemselvesastobeincludedundertheuniquelabelofthesamecommodity(asinthecaseillustratedaboveoftheÔpriceÕoftheÔdiamondÕ).Furthermorewehavetodelimitthesetofactsofexchangetowhichwereferasthebasisforournotionofprice,relativetothetimeandspaceinwhichtheytakeplace.Pettythusdistinguishedbetweencurrentpriceandpoliticalprice;thelattercorrespondstothetheoreticalpricedeterminedonthebasisofananalyticalschemewhichabstractsfromanumberofelementspresentinrealitybutconsideredasofsecondaryimportance.Asweshallsee,thisdistinctioncorrespondstothedistinctionbetweenintrinsiccausesdeterminingthepoliticalprice,andextrinsiccauses,thosevariableandcontingentcauseswhichcombinewiththeformertodeterminethecur-rentprice.PettytackledexplicitlythisprobleminapassageoftheTreatiseoftaxesandcontributionsandintheDialogueofdiamonds.IntheTreatisePettyintroducedthreedeÞnitions,whichdistinguishdifferentconceptsofpricecorrespondingtodifferentlevelsofabstractionintheanalysis:naturalprice,politicalpriceandcurrentprice.Thenaturalpricedependsonthestateoftechnologicalknowledgeandonsubsistencerequiredfortheworkers.Inadditiontothis,thepoliticalpricetakessocialcosts,suchaslabourinputinexcessofnecessarylabour,intoaccount:suchcostsareconsideredbyPettyaswaste,indicativeofthefactthatactualproductionislowerthanpotentialproduction.Finally,thecurrentpriceisdeÞnedoftheworldÕpossibleineachinstant(sothatanumbrellain227daysÕtimeunderrainisadifferentcommodityfromthesameumbrellaavailablein184daysÕtime,or227daysfromnowifitdoesnotrain).Theaxiomaticcharacterofsuchtheoriesinducestheoreticianstothinkthatthemeaningofthevariablesisaproblemexternaltothetheoryitself.Butsuchatheoryrequires,astheexampleshows,thatdisaggregationbepushedtothemaximumextent:uptotheÔatomÕ,namelytoanotionofcommoditynotcapableoffurtherdisaggregation.Thus,bearinginmindtheinÞnityofpointsinthecontinuumofspaceandtime,andtheinÞnityofpossibleÔstatesoftheworldÕ(thataddtothemyriadofdifferentphysicalcharacteristicsofacommodity,asinthecaseofdiamondsdiscussedbelow),allthisimpliesthatthenumberofcommoditiesgrowswithoutlimits,sothatitseemsquitelikelythattherearemorecommoditiesthanrealactsofexchange.Butthen,bydeÞnition,wearenotconfrontedwithamarket,thatis,withawebofrelationsbetweenamultiplicityofbuyersandsellers:thenotionofcommodityproposedbysuchtheoriesisincompatiblewiththenotionofcompetition.Thisexample,hereonlysketched,showsthepossibilityoflogicalcontradictionsstemmingfromthemeaningattributedtothevariablessubjecttotheoreticalanalysis.

WilliamPettyandtheoriginsofpoliticaleconomy67astheexpressionofthepoliticalpriceintermsofthecommodityusedasstandardofmeasure.26PettyÕsÔnaturalpriceÕthushasthemeaningofatarget,oranoptimalprice.Itisinfactthepricecorrespondingtothebesttechnologyavail-able,andtothemostefÞcientpossibleoperationoftheÔbodypolitickÕ.Forclassicaleconomists,fromSmithtoMarx,theÔnaturalpriceÕhasadifferentmeaning,whichcorrespondsclosertothatofPettyÕsÔpoliticalpriceÕ,sinceitpointstothepricewhichregulatesthebehaviourofthemarketanddependsontheactualconditionsofproductionprevailingintheeconomicsystem(Marxwouldsubsequentlyrefertothesecondi-tionswiththeexpressionÔsociallynecessarylabourÕ).27ItappearsthatPettydistinguishedbetweenthesetwonotions,inahistoricalperiodoffarfromfullydevelopedcapitalism,inordertoemphasisethehighercostsattachedtothethenstillbackwardlevelofsocialorganisation.Itshouldalsobenotedthatthecurrentpricementionedinthepassageaboveisitselfatheoreticalvariable,sinceitissimplythepoliticalpriceexpressedintermsofmoney.Ontheotherhand,itisclearthatthereareanum-berofotherelementswhichinßuencetheactualexchangeratiosinthemarketplace.2826ÔNaturaldearnessandcheapnessdependsuponthefewormorehandsrequisitetonecessariesofNature:AsCornischeaperwhereonemanproducesCornforten,thenwherehecandothelikebutforsix;andwithall,accordingastheClimatedisposesmentoanecessityofspendingmoreorless.ButPoliticalCheapnessdependsuponthepaucityofSupernumeraryInterlopersintoanyTradeoverandaboveallthatarenecessary,viz.CornwillbetwiceasdearwherearetwohundredHusbandmentodothesameworkwhichanhundredcouldperform:theproportionthereofbeingcompoundedwiththeproportionofsuperßuousexpence,(viz.iftothecauseofdearnessabovementionedbeaddedtothedoubleExpencetowhatisnecessary)thenthenaturalpricewillappearquadrupled;andthisquadruplePriceisthetruePoliticalPricecomputeduponnaturallgrounds.AndthisagainproportionedtothecommonartiÞciallStandardSilvergiveswhatwassought;thatis,thetruePriceCurrantÕ(Petty1662,p.90).27Theanalogyreferstothetechnologyinuse:bothPettyÕspoliticalprice,andthenaturalpriceofclassicaleconomists,arebasedonwhatthereis,thatis,ontheprevailingandnotontheoptimaltechnology,towhich,asalreadysaid,PettyÕsÔnaturalpriceÕseemstorefer.ButaccordingtoclassicaleconomistsandMarxthereisamechanism,competition,thateliminateswasteandtendstobringtheprevailingtechnologytowardstheoptimalone.Pettyinstead(understandably,giventheepochinwhichhelived)attributedsucharolemainlytoinstitutionalreformsaimingatincreasingtheefÞciencyofthesystem.(TherewasanelementofoptimalityintheSmithianconceptionofthenaturalpriceaswell,becauseofthereferencetoconditionsoffreecompetition:cf.below,5.6,andRoncaglia1990b.)28ÔButforasmuchasalmostallCommoditieshavetheirSubstitutesorSuccedanea,andthatalmostallusesmaybeansweredseveralwayes;andforthatnovelty,surprize,exampleofSuperiors,andopinionofunexaminableeffectsdoaddeortakeawayfromthepriceofthings,wemustaddethesecontingentCausestothepermanentCausesabovementioned,inthejudiciousforesightandcomputationwhereofliestheexcellencyofaMerchantÕ(Petty1662,p.90).

68TheWealthofIdeasIntheDialogueofdiamondsPettyreturnedtothedistinctionbetweentwogroupsoffactorsaffectingthepriceofdiamonds:intrinsicfactorsandextrinsic,orcontingent,factors.Theformerconcurindeterminingthepoliticalprice(i.e.thetheoreticalprice),whilethelatterexplainthedivergenceofcurrentpricefrompoliticalprice.Extrinsicfactorscorre-spondtocasualcircumstancesofspeciÞcactsofexchange,sothatitisdifÞculttodeÞnethemandapplytothempreciserulesfortheirreductiontohomogeneous,comparablemagnitudes.Intrinsicfactors,ontheotherhand,areidentiÞablewithprecision,anditispossibletotranslatethemintermsofpricedifferencesaccordingtowell-deÞnedruleswhichmaybedeterminedbyobservationofthegeneralityofexchangesthatactuallyoccurinthemarketplace.IntheDialogueofdiamondsMrA,themarketexpert,illustratesthepointinthefollowingway:Thedeernessorcheapnessofdiamondsdependsupontwocauses,oneintrinsecwhichlyeswithinthestoneitselfandtheotherextrinsecandcontingent,suchasare1.prohibitionstoseekfortheminthecountrysfromwhencetheycome.2.WhenmerchantscanlayouttheirmoneyinIndiatomoreproÞtuponothercommoditysandthereforedoenotbringthem.3.Whentheyareboughtuponfeareofwarrtobeasubsistenceforexiledandobnoxiouspersons.4.Theyaredeerneerthemarriageofsomegreatprince,wheregreatnumbersofpersonsaretoputthemselvesintosplendidappearances,foranyoftheisecausesiftheybeverystronguponanypartoftheworldtheyoperateuponthewhole,forifthepriceofdiamondsshouldconsiderablyriseinPersia,itshalalsoriseperceivablyinEngland,forthegreatmerchantsofjewelsalltheworldoverdoeknowoneanother,doecorrespondandarepartnersinmostoftheconsiderablepiecesanddoeusegreatconfederacysandintriguesinthebuyingandsellingofthem.29Ofparticularinterestistheconclusionofthepassage,wherePettydescribedaworldwidemarketandstressedthefactthatcontingenteventstakingplaceinanyonepartoftheworldcanhaveanimpactonanyotherpart,becausethevariouslocalmarketsfordiamondsareintegratedinasingle,uniÞedworldmarket(ÔthegreatmerchantsofjewelsalltheworldoverdoeknowoneanotherÕ).Ontheotherhand,itmaysurpriseustoseetheprohibitionsmentionedaboveincludedamongthecontingentele-ments,fortheyareinstitutionalelements,andassuchonemightexpectthattheyshouldbeincludedamongtheelementsthatdeterminethepoliticalprice.Apartfromhisratherlowattentiontoconsistencybetweenhisdifferentwritings,itispossiblethatPetty,inhisself-attributedroleofadvisertotheking,consideredcertaininstitutionalobstaclestothedevelopmentofexchange,andoftheeconomyasawhole,assusceptible29Petty1899,p.625.

WilliamPettyandtheoriginsofpoliticaleconomy69ofelimination.ThisappliedspeciÞcallytorestrictionsonforeigntrade.Aswehavestressedabove,thetheoreticaldistinctionbetweennaturalpricesandpoliticalprices,likeotherelementsinPettyÕsanalysis,shouldbeinterpretedinthelightofthepracticalintentionsoftheauthor,whowantedtoemphasisethedetrimentcausedbycertaininstitutionalele-mentstotheexpansionofEnglandÕswealth.Leavingthisissueaside,weareleftwithabi-partitionbetweennaturalandpoliticalpricesontheonehand,andcurrentpricesontheother,whichclearlyanticipatestheclassicaldistinctionbetweennaturalandactual,ormarket,prices.5.Surplus,distribution,pricesWehaveseenhowPettycontributedtotheformationofaconceptualrepresentationoftheworkingofaneconomicsystem.Letusnowconsidertheextentandlimitsofhiscontributionwithregardtotheconstructionofananalyticsystem:theissuesconcerningsurplus,pricesanddistribution,thatconstitutedinthegoldenperiodofclassicalpoliticaleconomy,andstillconstitutetoday,thecentralcoreofeconomictheory.Withinrelativelyadvancedanalyses,thedifferentaspectsofthisissueappearasinseparable.Inordertomeasurethesurplus,infact,itisnec-essarytodeterminerelativeprices;thisinturnimplieshypothesesondistributionofthesurplusbetweendifferentsectors(suchasthecom-petitivehypothesisofauniformrateofproÞts)andbetweenthemainsocialclasses.However,inPettyÕsanalysistheessentialnexusÐanade-quatetheoryofpricesÐwasmissing.Thisallowsustoconsiderseparatelyhisnotionofthesurplusandhisideasaboutthemeasureofvalueandexchangeratios.Infact,identiÞcationoftheconceptofthesurplusistraditionallycon-sideredtobeoneofPettyÕsmostimportantcontributions,evenifforhimthesurplustookthepartialformofrent(andtaxes)and,derivatively,thatofrentonmoneycapital(interest):SupposeamancouldwithhisownhandsplantacertainscopeofLandwithCorn,thatis,couldDigg,orPlough,Harrow,Weed,Reap,Carryhome,Thresh,andWinnowsomuchastheHusbandryofthisLandrequires;andhadwithalSeedwherewithtosowethesame.Isay,thatwhenthismanhathsubductedhisseedoutoftheproceedofhisHarvest,andalso,whathimselfhathbotheatenandgiventoothersinexchangeforClothes,andotherNaturalnecessaries;thattheremainderofCornisthenaturalandtrueRentoftheLandforthatyear;andthemediumofsevenyears,orratherofsomanyyearsasmakesuptheCycle,withinwhichDearthsandPlentiesmaketheirrevolution,dothgivetheordinaryRentoftheLandinCorn.3030Petty1662,p.43.

70TheWealthofIdeasRentisexpressedhereinphysicalterms,asagivenamountofcorn.Thisispossiblebecausetheproductishomogeneous,whileheteroge-neousmeansofproductionareallexpressedintermsofthesinglepro-ducedgood;thisincludeslabourwhichisassumedtoreceiveitsmeansofsubsistence,alsoexpressedintermsofcorn(ÔwhathimselfhathbotheatenandgiventoothersinexchangeforClothesÕ).Theproblemofpricesdoesnotthenexist,foritisimplicitlyassumedthatexchangeratiosbetweenproducedgoodandmeansofproductionmaybeconsideredasgiven.Inordertoovercomethislimitation,wemayfollowanotherroute.Namely,wemayconsiderthesectorwhichproducescornasall-comprehensive,coveringallproductiveactivitiesnecessarytoensurereplacementofitsnecessarymeansofproduction.31Pettymadeuseofsuchaprocedureinordertodeterminetherelativevalueofcommodities,consideringasequivalentthesurplusquantitiesofeachcommoditypro-ducedby(verticallyintegrated)sectorswhichutilisethesamequantityoflabour:Butafurther,thoughcollaterallquestionmaybe,howmuchEnglishmoneythisCornorRentisworth?Ianswer,somuchasthemoney,whichanothersinglemancansave,withinthesametime,overandabovehisexpence,ifheimployedhimselfwhollytoproduceandmakeit;viz.LetanothermangotravelintoaCountreywhereisSilver,thereDigit,ReÞneit,bringittothesameplacewheretheothermanplantedhisCorn;Coyneit,&c.thesameperson,allthewhileofhisworkingforSilver,gatheringalsofoodforhisnecessarylivelihood,andprocuringhimselfcovering,&c.,Isay,theSilveroftheone,mustbeesteemedofequalvaluewiththeCornoftheother.32Thesurpluscanalsobeexpressedintermsofthenumberofpersonswhocanbemaintainedbyagroupoflabourerswhoproduceenoughsubsistenceforthemselvesandfortheothers.Likeproductionofluxurygoodsandservices,unemploymentthusappearsasawayofemploying(orbetter,ofwasting)thesurplus:iftherebe1000.meninaTerritory,andif100.ofthesecanraisenecessaryfoodandraimentforthewhole1000.If200.moremakeasmuchcommodities,asotherNationswillgiveeithertheircommoditiesormoneyfor,andif400.morebeemployedintheornaments,pleasure,andmagniÞcenceofthewhole;iftherebe200.Governours,Divines,Lawyers,Physicians,Merchants,andRetailers,mak-inginall900.thequestionis,sincethereisfoodenoughforthissupernumerary100.also,howtheyshouldcomebyit?Whetherbybegging,orbystealing[…]?3331Weareconfrontedhere,insubstance,withaverticallyintegratedsector,orinothertermswhatSraffa1960,p.89,waslatertocallasubsystem.32Petty1662,p.43.33Ibid.,p.30.TheÔsupernumerary100.Õcorrespondtothedifferencebetweenthesizeoftheworkforce(Ô1000.menÕ)andthenumberofworkersemployed(Ôinall900.Õ).

WilliamPettyandtheoriginsofpoliticaleconomy71Inrelationtothequestionofhowtodeterminethemagnitudeofthesurplus,PettyanticipatedthecoreofSmithÕsanalysisintheWealthofnations,emphasisingthenumberofproductivelabourersandthelevelofproductivityperworker.Thesetwoelementswerereferredtojointly,forexample,intheexplanationofthegreaterwealthoftheDutch.InrelationtotheÞrstofthesetwofactors,Pettyinsistedonproposalsaimingtoprovideemploymentforthegreatestpossiblenumberofpro-ductivelabourers,eitherbyengagingunemployedworkersorbytrans-ferringlabourfromunproductivetoproductiveactivities.Hebelievedthatsuchpoliciescouldbringaboutimportantincreasesinincomeandwealth.Amongtheelementsdeterminingproductivityperworker,Pettyrecalledthosethatmaybecallednatural,suchaseaseofaccesstothesea,availabilityofharboursandnaturalavenuesofcommunication,andoriginalfertilityofland.Ofmuchgreaterimportance,however,weretechnologicalandorganisationalfactorslinkedtothesocialevolutionofdifferentpeoples.AmongsuchfactorsPettysingledoutlandimprove-ments(drainage,irrigationandthelike)andinvestmentsininfrastructure(roads,navigablecanals).Healsoemphasisedtheimportanceoftechnicalprogressembodiedinnewimplementsofproduction.Finally,particularimportancewasgiventothedivisionoflabour.34Letusnowcometothetheoryofrelativeprices.Anumberofdif-ferentinterpretationsmaybe(andhavebeen)proposedinthisrespect,promptedbythefactthatafully-ßedgedtheoryofpriceswasnotthecentralaimofPettyÕswritings;forhim,thediscussionofthefunctioningoftheeconomywasinstrumentaltoimmediatepolicyinterventions,inparticulartoinstitutionalchanges.TheÞrstinterpretation,putforwardbyMarx,andadoptedbyanumberofMarxianhistoriansofeconomicthought,creditsPettywithamoreorlessfullydevelopedandcoherentlabourtheoryofvalue.35Indeed,thereareanumberofpassagesinPettyÕswritingswhichappeartosupportthisinterpretation.Forexample,inATreatiseoftaxesandcontributionsweÞnd:letahundredmenworktenyearsuponCorn,andthesamenumberofmen,thesametime,uponSilver;Isay,thattheneatproceedoftheSilveristhepriceofthewholeneatproceedoftheCorn,andlikepartsoftheone,thepriceoflikepartsoftheother.3634Cf.forinstancePetty1690,pp.256Ð7,fortheÔnaturalÕfactors;ibid.,pp.249Ð50,302Ð3,forthetechnologicalandorganisationalfactors;ibid.,pp.260Ð1,473,forthedivisionoflabour.35Cf.forinstanceMarx1905Ð10,vol.1,pp.345Ð6,350Ð1;Meek1956,pp.34Ð6;Pietra-nera1963,pp.31Ð50;Denis1965,p.172;Naldi1989.36Petty1662,p.43.Letusrecallalsothepassagequotedabove.

72TheWealthofIdeasAlittlelaterinthesameworkPettystated:ÔNaturaldearnessandcheap-nessdependsuponthefewormorehandsrequisitetonecessariesofNature.Õ37Evenmoreexplicitthanthesepassages,however,isPettyÕsproposalofwhatappearstobeatheoryofvaluebasedonlabourandland:AllthingsoughttobevaluedbytwonaturalDenominations,whichisLandandLabour;thatis,weoughttosay,aShiporgarmentisworthsuchameasureofLand,withsuchanothermeasureofLabour;forasmuchasbothShipsandGarmentswerethecreaturesofLandsandmensLaboursthereupon.38Thispassageraisesanadditionalproblem.Likethequotationsgivenabove,itisintendedtoprovideanexplanationofexchangerelationships.Yet,thereferencetoÔnaturaldenominationsÕsuggeststhatitmightalsobeinterpretedasarudimentarystatementofatheoryofabsolutevalue.ThefollowingformulawhichPettyusestostatehistheoryofvaluelendsitselftothesameinterpretation:ÔLabouristheFatherandactiveprincipleofWealth,asLandsaretheMother.Õ39Thisisatraditionalsaying,andwaswidelyusedinwritingsoneco-nomicissuesoftheperiod.Whenweconsiderthediverserolesoflabourandlandintheagriculturalprocessofproduction(theformerplayingtheactive,thelatterthepassiverole:anideawhichcanbetracedasfarbackasthewritingsofAristotle),itiseasytoseehowsuchanideamightprovidethebasisforatheoryoflabour-valuegroundedinthedoctrinesofÔnaturallawÕ.Withinsuchtheories(that,aswesawabovein2.5,fallwithintheScholastictradition,stillstrongintheseventeenthcentury),labourisconceivedasasacriÞcemadebytheproducer.ThepriceisthentheÔjustÕrewardforsuchasacriÞce:apriceproportionaltothequantityoflabourcontainedinthecommodityisjust,preciselybecauseitispro-portionaltothesacriÞceendured.Theoriesoflabourvalueofthistypebecamethefoundationforviewssuchastheinterpretationofthesub-sistencewageasajustrewardforlabour,fortheÔsweatofthyfaceÕ,andfordevelopmentssuchasthatofNassauSenior(1790Ð1864),whowastoidentifyananalogoussacriÞceincapitalistsÕÔabstinenceÕthatÞndsinproÞtsitsjustremuneration.40However,suchaÔnaturallawÕinterpretationofPettyÕstheoryofvaluewouldbeerroneous.Infact,heconsideredlabourassimplyanotherpro-ductioncostwhichismeasuredbyitssubsistence,andignoredanypossi-blemoralimplicationofjusticeorinjusticeinhistreatmentoftheproblem37Ibid.,p.90.38Ibid.,p.44.39Ibid.,p.68.40Cf.below,7.8.ElementsofsuchanapproachsurfacedalsoinSmith(1776,p.47)whenheconsideredlabourasÔtoilandtroubleÕ,andwerere-proposedwithJevonsÕsand,indifferentform,MarshallÕsÔrealcostsÕ(cf.below,10.5and13.1).

WilliamPettyandtheoriginsofpoliticaleconomy73ofprices.Furthermore,inPettyÕsview,landandlabourweretobeplacedonthesamefootingandtheonecouldbeexpressedintermsoftheother.Infact,ÔthemostimportantConsiderationinPoliticalOeconomiesÕwaspreciselyÔhowtomakeaParandEquationbetweenLandsandLabour,soastoexpresstheValueofanythingbyeitheraloneÕ.41ItisclearfromthesestatementsthatPettywasnottryingtosolvetheproblemofdeÞn-ingajustpricewithinanaturallawframework;ratherhewasseekingtoexplaintheactualexchangerelationshipswhichtakeplaceinthemarket:labourandlandwerenotconsideredastheoriginalsourcesofwealth,butquitesimplyasphysicalcostsofproductionofcommodities.TheinterpretationofPettyÕstheoryofpricesasbasedonphysicalcostsofproductionisnotcontradictedbypassages,suchasthosequotedabove,whichseemtosupportalabourembodiedtheoryofvalue.Indeed,inthesamewritingthetheoryofvaluebasedonlabourandlandwasexplicitlysetout,andtheproblemoftheequivalencebetweenlabourandlandwasconsidered.ThosepassagesshouldthenbeinterpretedasasimpliÞcationwithrespecttoamorecomplextheorybasedonlabourandland,thatmayholdundertheassumptionofproportionalitybetweenthequantitiesoflandandthequantitiesoflabourusedintheproductionofthevariouscommodities.Moreover,therearepassagesinPettyÕsworksinwhichhewentbeyondthetheoryofvaluebasedonlandandlabour,movingfurtheralongthepathofphysicalcostsofproduction,uptoprovidingalistofactivitiesnecessarytospeciÞcprocessesofproduction:ÔThePriceofaComoditysubsists:OftheÞrstnaturallmateriall.Themanufacturetothestateofuse.Carriagefromtheplaceofmakingtothatofuse,andvessels.DutyestotheSoverayneofthemthatbuyandsell.Õ42Pettymentionedaseriesofexamplesofthisprinciple,specifyingcostintermsofphysicalgoods.Followingthispath,indeed,healsoprovidedacorrectformulationoftheproblemofjointproduction.ConsidertheÞrstofthefourteenexamplesthatPettygave:ÔForButter.Thereis1.TheCow.2.Herfeedinginwinterandsomer.3.Thedairyvessellsandlabor.4.Carriage.Deducting:1.Calf2.Wheyes3.Coarsecheeses.Õ43Hence,PettyÕsanalysisessentiallyconcernednotabsolutevalue(thatis,theproblemofthecausesofvalue),buttheproblemofrelativeprices.Inanalysingsuchanissue,withthereferencetothephysicalcostsofpro-duction,44Pettygaveanobjectiveformulationthat,aswewillseefurther41Petty1691a,p.181;thesameproblemhadalreadybeenproposedintheTreatiseoftaxesandcontributions(Petty1662,p.44).42Petty1927,vol.1,p.190.43Ibid.44Incidentally,physicalcostsofproductioncannotbeconsideredasapurelytechnologicalnotion.Notonlydoestheirlevel(especiallyinsofaraslabourisconcerned)dependonsocialfactorsbroadlyconstrued:theveryitemsenteringintothecostlistdependon

74TheWealthofIdeason,wastobetakenupbyRicardoamongothers,andmorerecentlybySraffawithgreaterconsistencyandanalyticalrigour.PettyÕscontributiondidnotgomuchbeyondthesimpleformulationoftheproblem:physicalcostsofproductionarethefactorsthatdeterminepoliticalprices.Thislefttheproblemfarfromresolved.Heterogeneousgoodssuchascow,feed,labour,cannotallbesummedtogethertomakeupcostsofproductionunlesstheyhavebeenpreviouslyexpressedinhomogeneousunits,thatis,intermsofquantitiesofvalueobtainedbymultiplyingthequantityofeachcommodityrequiredintheprocessofproductionbyitsrelativeprice.Wearethusconfrontedwithacircularityproblem:thepriceoftheproductcannotbedeterminedunlessthepricesofthemeansofproductionareknown,butthesearealsoproducedbymeansofproductionthatmayincludetheÞrstproduct.Think,forexam-ple,ofthecaseofwheatusedtoproduceironwhichisitselfusedintheproductionofwheat.Pettyappearstohavebeenoblivioustothisproblem.Yet,itwaspre-ciselythisdifÞcultywhichwouldaccountforhisattempttoreducetheheterogeneouscomponentsofthecostsofproductiontothetwopri-maryfactors,landandlabour,andthentoÞndarelationofequivalencebetweenthemsoastoexpresscostsintermsofonlyoneofthem.Butsuchattemptswerenotsuccessful,especiallythelatter,towhichPettyattachedgreatimportance.Pettysuggestedthefollowingmethodforestablishingarelationofequivalencebetweenlabourandland:SupposetwoAcresofPasture-landinclosed,andputthereintoaweanÕdCalf,whichIsupposeintwelvemonthswillbecome1C.heavierineatableßesh;then1C.weightofsuchßesh,whichIsupposeÞftydaysfood,andtheinterestofthevalueofthecalf,isthevalueoryearsRentoftheLand.Butifamanslabour[…]forayearcanmakethesaidLandtoyieldmorethansixtydaysFoodofthesame,orofanyotherkind,thenthatoverplusofdaysfoodistheWagesoftheMan;bothbeingexpressedbythenumberofdaysoffood.45themannerofsocialorganisation.Indeed,wemayincludeincostsonlywhatcanbetheobjectofprivateappropriation(not,forinstance,therainorthesun,thatmaywellbenecessaryinputsofproductionandmaybescarce).45Petty1691a,p.181.Inotherterms,landaloneproduces50,whilebyaddingalabourertheproductincreasesby10units(net,wemustassume,ofproductioncosts,inclusiveoftheworkersÕsubsistence:ÔwagesÕheremeanswhatthelandgivesinrewardofthelabourspentonit,nottheincomeofadependentworker).Asaconsequence,Þvelabourersareequivalenttotwoacresofland.Thispassagehasbeeninterpreted(forinstancebyRouth1975,p.40)asaninstanceofmarginalcalculus:theÔcontributionÕofeachÔproductivefactorÕisobtainedbycomputingwhatisproducedbygivenquantitiesofthetwofactors(inPettyÕsexample,oneofthetwoquantitiesisequaltozero),andwhenthequantityofoneofthefactorsisincreasedwhilekeepingconstantthequantityutilisedoftheotherfactor.Thisinterpretationappearsratherstrained;anyhow,inthiscasethecriticisms

WilliamPettyandtheoriginsofpoliticaleconomy75PettyhimselfsawandtriedtosolvethemostobviousdifÞcultiessuchasheterogeneityofconsumptionlevelsfordifferentindividualsandtheheterogeneityofconsumptiongoods:ThatsomeMenwilleatmorethanothers,isnotmaterial,sincebyadaysfoodweunderstand1/100partofwhat100ofallSortsandSizeswilleat,soastoLive,Labour,andGenerate.Andthatadaysfoodofonesort,mayrequiremorelabourtoproduce,thananothersort,isalsonotmaterial,sinceweunderstandtheeasiest-gottenfoodoftherespectiveCountriesoftheWorld.46Infact,thesolutionPettysuggestedrecallsthemodernnotionofefÞ-ciencyunits:landiscomparedtolabourbymeansofacomparisonoftheirrelativenetproductivities.Butthiscomparisonrequiresthepriorknowledgeofrelativeprices,andhenceimpliescircularreasoning.Alter-natively,ifwemeasureproductivityinphysicalterms,thentheoutputscomparedshouldbephysicallyhomogeneous(whichPettyattemptedtoensurebyreferringtoÔdailyfoodÕ).ThelatteralternativeimpliesrecoursetothewhollyunrealisticassumptionofaÔone-commodityworldÕ,andisthereforeasunacceptableastheÞrstsolution.WhatwaslackinginPettyÕsattemptstosolvetheproblemofthedeterminationofrelativepriceswastheperceptionofthesimplefactthattheproblemisintrinsicallyrelatedtotheoperationoftheeconomicsystemasawholeandnottoasingleproductivesectorconsideredinisolation.TheincompletenessoftheconceptualschemesetoutbyPetty,inpar-ticulartheabsenceofakeyconceptsuchasthatoftherateofproÞts,seemstohavehadadecisiveroleinpreventingacorrectsolutionoftheproblem.Thisinfactrequiresconstructionofananalyticalsystemthattakesintoaccountproductiveinterrelationsamongthedifferentsectorsoftheeconomy.Butthepaththatleadstosuchasystemisverylong,asweshallseeinthefollowingchapters.recalledbelowwouldstillhold,concerningtheimpossibilityofadoptingthismethodinthepresenceofheterogeneousproducts(thatmaybereducedtohomogeneousproducts,intermsofutility,onlywithintheframeworkofasubjectivetheoryofvalue).46Petty1691a,p.181.AnanalogouscriteriontothatadoptedforestablishingaÔparÕbetweenlandandlabourwasproposedbyPettyforreducingÔartÕ,thatis,thequaliÞedlabouroftheinventor,tosimplelabour.Cf.Petty1691a,p.182.ThesamelineofreasoningisproposedbyPettyalsotoestablishÔanEquation[…]betweendrudgingLabour,andFavour,Acquaintance,Interest,Friends,Eloquence,Reputation,Power,Authority,&c.Õ(ibid.).

4Frombodypolitictoeconomictables1.ThedebatesofthetimeInthecenturystretchingbetweenWilliamPettyÕswritingsandAdamSmithÕs,economicthinkingproceededinmanydirections.Itisimpossibleheretoconsiderthemallwiththeattentiontheydeserve:1someauthorsandresearchcurrentswillsimplybeignored,otherswillreceiveonlybriefmention,whileonlyafewwillbetreatedinmoredetail.Itisimportanttostressjusthowrichthedebateoneconomicphenom-enawasduringthisperiod,movingforwardonvariousplanes,linkingupwithethicalorphilosophicalaspectsingeneralormoreimmediateissuesofpoliticalchoices,andconstitutingthebackgroundfromwhichcertainpersonalitiesemergedtoprominencefromthepointofviewofouraccount.ThecontributionsofthemostimportantauthorswouldbedifÞcultifnotimpossibletounderstandifwhollyisolatedfromthecul-turalcontextinwhichtheytookshape,andwhichtheyhelpedtoenrich.ThisholdstruefortheperiodhereconsideredinameasurethatmaybedifÞculttoappreciateforthoseaccustomedtotheextremespeciali-sationinresearchcharacterisingourtimes.Actually,intheseventeenthandeighteenthcenturiestheÞgureoftheeconomistwasstillfarfromclearlydeÞned:reßectionsoneconomicphenomenawerepartofgeneralreßectionsonsocietyandman,andthesameauthorswouldinthecourseoftimerangeoveravastÞeldofissues.Aswehaveseen,forinstance,Pettywasaninventor,doctorandpro-fessorofanatomy,responsibleforagiganticprojectforthegeographicalsurveyofIreland,andalandowneractivelyengagedinthemanagementofhisestates.Hisreßectionsoneconomic,institutionalanddemographicissueswereforhimatthesametimeacivicandintellectualpursuit,anexerciseofpoliticalinßuence,andaninstrumentforthedefenceofhisownprivateinterests.JohnLockewasbestknownasaphilosopher,buthealsodealtwithstrictlyeconomicissuesinpursuitofhisphilosophical1AdetailedpictureofthisextraordinarilyrichandcomplexperiodisprovidedbyHutchison1988.76

Frombodypolitictoeconomictables77enquiries,asdidDavidHumeafewyearslater.Lockewrote,amongotherthings,aboutmonetaryissuesinthecourseofadebatewith,amongothers,thefamousphysicistIsaacNewton,whoin1699wasappointeddirectoroftheMint.BernarddeMandevillewasadoctorandphiloso-pher,RichardCantillonaninternationalbankerwhoalsoapproachedsystematicthinkingoneconomicmattersnotprofessionallybutasapas-time,albeitonenotunrelatedtohismainactivity.FranücoisQuesnay,aphysicianatthecourtofKingLouisXV,pursuedneitherprofessionalnorprivateinterestswithhiswritings,butsimplyjoinedintheintellectualdebateofthetimeinthehopethathisideasmighthelptoamelioratesocialproblems.Intheintellectualcirclesoftheperiodbothprotagonistsandsimplespectatorslettheirinterestsrangefree,faithfultoTerentiusÕmottointheHeautontimor`umenos:ÔHomosum:humaninilamealienumputoÕ(Iamahumanbeing:nothingconcerninghumanbeingsIconsiderasforeigntome).Hereweisolatethestrictlyeconomiccontributionsfromtheircontext,butwemustnotforgetthatexcisionsofthesortwouldhavebeenconsideredarbitrarybytheprotagonistsofthattime.Amongtheresearchcurrentswhichwewillmentiononlybrießythereisthestatistical-demographicalschoolofÔpolitical-arithmeticiansÕ,fol-lowersofWilliamPettyincludingsuchinßuentialpersonalitiesofthetimeasGregoryKing(1648Ð1712)andCharlesDavenant(1656Ð1714).Althoughoftenimpreciseanduncertain(AdamSmithasserted:ÔIhavenogreatfaithinpoliticalarithmetickÕ)2theiractivitiesprovidedimpor-tantrawmaterialnotonlyforanunderstandingoftheeconomyandthesocietyoftheirtime:itmightalsoserveforthepolicychoicesofthesovereignontaxesandcontributionsorevaluatingtherelativeeconomicstrengthofdifferentcountries,ofgreathelpintheÞeldofforeignpolicychoices.3Fromourviewpoint,whichdepartsfromthatoftheeconomichis-torian,thewritingsofthepoliticalarithmeticiansmayprovideuseful2Smith1776,p.534.Insubstance,thelinerunningfromPettytoSmithwentthroughCantillonandQuesnayratherthanthroughthepoliticalarithmeticians,althoughatthetimethelatterappearedasPettyÕsdirectheirs.Rather,insomecases(andespeciallyforDavenant)andwithatouchofgoodwill,thewayinwhichquantitativedatadiscussedbypoliticalarithmeticianswereorganisedmaybeconsideredarudimentaryanticipationofmodernnationalaccounting.Itishard,however,toattributetosuchwritingsanadequatecharacterisationoftherelationsbetweenstocksandßowsfortheeconomicsystemasawholeandforitsmaincomponents.3KingwasknownatthetimemainlythroughquotationsfromhiswritingsincludedinDavenantÕsworks;hewaslaterrediscoveredbyMarshall,whodeducedademandcurvefromarelationbetweenpercentagedecreaseinthecorncropandpercentageincreaseinitsprice(Marshall1890,p.106n.).SubsequentlyÐbutnotbyMarshallÐthisrelationwassomewhatpompouslychristenedÔKingÕslawÕwith(apparently)excessiveenthusiasm.ForahistoryofEnglishempiricisminthesocialsciences,frompoliticalarithmeticon,cf.Stone1997,inparticularpp.49Ð115onDavenantandKing.

78TheWealthofIdeasindications,especiallyaboutthesystemofconceptsunderlyingthedebatesofthetime.Anexampleofthis(whichwereturntobelow)istobeseeninthefactthatKingandDavenantpreferredaterritorialclas-siÞcationofinformation(ageographicalpartitioningoftheeconomicsys-tem)toclassiÞcationbysectors,whileanyreferencestoeconomicsectorswerestillalongwayfromthetripartitionofagricultureÐmanufacturingÐserviceswhichbecametheruleafterSmith.AnotherlineineconomicthinkingtookamarkedlydifferentstancefromPetty,insistingonamixturebetweenanalysisandethics.HereweÞndtherepresentativesoftheÔnaturallawÕdoctrine,importantforputtingideasofnaturalrightsandnaturallawsintocirculationbut,intermsofstrictlyeconomicissues,stillengagedinÔjustpriceÕdiscussions.AmongthemwastheGermanjuristSamuelPufendorf(1632Ð94),authorofawell-knownwork,Deiurenaturaeetgentium(Onnaturalandhumanrights,1672),whichconstitutedanimportantcontributiontothefoun-dationsofinternationallaw.4IntheÞeldofpricetheoryPufendorfdis-tinguishedbetweenpricesdeterminedbylawsandregulations(ÔlegalpricesÕ),thosedeterminedbyagenericcommonevaluation(ÔnaturalpricesÕ),andthosedeterminedbythecommonevaluationoftheexperts,withagoodknowledgeofboththecommodityanditsmarket(ÔjustpriceÕ).Intheseevaluationsbothscarcityandcostofproductionplayarole,whileusefulnessisaprerequisiteforapositivepricebutdoesnotdetermineit.Thustheoptimalsituationistheoneinwhichthelegalorthenaturalpricecorrespondstothejustprice:PufendorfÕspricetheoryisanormativeone.WithinthesameÔnaturallawÕcurrentweÞndmanyotherwritingsonmonetarymattersthat,dealinginparticularwithdetermina-tionoftherateofinterest,wereconnectedwiththeScholasticdebatesonusury.Thenumeroustractsintendedtoprovidemerchantswithguidanceintheiractivitiesdisplayacuriousanalogytothislattercurrent.InItalyworksofthiskindhadßourishedinthefourteenthandÞfteenthcenturies.IntheperiodweareconsideringherethemostrenownedworkofthistypewasLeparfaitn«egociantbytheFrenchmanJacquesSavary(Theexpert4HuighdeGroot(orHugoGrotius,1583Ð1645)hadbeenaprecursorofPufendorfalongthisroad.Pesciarelli(1989,pp.xviiiÐxix)notesPufendorfÕsinßuenceonHutch-esonthroughthelatterÕsmaster,GershomCarmichael(1672Ð1729),professorattheUniversityofGlasgowanddivulgerinScotlandoftheworkandthoughtofPufendorf;inturnHutcheson,SmithÕsmaster,transmittedtothelattersomeelementsofPufendorfÕswayofthinking:inparticular,accordingtoPesciarelli(ibid.,p.xix),Ôaviewofsocietyrepresentedasanenormousarenaofdealers,buyersandsellersÕ.LocketooÐonwhosetheoryoffreedomandprivatepropertycf.below,2ÐwasanattentivereaderofthewritingsofPufendorf,hiscontemporary(theywereborninthesameyear);however,theirviewsonsocietyweredecidedlydifferent.

Frombodypolitictoeconomictables79merchant,1675)whichdominatedthisperiodintermsofthenumberofcopiessold.InEnglandwemaymentionÐalthoughontheborderlinebetweenthiscurrentandeconomicanalysisÐMalachyPostlethwaytÕsUniversaldictionaryoftradeandcommerce(1751Ð5),composedutilisingalargenumberofplagiarisedpassages(includinganalmostcompletever-sionofCantillonÕsEssayonthenatureofcommerceingeneral:cf.below,5).AnothercurrentthatweÞndfrequentexamplesofintheliteratureoftheperiodbutwhich,likethepreviousone,sawlinesofresearchvitalinthedecadesbeforePettyrunningdry,wasrepresentedbythelongseriesoftractsontrade,whichgenerallydealtwithmonetaryissuesinconnec-tionwithmattersofinternationaltrade,inthewakeofthemercantilistliteraturediscussedabove(2.4).Thiskindofliteraturecaptures,genera-tionaftergeneration,theattentionofhistoriansofeconomicthoughtwhoconsidertheascentoffreetradeoverprotectionismthecentralaspectofeconomicscience.OneleadingexampleistheliberalmerchantDudleyNorth(1641Ð91;hisDiscoursesupontradewerepublishedposthumouslyin1691).However,theargumentsinsupportofthefreetradethesiscan-notbesaidtoberemarkablysolid.Intheabsenceofawell-developedtheoryofthefunctioningofmarkets(andinthepresence,moreover,offarfromcompetitivemarkets,dominatedastheywerebylargemerchantcompaniesliketheIndiaCompany),wecanonlyconsiderreferencetoÔnaturallawsÕthatmusttaketheircourseasbeggingthequestion.Ontheprotectionistside,leavingasidesimplisticreferencetotheÔtreasuryÕrepresentedbyanactivebalanceoftrade,themostcommonargumentsconcernedtheexpediencyofprotectinginfantindustriesanddefend-ingnationalemploymentfromforeigncompetition.AnotherdefenderofthefreetradedoctrinewasDanielDefoe(1660Ð1731),thewell-knownauthorofRobinsonCrusoe(1719),whopublishedatri-weeklypaper,theMercatorforsomemonthsduringtheperiodofheateddebatefollowingupontheTreatyofUtrechtof1713.InFrance,themainchampionoffreetradeintheyearsbetweentheendoftheseventeenthandthebeginningoftheeighteenthcenturywasPierrelePesantdeBoisguilbert(1646Ð1714),whosemottoÐlaissezfairelanatureetlalibert«e(letnatureandfreedomdotheircourse)ÐanticipatedexpressionsbydeGournayandTurgot(cf.below,7)tothesameeffect.BoisguilbertcriticisedColbertÕsstatismandpolicyfavouringmanufac-tures,blamingthedepressedstateoftheFrencheconomyaboveallonstagnationintheagriculturalsector.Inthisrespect,includingsupportforhigherpricesforagriculturalproduce,5Boisguilbertwasaforerunner5AccordingtoBoisguilbert,agriculturalpricesshouldexceedaminimumlevel,whichhecalledÔprixderigueurÕ,correspondingtoproductioncosts;butapartfromthis,and

80TheWealthofIdeasofthephysiocraticdoctrines.AmonghisworksisLed«etaildelaFrance(AdescriptionofFrance,1695).6InEnglandagain,whathasbeencalledÔthepre-classicaltheoryofdevelopmentÕ(Perrotta1997),widespreadintheperiodbetween1690andtheÞrstdecadesoftheeighteenthcentury,concernedinparticularthethesisthatworking-classconsumptionhadaninßuenceonproduc-tivityandthusongrowth.AlongwithNorthandearlierthanDefoe,thisthesiswaspropoundedby,amongothers,NicholasBarbon(1637Ð98),amedicalstudentwhobecamearichbuilderthankstoopportunitiesofferedbythedevastationofLondonintheGreatFireof1666.AuthorofaDiscourseoftrade(1690),onthetheoryofvalueBarbonfollowedthesubjectivistapproachbasedonscarcityandutility.7Inthislatterrespect,BarbonwasfollowingwhatappearedtobetheprevailingorientationofthetimeÐaswewillseeinvariousrespectsbelowÐapartfromsomesigniÞcantexceptionssuchasWilliamPetty.2.JohnLockeAmongthewritersconcernedwithmonetaryissuesaspartofmoregen-eralreßectionsonsocietyandhumanbeings,letusnowconsidertheEnglishphilosopherJohnLocke(1632Ð1704;hismainworkwastheEssayconcerninghumanunderstandingof1689).8HewastheauthorofarenownedtractonSomeconsiderationsontheconsequencesofthelower-ingofinterest,andraisingthevalueofmoney(1692;apreliminaryversionhadbeenwrittenin1668).Intheeyesoftheeconomistoftoday,thisworkhasthemeritofbeingoneoftheÞrstwritingsofthetime(togetherwithPettyÕsQuantulumcumqueconcerningmoney,writtenin1682butpub-lishedonlyin1695,andbeforeCantillon)toshowaclearperceptionofthenotionofvelocityofcirculationofmoney.fromarathervaguehinttoÔprixdeproportionÕ,namelytothefactthatpricesshouldbeinareasonableproportiontoeachother,hedidnotprovideanexplanationofwhatdeterminesprices.6BoisguilbertÕscontributionhasbeenextolledbymanyhistoriansofeconomicthought,inparticularinFrance.SufÞceittorecalltheverytitleofthecollectionofhiswritings(INED,1966)whichidentiÞesinhimÔthebirthofpoliticaleconomyÕ.Boisguilbertwasattributed,amongotherthings,withthemeritofanticipatingtheideaofgeneraleco-nomicinterdependenceandthemultiplierconcept.Hiswritingswere,however,farlesssystematicthanCantillonÕs,QuesnayÕsorTurgotÕs.7Hutchison1988,p.75,attributedhimwithanimplicitnotionofdecreasingutility.AccordingtoSchumpeter1954,p.647,BarbonwastheÞrstwriterwhoexplicitlyiden-tiÞedinterestwithnetincomefromcapitalgoods.8Theoriginaleditionwasdated1690,buttheEssaywasalreadycirculatinginDecemberofthepreviousyear.

Frombodypolitictoeconomictables81LockeÕsessaywaspartofalivelydebatethattookplaceinthelastdecadeoftheseventeenthcenturyontherelationshipbetweenlowinter-estrateandprosperity.JosiahChild(1630Ð99),governoroftheIndiaCompanyandoneoftherichestmenofhistime,inhisinßuentialBriefobservationsconcerningtradeandinterestofmoney(1668;anenlargededi-tionwaspublishedin1690asDiscourseabouttrade),hadmaintainedthattheÞrstelement(lowinterestrates)isthecauseofthesecond(prosper-ity),andonthisgroundhadaskedforlegalconstraintsoninterestrates.9Incriticisingthisthesis,Lockearguedthatitisprosperitythatfavoursamoderatelevelofinterestrates,andthatanyattempttoreducethembylawisdoomedtofailure;besides,insofarasitmaysucceed,suchanattemptmayprovedetrimental,slowingdownaccumulation.Northalsoadoptedasimilarlineofreasoning.Wemayalsomentionaworkpub-lishedhalfacenturylater,in1750:Anessayonthegoverningcausesoftherateofinterest,byJosephMassie,whodiedin1794;althoughpresentedasacritiqueofLockeÕsargument,itactuallyamountedtoasearchingandindeedthought-provokingstudyontherelationshipbetweeninterestrateandrateofproÞts,togetherwiththefactorsinßuencingthem.10Lockealsotookpartinthedebateontheneedforanewmintageofsilvercoinswhich,asaconsequenceofabundantclipping,hadlostonaverageatleast20percentoftheirvalue.InthisdebateweÞndJosiahChild,NicholasBarbon,CharlesDavenantandIsaacNewtontakinganactivepart,togetherwithvariousotherparticipants.AnotheraspectofLockeÕsthoughtworthrecallinghereconcernshisviewofprivatepropertyasanaturalrightofman.ThisargumentwasdevelopedintheTwotreatisesofgovernment(1690),andinparticularinbook2,chapter5(ÔOfpropertyÕ).Basedonasortofalabourtheoryofvalue,11itopposedtheideasofHobbesandthenaturallawwriterssuchasGrotiusandPufendorf,whotookprivatepropertytohavebeeninstituted9OnChild,cf.Letwin1959.AmongthethesestowhichChildlentthesupportofhisinßuence,therewastheideathatitispoverty,andnotawageabovethesubsistencelevel,thatfavoursthespreadofidlenessamongworkers.(TheoppositeargumenthadbeenmaintainedforinstancebyPetty1691a.)10Thehistoryofthedebateontherelationbetweeninterestrateandprosperitybetween1650and1850isexcellentlydescribedbyTucker1960.WithinthemoregeneraldebateonthenatureofmoneyandthefunctioningoftheÞnancialsystemwemayincludethewritingsofJohnLaw(1671Ð1729),knownaboveallforhisadventurousÞnancialenterprises,whichculminatedinthemostgiganticcrashinhistory;onhim,seethelively,detaileddescriptionbyMurphy1997.11Moreprecisely,ontheideathatlabouristhesourceoftherighttoproperty,butnotontheideathatlabourexpendedforproducingthedifferentcommoditiesexplainstheirexchangevalue.Lockehadlittletosayonthetheoryofrelativeprices,andhissparsehintsonthistopicratherpointedtoasubjectivetheoryofvalue,stressingtheroleofÔusefulnessÕinthiscontext.Cf.Hutchison1988,pp.68Ð70.

82TheWealthofIdeasthroughanagreement(orÔsocialcontractÕ)markingtransitionfromthestateofnaturetoorganisedsociety,andthustobeofaconventionalnature.12Lockebeganhisargumentbyrecognisingthatlandandallthelowercreatureshavebeengiventoallmenincommon.Heargued,however,thateverymanhasaÔpropertyÕinhisownÔpersonÕ.Thisnobodyhasanyrighttobuthimself.TheÔlabourÕofhisbodyandtheÔworkÕofhishands,wemaysay,areproperlyhis.Whatsoever,then,heremovesoutofthestatethatNaturehathprovidedandleftitin,hehathmixedhislabourwithit,andjoinedtoitsomethingthatishisown,andtherebymakesithisproperty.13Ininterpretingthesepassagesweshouldremember14thatthemean-ingLockeattributedtothenotionsoflabourandcapitalwasdifferentfromÐandwiderthanÐtheusualconnotation.Labour,inthemeaningLockeattributedtotheword,includedallkindsofproductiveactivityÐtheentrepreneurÕsasmuchasthewagelabourerÕsÐandthereforeconsti-tutedthesourceofallwealthandthereligiousdutyofeveryindividual.Similarly,LockedeÞnedpropertyasincludingnotonlyprivatepropertyinitscommonmeaning,butalsomanÕsfundamentalrights:Ôlives,liber-tiesandestates,whichIcallbythegeneralnameÐpropertyÕ.15ItisonlybyusingthetermsÔlabourÕandÔpropertyÕintheireverydaymeaning,ratherthaninthesenseexplicitlygivenbyLockeinthepassagequotedabove,thatcommentatorscanreadhisargumentasaimingessentiallyatÔjustifyingÕaneconomicsystembasedonprivateownershipofmeansofproduction.Weshould,rather,viewhisargumentasareactiontoÔsocialcontractÕtheses,particularlyHobbesÕs,andtheconclusionstheyleadto,favourabletopoliticalabsolutism.WemaythenseeLockeasadefenderoftherightsoftheindividualagainstgovernment,whiledenyingthatthislattershouldbeidentiÞedwithaLeviathan.Thisincludedadefenceof12ClearillustrationofLockeÕsargumentsisprovidedbyBedeschi1990,pp.50ff.AninnovativeaspectofLockeÕsanalysisconsistedinthefactthatÐasBedeschi(ibid.,p.52)notesÐÔinprivatepropertyheseesnolongersomethingstatic,butsomethingdynamic,nolongersomethinggivenonceandforall,orestablishedbymenbycommonagreement,butrathersomethingwhichisthefruitoftheeffortandeconomicactivityofman.Thisisaviewthatwellsuitsthenewbourgeois,landownersandmercantileranks,whoknewarapidascentintheEnglishsocietyoftheseventeenthcentury.Õ13Locke1690,p.130:II.27.ItisworthnotingbythewaythatLockewaxedvehementinextollinglabourasamoralduty:adutyheextendedeventochildrenoftenderage,proposingthewhipforthosefoundbegging(whileforadults,togetherwithhardlabourinhousesofcorrectionoratsea,heevenadvocatedcuttingofftheirears).ObviouslyLockewasnottheonlyone,eitherthenorsubsequently,toproposemeasuresofthiskind.14Cf.Deane1989,p.29.15Locke1690,p.180:II.123.

Frombodypolitictoeconomictables83privateproperty,notonlyofimmediatemeansofsubsistencebutalsoofthatmeansofproduction,namelyland,whichwasfundamentalinastillpredominantlyagriculturaleconomicsystem.WemustrememberthatLockelookedtothesocietyofhistimewithacriticaleye,characterisedasitwasbyresidualfeudalelements,andinwhichpoliticalpowerstillplayedanimportantroleasorigin(andnotsimplyguarantee)ofprop-ertytitles,withthearbitrarinessthatthisimpliedforthedistributionofwealth.16TheproblemofprovidingamoraljustiÞcationforprivatepropertydidnot,infact,usuallyÞgureamongtheissuesconsideredbytheeconomistsofthetime.Forinstance,Pettyonlyconsideredtheproblemofanalysingthefunctioningofasocietyfoundedonprivateproperty,ascanalsobeseenwhenheproposedmodiÞcations(suchastheinstitutionofthelandregistry)aimingatavoidingthewasteinvolvedwithuncertaintyaboutpropertytitles;Smithconsideredthelegalinstitutionsonwhichprivatepropertyisbasedastheresultofanevolutionaryprocesswhich,evenifnotconstantlymovinginthedirectionofprogress,hasundeniablyimprovedmatters,favouringanincreasingdivisionoflabourandhenceincreasingproductivityandwelfare.Thesearepointsweshallbereturningtointhenextchapter.Asforthedebateonrelationsbetweenmanandsociety,wecanfollowBobbio(1989,pp.3Ð10)indistinguishingtwocontrastingmodels:thenaturallawmodelandtheAristotelianversion,17theformerbasedonthedichotomybetweenstateofnatureandcivilstate,thelatterseeingthemoderngovernmentstructuresastheresultofaprocesswhichhaditsstartingpointinthenaturalsocialunit,i.e.thefamily.ThenaturallawtheorysawthestateasÔantithesistothestateofnatureÕ,thelatterbeingcharacterisedbythemaximumofindividualfreedom,andhencebyaÔstruggleofallagainstallÕÐasituationthatcouldbeovercomenotastheresultofaninevitablenaturalprocess,butasaconquestofreasonbringingmentoassociateaccordingtocommonlyacceptedcon-ventions.Herewehaveoneofthemostmodernelementsofthenaturallawview:asBobbioputit(ibid.,p.4),Ôconsensusistheprincipleof16AnothersourceofinequalitythatLockeexplicitlyconsideredistheuseofmoney,whichpermitstheaccumulationofwealth.MoneywasconsiderednotanelementinherenttohumansocietybutanartiÞceacceptedbycommonconsent.17Wemayseeasaside-streamofthisdebatetheabundantliteratureofthesixteenthandseventeenthcenturiesontheÔgoodsavageÕandtheÔbadsavageÕ,derivingmainlyfromgeographicaldiscoveriesandcontactwithindigenousinhabitantsofthenewcolonialpossessions.AnaccountofthisliteratureisprovidedbyMeek1976.IntheeighteenthcenturytheoptimismcharacterisingtheperiodoftheEnlightenmentfavouredtheÞgureoftheÔgoodsavageÕ,whichbecameacentralthemeintheanthropologicalviewsofthetime.

84TheWealthofIdeaslegitimisationofpoliticalsociety,unlikeanyotherformofnaturalsocietyand,inparticular,familysocietyandownersocietyÕ.Bycontrast,theAristotelianmodelstartedfromthefamily,consideredbothasthenaturalformofassociationandasahistoricallyconcreteform:fromitcamethestate,constitutingthenaturaloutletthroughaprocessofcontinuousdevelopment.Likethefamilyfromwhichitderived,thestateÐtheconstitutiveelementsofwhichwerenotindividualsinisolation,butsocialnucleilikethefamilyitselfÐhadanaturalhierarchicalstructure;notconsensus,butÔthenatureofthingsÕ,wastheprincipleoflegitimisationforpoliticalsociety.Asweshallseeinmoredetailbelow,itisdifÞculttoclassifytheScottishEnlightenmentÐrepresentingthebackgroundtoSmithÕseducationÐwithinthisdichotomy.Inafewwords,theScottishEnlightenmentsetssidebysidewithanevolutionarytheoryofsocietyandthestate(SmithÕsÔfourstagesÕ),andaÔrealisticviewofmaninsocietyÕ,anindividualisticvisionandatheoryoflegitimisationthroughconsent.However,alsointhecaseofthecontractviewaformofstateauthoritywasconsiderednecessaryforkeepingsocietytogether.Whatismore,authorsconsideredamongthefoundingfathersofeconomicliberalismlikeMandeville(seebelow,4)and,toastillgreaterextent,authorsofthemercantilistperiodheldthatthepursuitofprivateinterestsonthepartofindividualsmayleadtocollectivewell-beingorprogressonlyifdulyguidedintherightdirectionbyacapablepublicauthority.Thetheoriesofweightandcounterweight,appliednotonly(asinMontesquieu)tothevariouspoliticalinstitutionsthatgotomakeupthemodernstatebutindeedtotheinterplayofpassionsandinterests,canalsobeviewedinthislight:aswewillseeinthenextchapter,theSmithianfusionofindividualinterestandÔmoralofsympathyÕconstitutedaninterestingdevelopmentalongthislineofreasoning.3.ThemotivationsandconsequencesofhumanactionsOverthecenturiestheworldÕsmajorsocialscientists(MachiavellinolessthanMandevilleorSmith,BeccariaandVerriasmuchasBenthamandJohnStuartMill)havetackledanalysisofhumanbehaviourandthefunc-tioningofsocietystartingfromtwokeyquestions.TheÞrstquestionisaboutwhatimpulsesdrivehumanactions,whilethesecondaddressestheconsequencesforsocietyofmoreorlessradicallyegocentricmotivations,orinotherwordsmotivationsnotdirectlyaimedatthegoodfunctioningofsocietyorcollectivewell-being.TherecanbenodifÞcultyinappreciatingtheimportanceoftheÞrstquestionasanalysisproceedsfromÔwhatshouldbeÕtoÔwhatinfactisÕ.

Frombodypolitictoeconomictables85IntheMiddleAges,aswesawabove,theideaprevailedthathumanbehaviourshouldbeguidedbydivineendsandthatanyactionorthoughtcontrarytothisideashouldbeeradicatedasnotonlysinful,butabsurd.ThedeÞnitionofÔrightÕbehaviourextendedfromthatcorrectlyprac-tisedbytheindividualtothebehaviourthatsocietyitselfimposedbycondemningcasesofdeviation.Givensuchgrounds,attributingauton-omytoÔwhatitisÕmeantlegitimisingbehavioursnotconformingtothepreceptsofreligiousethics,recognisingboththeirdiffusionand,atleastinsomecases,theirexpediency.Machiavelli,aswesawabove(3.3),brokesharplyawayfromthemedievalview,whilethecultureoftheProtestantreformsettledonanintermediateposition,viewedbyWeber(1904Ð5)asfundamentalforthebirthofcapitalism,sinceitrecognisedlegitimacyforactionsaimingatindividualenrichment.ThestrongpointintheProtestantviewlaypre-ciselyinthefactthatitavoidedoppositionbetweenindividualandcol-lectiveinterests,reconcilingrecognitionoftheroleofindividualinterestsasaforceforconstructiveactionwithpreservationofaprincipleofmoraljudgement,weighingupthedifferentmotivationstoactandallowingfordiscriminationbetweendestructiveandconstructiveactions.ThiswasasolutionmuchliketheoneSmithwastoproposewithhissimultaneousdefenceofthemarketandtheÔmoralofsympathyÕ.Naturally,recognisingthathumanbeingsdonotfollowtheguidanceofreligiouscommandmentsalonedidnotmeandenyinganyroletothem;thuswearedealingwiththesimultaneouspresenceofmanyandvariousmotivationslyingbehindhumanbehaviour.Thedebateonsuchmoti-vationswasfarmorecomplexthanmightappearfromthewayitisalltoooftenpresented,intermsofoppositionbetweenselÞshandaltruisticbehaviour.Themotivesforhumanactionaresummedupintwoterms,ÔpassionsÕandÔinterestsÕ,eachofwhichinfactencompassedawholeseriesofspe-ciÞcelementsthatcannotbereducedtoacommondenominator.ThedistinctionpointedtothesimultaneouspresenceinhumanbehaviourofinstinctualorcustomaryÐandinanycasea-rational(althoughnotnec-essarilyirrational)Ðelementswithelementsthatimplyreasonedchoicesbutthatcancertainlynotbereducedtoamerematterofmaximisingwealthorincome.Weshouldalsobearinmindthatinatimeoffar-reachinguncertaintiestheroomforrationalbehaviourwascertainlynotall-embracing,whiletheroleofthepassionsremainedimportant.1818WeshouldrecalltheimportanceoftheÔprocessofcivilisationÕdiscussedbyElias1939,althoughHirschmanÕs1977distinctionbetweenpassionsandinterestsisinfactsome-whatdifferent.

86TheWealthofIdeasIngeneral,however,writersoneconomicissuestendedtoberational-ists,bothinthesenseofreasoningonthepossibleconsequencesofdiffer-entkindsofbehaviour,formingvaluejudgementsonthembyevaluatingtheirconsequences,andinthesenseofattributingthesamebehaviouralcanontotheagentsasobjectsoftheiranalyses.Letusnowturntothesecondquestion,concerningtheoutcomesofanindividualbehaviourmotivatedbyindividualpassionsandinterests.Aswewillseemorefullyinthenextsection,asomewhatoptimisticanswerwasprovided:undercertainconditions,andmorepreciselywhenacon-structivedriveisgeneratedfromtheinterrelationbetweenthedifferentpassionsandinterests,individualactionsnotdirectlyaimingatthepublicgoodmaystillhavepositivesocialconsequences.Moreover,theverysocialconnectionsthatdevelopedbetweenpar-ticipantsinamarketeconomyplayedacivilisingrole,givenaconceptofcivilisationconnotingtheabilitytopreservesomemoralcontroloveroneÕsownpassionsandinterestsinthechoicebetweenalternativelinesofbehaviour.IntheeighteenthcenturytheideaofacivilisingroleforcommerceÐtheideaofdouxcommerceÐdominatedoverthepessimisticthesisofcommercehavingadestructiveinßuenceonsocialcohesion.19TheideaofdouxcommercewasconnectedamongotherthingswithÔtheideaofaperfectiblesocialorder[which]aroseataboutthesametimeasthatoftheunintendedeffectsofhumanactionsanddeci-sionsÕ.20Montesquieu,Condorcet,Paineandmanyothersdiscussedthevirtuesofcommerce,followedinthisbyHumeandSmith.Theyallsharedtheinsistentthoughtthatasocietywherethemarketassumesacentralposition[…]willproducenotonlyconsiderablenetwealthbecauseofthedivisionoflabourandconsequenttechnicalprogress,butwouldgenerate[…]amoreÔpolishedÕhumantypeÐmorehonest,reliable,orderly,anddisciplined,aswellas19TheoppositionbetweenRivalinterpretationsofmarketsociety:civilizing,destructive,orfeeble?ispropoundedbyHirschman1982.WhatHirschmandeÞnesasÔtheself-destructionthesisÕisexempliÞedbyrecallingSchumpeterandHirschinthetwentiethcentury,MarxandEngelsinthenineteenthcenturyand,inthe1830s,theconserva-tivereactiontoWalpoleandtheWhiggovernmentfavourabletoprogressofthemarketsociety.Inparticular,ÔFredHirschdealtatlengthwithwhathecalledÒthedepletingmorallegacyÓofcapitalism.Hearguesthatthemarketunderminesthemoralvaluesthatareitsownessentialunderpinnings,valuesthatarenowsaidtohavebeeninheritedfromprecedingsocioeconomicregimes,suchasthefeudalorderÕ(ibid.,p.1466;italicsintheoriginal);ÔMarxandEngelsmakemuchofthewayinwhichcapitalismcorrodesalltraditionalvaluesandinstitutionssuchaslove,family,andpatriotism.Everythingwaspassingintocommerce,allsocialbondsweredissolvedthroughmoney.Thisper-ceptionisbynomeansoriginalwithMarxÕ(ibid.,p.1467).OnSchumpetercf.below,15.4.20Hirschman1982,p.1463.

Frombodypolitictoeconomictables87morefriendlyandhelpful,everreadytoÞndsolutionstoconßictsandamiddlegroundforopposedoptions.Suchatypewillinturngreatlyfacilitatethesmoothfunctioningofthemarket.21Intheeighteenthcenturyabasicallyoptimisticinterpretationthuspre-vailedofthepathfollowedbyasocietybasedonthedivisionoflabourandonthemarket.Suchanoptimisticviewwasintrinsictothespiritofthetime,andinparticulartotheEnlightenmentcultureanditsfaithinthetriumphofReason.However,theideaofaprogressivesocietydidnotstem,aseffectfromcause,fromhopeinthediffusionofindividualbehaviourguidedevermorecloselybyreason,everlessbythepassions.Rather,thecausallinkworkedintheoppositedirection,fromtheeco-nomicandsocialprogressachievedbyasocietydrivenbythespiritofcommerce,andhencebyindividualisticmotivations,toagrowingcul-turalcivilisationinwhichpersonalinterestwasnotsomuchsupersededasappropriatelychannelledtowardscollectiveprogress.4.BernarddeMandevilleBornintoafamilyofdoctors,andhimselfadoctor,theDutchBernarddeMandeville(1670Ð1733)waschristenedinRotterdam,attendedtheErasmianschoolandthentheUniversityofLeyden,andgainedthetitleofdoctorinmedicinein1691.ShortlyafterwardshemovedtoLondon,whereheresideduptohisdeath.22HisÞrstpublicationdatesfrom1703:anEnglishtranslationofsomefablesbyLaFontaine,towhichheaddedacoupleofhisown.In1705asmallpoemofafewpageswaspublishedanonymously,Thegrum-blinghive:or,knavesturnÕdhonest.Thispoemconstitutedthecoreofhisbest-knownwork:Thefableofthebees:or,privatevices,publickbeneÞts,whichappearedunderthistitleandwithacommentinprosein1714,anexpandededitionappearingin1723.ForitsÔimpietyÕ,thispublica-tionwascriticisedbytheGrandJuryofMiddlesex;MandevilleÕsdefenceagainsttheseaccusationswasincludedinthesubsequenteditions(1724,1725,1728,1729,1732).In1728asecondparttotheworkwaspub-lished,toappearinfurthereditionsin1730andin1733.Startingwithaneweditionof1733,thetwopartswerepublishedjointly,astwovolumesofthesamework,andwererepublishedinthe1924criticaleditionedited21Ibid.,pp.1465Ð6.Theeighteenth-centuryEnlightenmentsharedwithÞfteenth-centuryhumanismanoptimisticviewofhumannature,butsubstitutedtheideaofitsinvarianceovertimewiththeideaofitsperfectibility.22OnMandevilleÕslifeandworks,cf.Kaye1924.

88TheWealthofIdeasbyKaye.23Thisworkwaswidelycirculatedandgaverisetoheateddebate,theauthorhimselftakingpartinitwiththeseriesofenlargededitions.Educatedinaculturalenvironmentwhichwasamongthemostpro-gressiveofthetime,inhisworktheDutchdoctoraddressedsomethemescharacteristicoflibertinethinkingoftheseventeenthandeighteenthcen-turies,tacklingwhatwasseenasanirreconcilableclashbetweenthecri-terionofrigourandthecriterionofutilityinchoicesconcerninghumanbehaviour.MorespeciÞcally,MandevilleÕspolemicwasdirectedagainstShaftesbury,anauthoralsocriticisedÐsigniÞcantlyenoughÐbySmithinhisTheoryofmoralsentiments.Shaftesburyadvocatedtheideaofauni-versalharmonyinwhichGoodandBeautycoincided.24InMandevilleÕsopinion,weshouldrecognisethatmaniscommonlydrivenbypassionsandintereststhatarecentredonhimselfandnotÐoratleastnotdirectlyÐaimedatthegoodofsociety.However,theÞnaloutcomeofasocietyinwhichselÞshbehaviourprevailsmaybethecollectivegood:ÔprivatevicesÕmayturnintoÔpublicvirtuesÕ.However,itissimplisticandindeederroneoustosumupMandevillewiththewell-knownformulaÔprivatevices=publicvirtuesÕ.SelÞshbehaviourmay,heargued,butwouldnotnecessarilyleadtocollectivegood.Infact,italldependedontheabilityofthoseinpowertoplayonthesimultaneouspresenceofdifferentpassionsattherootofhumanaction,neverdenyingthem,butchannellingthemintherightdirection.ÔPrivateVicesbythedextrousManagementofaskilfulPoliticianmaybeturnedintoPublickBeneÞts.Õ25ThusMandevillecannotbeconsideredasupporterofÔviceÕtoutcourt(alsoconsideringthatitwasnotunderstoodasanti-socialbehaviour,butsimplyaspursuitofindividualmotivations):hemaintainedthatweshouldrecognisetheexistenceofviceasamatteroffact,foronlythuswillwebeabletoreappositiveresults.Mandevillecontrastedtraditionalsociety,typicallyonasmallscale,whereeveryonecouldseewhateveryoneelsewasupto,withmercan-tilesocietybasedonthedivisionoflabourandhencenecessarilyonabroaderscale:moreover,sincethedivisionoflabourfavouredtechnicalprogress,thelargersocietygrewthericheritwouldbe.InMandevilleÕs23Amongtheother,lessimportant,writingsbyMandeville,wemaymentiontheFreethoughtsonreligiondated1720,andAlettertoDiondated1732.Onthelatter,seeVinerÕsintroduction(1953),criticisingtheinterpretationÐwidespread,althoughwithscantphilologicalsupportÐthathasMandevillealaissez-fairetheoretician.24Forthisinterpretationcf.Scribano1974.AntonyAshleyCooper,thirdearlofShaftesbury(1671Ð1713),apupilofLocke,MemberofParliamentfrom1695to1699,whothenretiredtoliveinItalyasaconsequenceofhealthproblems,wastheauthorofthreevolumesonCharacteristicsofmen,manners,opinions,times(1711),inwhichhemaintainedthatmanisendowedwithaninnateÔmoralsenseÕthatallowshimtodis-tinguishbetweenrightandwrong.FrancisHutcheson,SmithÕsteacherwhomweshalldiscussbelow(9),supportedhimagainstMandeville.25Mandeville1714,vol.1,p.369.

Frombodypolitictoeconomictables89opinionitwastheformerkindofsocietythatwasidealisedbymoralistslikeShaftesbury,takingamisleadinglyoptimisticviewofsociety.Themembersofsuchasociety,Mandevilleasserted,shallhavenoArtsorSciences,orbequietlongerthantheirNeighbourswillletthem;theymustbepoor,ignorant,andalmostwhollydestituteofwhatwecalltheComfortsofLife,andalltheCardinalVirtuestogetherwonÕtsomuchasprocureatolerableCoatoraPorridge-Potamongthem:ForinthisStateofslothfulEaseandstupidInnocence,asyouneednotfeargreatVices,soyoumustnotexpectanyconsiderableVirtues.ManneverexertshimselfbutwhenheisrousÕdbyhisDesires.26Itisthelargemercantilesociety,inwhichthebehaviourofmenisdrivenbyindividualisticmotivations,thatfavourstheprogressofwealthandwithittheveryenrichmentofhumanpersonality,itscivicgrowth.Obviously,thismeantthattherehadtobepre-establishedrulesofthegame:asVinerwrote,Ôthedisciplineimposedbypositivelawandenforcedbygovernmentwasessentialifaprosperousandßourishingsocietywastobederivedfromcommunitiesofindividualsvigorouslypursuingtheirself-regardinginterestÕ.27Togetherwithlaws,educationandtheveryfactofbeingaccustomedtocommunitylifewereimportant,sincethroughthemthedifferentpassionsmaybedirectedtowardsthecollectivegood.28Inasense,theinterplayofwell-balancedpassionsconstitutedasortofÔinvisiblehandÕthatguaranteedtheprogressofsociety,evenifthiswasnottheimmediateobjectiveofindividualactions.Thisinvisiblehandwasnot,however,anecessaryresultofindividualactions:itwasitselfaconsciousconstruction,throughwhichtheabilitiesofthoseresponsibleforgoverningsocietymanifestedthemselves.2926Mandeville1714,vol.1,pp.183Ð4.27Viner1953,p.185.28Takingupanotherthemecharacteristicofthelibertinethought,Mandevillenoticedthevariabilityofmoralandsexualhabitsandofreligiousandpoliticalconvictions(asweretestiÞedbynumerousaccountsoftravelsinfarawaylands,aliterarygenrewidespreadatthetime).Thisimpliednegationoftheideaofamoralconvictioninnateinmencorrespondingtodominantopinions(theconsensusgentium).Hence,thenotionsofjustandunjustarefruitsofeducationandoflifeinsociety.Onthis,cf.Scribano1974,pp.xxÐxxi.29Thispositioniscertainlynotisolatedinthehistoryofeconomicthought:initsrea-sonableness,itwaspropoundedagainandagainbydifferentauthorsandindifferentepochs.Forinstance,itcamebackinthegradualistthesesconcerningtransitionfromplannedeconomiestothemarketafterthefalloftheBerlinWallin1989;butalreadyinthesixteenthcenturyitwasexplicitlyproposedbytheanonymousauthorofaÞnedialogue,inwhichitwasmaintainedthatmenpursuepersonalinterest,butthatthisshouldnotbetothedisadvantageofothers,andthatensuringsucharesultisthetrueproblemofpolitics:ÔThrewitisthatthingewhichisproÞtabletoechemanbyhisseuleÕ;ÔtheymaienotpurchacethemseulesprofÞtbythatmaybehartfulltoothers.Buthowtobringethemthat[they]wouldnotdoeso,isallthematterÕ(Anonymous1549,pp.51and50).

90TheWealthofIdeas5.RichardCantillonFormanyeconomiststhepublicationofSmithÕsWealthofnationsmarksthebirth-dateofeconomicscience,whileMarxwentbackstillfurther,hailingPettyasthefatherofpoliticaleconomy.Jevons(1881)stoppedmid-way;forhimthefounderofpoliticaleconomywasaninternationalbanker,RichardCantillon.HeappearstohavebeenborninIreland,livedmostofhislifeinParis,andwasmurderedinLondonin1734.30HewastheauthorofanEssayonthenatureofcommerceingeneral,probablywrittenbetween1728and1734,andpublishedposthumouslyinFrenchonlyin1755,afterhavingbeenabundantlyplagiarisedinEnglishbyPostlethwayt,31andafteramanuscriptcopyoftheessayhadremainedforsixteenyearsinthehandsoftheMarquisofMirabeau,whoseemstohavehadeveryintentionofusingitinthesameway.32CantillonÕsinßuenceonQuesnayandthephysiocratswasindeedprofound.TheEssayhasanadmirablecompactnessandfollowsarigorouslogicalscheme;itiscomposedofthreeparts,theÞrstconcerningtheinternalorganisationoftheeconomicsystem,thesecondformingabriefbutimpressivelylucidtreatiseonmoneyandinternalmonetarycirculation,thethirdatreatiseonforeigntradeandexchanges,theauthorÕsfamiliar-itywithsuchthemesbeingclearlyapparent,particularlywiththemech-anismsofinternationalÞnance.33Thetextwasfollowedbyastatisticalappendix,subsequentlylost,whichprobablycontainedexercisesinpolit-icalarithmeticonthelinesofPetty,aswemaysurmisefromthereferencestoitinthetext.ItseemsthatCantillonattributedtothesearithmeticalcomputationsratherlessimportancethandidPetty,consideringthemapproximatetoolsfordescribingrealityandÞndinganinterpretativekeyratherthan30Murphy(1986,pp.282Ð98),however,stressesthedoubtsthatsurroundthestory,recall-ingthesuspicionthatCantillonhadstagedthewholethingtoßeeabroadwithoutbeinghuntedfor.31MalachyPostlethwayt(1707Ð67),mentionedearlier,isknownastheauthorofamon-umentalUniversaldictionaryoftradeandcommerce(1751Ð5).CantillonÕsEssaywasincludedinitinnearentirety,probablycopiedfromanoriginalEnglishtextsincelost.32LÕamideshommes,whichMirabeaupublishedin1756andwhichhadenormoussuccessÐmorethanfortyeditionsinafewyearsandmanytranslationsÐwasinfactmainlyacom-mentaryonCantillonÕsbook,enrichedwithabundantdosesofrhetoric.SubsequentlyvariousotherauthorsincludingBeccariadrewonCantillon,oftenwithoutacknowledg-ingtheirsource.33CantillonhadbecomerichbyspeculatingÞrstonJohnLawÕsscheme(theÔMissis-sippibubbleÕ),ofwhichhehadforeseenboththeinitialsuccessesandtheinevitableÞnalcollapse,subsequentlyonexchangesinaperiodofstrongcapitalmovementsbetweenFrance,HollandandEngland,andÞnallyontheAmsterdamandLondonstockexchanges(theÔSouthSeabubbleÕ).Murphy(1986)presentsafascinatingaccountofCantillonÕsadventurouslifeandanintroductiontohisthought.

Frombodypolitictoeconomictables91revealingunderlyingquantitativelaws.34Inanycase,hetookanumberofelementsfromPetty,andintheÞrstplacetheideaofaÔbodypoliticÕabletoobtainasurplusproduceoverandabovetherequirementsofmeansofproductionandsubsistence.However,whilePettyseemstohavehadtheconnectionbetweenthedifferentpartsoftheÔbodypoliticÕresidingmainlyinthefactthattheyaresubjecttoasinglestatepower,Cantillonsawitasstemmingfromtheprocessofcirculationofcommodities.Actu-ally,theideaalsoappearedinPettywhenhecomparedmoneytothefatofthehumanbody,andcommoditiestotheblood(cf.above,3.3).How-ever,itwasCantillonwhoÞrstexplicitlyemphasisedthelinkbetweentheprocessesofcirculationofcommoditiesandofproduction.TheÞrstpartofCantillonÕsEssayisthemostinteresting,revealingthecrucialroleheplayedonthewayfromPettytoQuesnayandSmith.Obvi-ously,theconnectionsbetweentheseauthorswillbeinterpretedaccord-ingtotheviewpointtakenoneconomicscience.Forinstance,accordingtoJevons,CantillonwasaforerunnerofmoderntheoriesmainlybecauseofhisdichotomybetweenmarketvalueandÔintrinsicvalueÕ(whichJevonsidentiÞedwiththeoppositionofatheoryofpricesbasedonsupplyanddemandtoonebasedonproductioncost).35Asweseeit,onthecon-trary,CantillonpursuedthepathstartedonbyPetty,contributingtothespeciÞcationofthebasicconceptsusedbysubsequentgenerationsofeconomistsintheiranalyticalsystems,andbyQuesnayintheÞrstplace.LetusfocusourattentionontwoelementsofCantillonÕsthought:theconceptualcategoriesadoptedtosubdividetheeconomyonthebasisoflocalisation,sectorandsocialclass,andthetheoryofvalue,whichwemaycallalandvaluetheory.FortheÞrstofthesetwoelements,Cantillonassociatedthedivisionintosectors(agriculture,artisansector,commerce)withdivisionintosocialclasses(peasants,artisans,merchantsandnobility)andthegeo-graphicalorganisationofsociety(countryside,villages,towns).Itwillbe34Inasense,CantillonresembledKeynesforhisawarenessofthecomplexityofreallife,requiringsimpliÞcationsgroundedonrationalfoundations,andfortheimportanceattributedtopracticaljudgementwithregardtothepossibilitythatinspeciÞccasestheelementsdisregardedinthetheory(thatis,intherationalandsimpliÞedreconstructionofreality)mayproverelevantandleadtoresultsdifferentfromthoseforeseenbythetheoryitself.35Jevons1881,p.345.Asamatteroffact,muchasSmithwaslatertodo,Cantilloniden-tiÞedmarketpriceswithactualprices,inßuencedbycontingentelementssummarisedinthetermsÔsupplyÕandÔdemandÕ,whichcannotbesubjectedtotheoreticaltreatment:cf.below,5.6.AnalogousinterpretativeconßictshavealsoarisenoverotheraspectsofCantillonÕswork:forinstance,histreatmentofexchangeshasbeenseentoanticipatebothHumeÕstheoryofanautomaticre-equilibratingmechanismofthetradebalance,andtheKeynesiantheorythathascapitalmovementsdominatinginthedeterminationofexchangerates.

92TheWealthofIdeasnotedthatCantillondidnotfollowthemoderndivisionoftheecon-omyintosectors(agriculture,industryandservices)andsocialclasses(workers,capitalists,landlords),butthisdoesnotmakehisvisionoftheinterconnectionsbetweenthedifferentviewpointswemaytakeonaneconomicsystem(thoseofthedivisionintosectors,orsocialclasses,orgeographicalareasthatmaybeconsideredasinternallyhomogeneous)anythelessrelevant.Obviously,thisdoesnotmeanthatdrawingdirectcorrespondencebetweendifferentclassiÞcationsisthebestwaytorepre-senttheeconomy.36Inanycase,asweshallseeinthenextsection,theconnectionbetweenthedivisionofsocietyintoclassesandintosectorswastakenupbyQuesnayandthephysiocrats.Subsequently,however,atleastfromSmithonwards,thedivisionintosocialclasses(workers,capitalists,landlords)wastobeautonomousfromthatintosectors,notfullyworkedout,andfromthegeographicaldivision,whichremainedinthebackgroundandwasoftenreducedtothetownÐcountrydichotomy.TheautonomousnatureofthedifferentclassiÞcations,correspondingtothedifferentviewpointsfromwhichtheeconomicsystemcanbestudied,shouldnot,however,makeuslosesightoftheconnectionsbetweenthem.SuchclassiÞcationsarebutatoolforanalysis,withhistoricallyrelativevalidity.ThesecondelementinCantillonÕsanalysisthatwewillconsidercon-cernshistheoryofvalue.InthisrespectCantillonreferreddirectlytoPettyÕsthought(cf.above,3.5),ofwhichhe(Cantillon1755,p.27)tookupthemainthesis:ÔThePriceandIntrinsicValueofaThingingeneralisthemeasureoftheLandandLabourwhichenterintoitsPro-duction.ÕHowever,withregardtotheequationbetweenlabourandland,thecriterionproposedbyPettywascriticisedasÔfancifulandremotefromnaturallawsÕ:Ôhehasattachedhimselfnottocausesandprinciplesbutonlytoeffects,asMrLocke,MrDavenantandalltheotherEnglishauthorswhohavewrittenonthissubjecthavedoneafterhimÕ(ibid.,p.43).Inotherwords,CantillonseemstohavegraspedthelimitationofPettyÕsproposedsolution,basedontherelativeproductivity(ÔtheeffectsÕ)ofprocessesutilisingalternativelylabourorland,whichimpliedeithertechniqueswithasinglemeansofproductionoracircularreasoning.ThesolutionproposedbyCantillonwasinfactmorecoherentwiththe36Ahighroadofprogressforeconomicscienceisconstitutedbytheseparationofproblems,sinceonlyadequatespeciÞcationofaproblemallowsforitssolution.InthecaseofCantillon,asinthatofthephysiocrats,theproblemofthesocialstructureisconfusedwiththeproblemsofsubdivisionintosectorsandofdistinctionbetweenproductiveandunproductivelabour.

Frombodypolitictoeconomictables93objectiveapproachoftheclassicaltheoryofprices:labourisreducedtoitscostofproduction.InCantillonÕswords(ibid.,p.35),ÔthedailylabourofthemeanestSlavecorrespondsinvaluetodoubletheproduceoftheLandrequiredtomaintainhimÕ;infact,apartfromthesubsistenceoftheworkerweneedcomputeanequalcostforsubsistenceoftwooffspring,soastoensuresubstitutionoftheworkerattheendofhisproductivelife,takingintoaccountthemortalityconditionsofthetime.37ThusCantillontookintoconsiderationaself-sufÞcientfragmentofavitaleconomicsystem,inwhichlandistheonlynon-producedmeansofproductionandinwhichthenetproductcorrespondstothemeansofsubsistencerequiredformaintenanceofaworkerandtwochildren:thevalueofaworkercorresponds,then,tothequantityoflandutilisedinsuchasubsystem.Weshouldnote,however,thatlandbyitselfproducesnothing;evenifalltheothermeansofproductionarereproducedwithinthesameperiod,itisnotpossibletostartproductionwithoutthem.Theveryexistenceoftheproducthencedependsontheavailabilityofallthemeansofproduc-tioninexistenceatthebeginningoftheperiod,workersincluded;likePettyÕstheory,CantillonÕsalsobegsthequestion.However,Cantillonseemedtobesearchingnotsomuchfordeterminationofexchangeratios(whichinfactareassumedasgiven)asforasolutiontotheproblemofthecausesofvalue.Inthisrespect,thelinetakenbyCantillon,i.e.reducinglabourtoitscostofproduction(which,aswesawabove,washintedatbyPettywhenhestatedthatÔthedaysfoodofanadultMan,ataMedium,[…]isthecommonmeasureofValueÕ),38shouldleadtoapurelandtheoryofvalue,sincelandwouldremainthesoleoriginalnon-reproduciblefactorofproductioncreatingvalue.39Asamatteroffact,Cantillondidnotmaintainatheoryofvalueofthiskind,whichwouldhaveimpliedattributingtolandalonethecapacitytocreatevalue,butthedirectioninwhichhemovedundoubtedlypreparedthebackgroundforthephysiocratsÕthought,tobeconsideredinthenextsection.AnotheraspectofCantillonÕsthoughtopentodifferentinterpretationliesinthedrivingroleheattributedtoupper-classluxuryconsumption.Ontheonehanditisconsideredanelementofmodernity,analogoustotheroleofautonomousdemanditems(particularlyinvestments)in37Ibid.,pp.31Ð7.Becauseofthisapproach,CantillonseemedtoanticipatetheMarxiantreatmentofthevalueoflabourpower(cf.below,9.4),withthedifferencethatMarxreducedthevalueoflabourpowertothequantityoflabourrequiredtoproducetheworkersÕmeansofsubsistence,andCantillontothequantityofland.38Petty1691a,p.181.Cf.above,3.5.39ThusBrewer1988,1992,interpretsCantillonÕstheory,translatingitintothetermsofaformalisedmodel.

94TheWealthofIdeastheKeynesiansystem:asthetitleofchapter12ofPartOneputsit,ÔAllClassesandIndividualsinaStatesubsistorareenrichedattheExpenseoftheProprietorsofLand.Õ40Ontheotherhand,however,andperhapsmoreaptly,itisseenasaresiduumofthefeudalsystem,preciselyinthatitfocusedattentiononconsumptionbythepropertiedclasseswhileignoringthedynamicroleassumedbyindustrialinvestmentswithincap-italism.41Inanycase,thisideaconstitutedoneofthemainelementsinCantillonÕsinßuenceonthephysiocraticschool.42Ontheotherhand,thephysiocratswerenottotakeuptheÔthreerentsÕtheory,whichwouldhoweversubsequentlyreappearinamodiÞedformwithintheclassicaltradition.InCantillonÕsview,theÞrstrentwasthepartoftheproductthatthefarmerusedtomeetthecostsofproduction,inclusiveoftheworkersÕsubsistence;thesecondrentconstitutedthefarmersÕincome,correspondingtowhatwewouldtodaycalltheproÞtofagriculturalentrepreneurs;43whilethethirdrentwasthatgoingtothelandlordfortheuseofhisland.InCantillonÕswords:ÔTheFarmershavegenerallytwothirdsoftheProduceoftheLand,onefortheircostsandthesupportoftheirAssistants,theotherfortheProÞtoftheirUndertaking[…]TheProprietorhasusuallyonethirdoftheproduceofhisLand.Õ44TheproÞtsoftheagriculturalentrepreneur(thedominantkindofcap-italist,atatimewhentheagriculturalsectordominatedtheeconomyandmanufactureswerecharacterisedbyartisanproduction)werecon-sideredjointlywithrentproper.ThusproÞtswerenotyetrelatedtocapital40Cantillon1755,p.43.Cf.Giacomin1996.41Cf.Brenner1978,p.122.42Thisisanyhowanideaalreadypresentintheliteratureofthetime;forexample,inaÔliberalÕauthorsuchasBoisguilbert:cf.above,1.Infact,theissueofluxurycon-sumptionwaswidelydebatedintheseventeenthandeighteenthcenturies,thoughnolongerontheancientandmedievallinesofamoralissueconcerningtherightnessofthequestformaterialwealth.Rather,attentionwasgiven,intheperiodnowundercon-sideration,toissuessuchastheroleofluxuryconsumptionasacomponentofdemand(withtheattendingdistinctionbetweenconsumptionofhome-producedorimportedluxuries),henceasastimulustoproductionandemployment,or(aswewillseebelow,9,withregardtoHume)asapositivefactorfortheÔreÞnementÕofhumanbeingsandasastimulustoindustry.Theseideaswereutilised,inlivelydebates,inoppositiontotherepetitionoftraditionalancientandmedievalviewsbutalsoinoppositiontoCalvinistandPuritanviews.43ÔTheFarmerisanundertakerwhopromisestopaytothelandowner,forhisFarmorLand,aÞxedsumofmoney[…]withoutassuranceoftheproÞthewillderivefromthisenterpriseÕ(Cantillon1755,pp.47Ð9).44Ibid.,pp.43Ð5.Cf.alsoibid.,p.121:ÔItisthegeneralopinioninEnglandthataFarmermustmakethreeRents.(1)TheprincipalandtrueRentwhichhepaystotheproprietor,supposedequalinvaluetotheproduceofonethirdofhisFarm,asecondRentforhismaintenanceandthatoftheMenandHorsesheemploystocultivatetheFarm,andathirdwhichoughttoremainwithhimtomakehisundertakingproÞtable.ÕLetusrecallinthisrespectthataccordingtoSchumpeter1954,p.222,itwasagreatmeritofCantillontohaverecognisedÔtheentrepreneurialfunctionanditscentralimportanceÕ.

Frombodypolitictoeconomictables95advancesinordertogeneratetheideaofauniformrateofreturn(rateofproÞts).Thisaspect,too,maybetterbeunderstoodifwerecallthelimitedstrengthofcompetitionintheconditionsofthetime,ascanbeseenamongotherthingsincertainpassagesintheEssayontherelation-shipbetweeninterestratesandrealratesofreturn,wherethewidespreaddispersionofreturnsindifferentactivitiesandmoregenerallyindifferentcircumstancesbecomesfullyapparent.AnimportantrolewasattributedtoÞnancialcapitalists:ThenumberofProprietorsofmoneyinalargeStateisoftenconsiderableenough;andthoughthevalueofallthemoneywhichcirculatesintheStatebarelyexceedstheninthortenthpartofthevalueoftheproducedrawnfromthesoilyet,astheproprietorsofmoneylendconsiderableamountsforwhichtheyreceiveinterest[…]thesumsduetothemusuallyexceedallthemoneyintheState,andtheyoftenbecomesopowerfulabodythattheywouldincertaincasesrivaltheProprietorsofLandsiftheselastwerenotoftenequallyProprietorsofmoney,andiftheownersoflargesumsofmoneydidnotalwaysseektobecomeLandownersthemselves.45CantillonÕsideasonmoneyweremuchlikePettyÕs:moneyisnecessaryforthecirculationofcommodities,butpreciousmetalsdonotcoincidewithwealth;thequantityofmoneyrequiredforthesoundfunctioningoftheeconomydependsonthevalueofexchangesandthevelocityofcirculationofmoneyitself.Furthermore,accordingtoCantillon,theinterestratedependsontheratiobetweendemandforandsupplyofloanablefunds,andisthereforenotdirectlyandstrictlyrelatedtothesupplyofmoney.46Thevalueofmoney(andhence,inversely,thegen-erallevelofprices)dependsessentiallyonitscostofproduction,asinPetty,andunlike,forinstance,thepositiontakenbyLocke,whofocusedondemandandsupply.This,however,issomethingthatinßuencesbutdoesnotdeterminetheevaluationofmoneymadebythemarket,whichmaydifferfromitsÔvalueÕ.Notableimportanceinsuchanevaluationwasheld,amongotherthings,bytheelementsthatwereconsideredtoinßuencethevelocityofcirculationofmoney:theÞnancialinstitutionsandcustomsÐforinstancetheexistenceofclearingagreementsÐandcommercialcredit.Moreover,monetaryphenomenainßuenceddifferentgoodsindifferentways.Cantillonappearstohavebeenathiseaseexam-iningtheserelationsgiventhattheywereconnectedtohisactivitiesasa45Cantillon1755,p.57.Itshouldberememberedthat,asaCatholic,CantillonwasforbiddentoacquirelandinEngland,andthatinthelastyearsofhislifehetriedinvariouswaystobeexemptedfromthisrule:foralongperiod,theinstitutionsofprivatepropertyhavecoexisted,inthecaseofland,withconstraintsontransferabilityofpropertyaimingatsafeguardingthetraditionalsocialstructure.46ForanillustrationofCantillonÕspositioninthedebateofthetimeonthistheme,cf.Tucker1960,ch.2.

96TheWealthofIdeasbanker,which,however,hedidnotillustrate:hisEssaywasundoubtedlyaneconomicstreatise,notatreatiseonbankingandÞnancialtechnique,thoughwecannothelpnoticinghowmuchroommonetaryissuestakeupandhowlittleÐnexttonothing,infactÐdoÞscalissues,soimpor-tantinthedebatesofthetime.Monetaryissues,too,bothnationalandinternational,weredealtwithinalogicallymostrigorousway,sothatthediscourseappearssimple,atsomepointsevenobvious.Ingeneral,itisclearthateveninmanuscriptformthisworkhadaprofoundimpactonitsreaders.6.FranücoisQuesnayandthephysiocratsThephysiocrats(orles«economistes,astheyusedtocallthemselves)wereaverycompactandcombativegroupofFrencheconomistsgroupedaroundFranücoisQuesnay(1694Ð1774),doctortoMadamedePompadouratthecourtofLouisXV.ThephysiocratsaretheÞrstschoolofeconomicthoughttohaveequippedthemselveswiththeirownpressorgansinordertoadvocatedeÞnitepointsofpolicy.ThespanoftimeinwhichtheyweredominantwasshortÐlittlemorethanaquarterofacentury47ÐbuttheirinßuenceonthedevelopmentofpoliticaleconomywassigniÞcantlystrong,partlyduetothecentralpositionParisoccupiedintheculturallifeofthetime.Thephysiocratsattributedakeyroletothedevelopmentofagriculture,whichtheyconsideredtheonlysectorcapa-bleofproducingasurplus.Moreover,astheirnamesuggests(physiocracyoriginatesfromtheGreekf`usis=nature,andcrat«ein=todominate),theysharedwiththeCartesiancurrentofFrenchEnlightenment(cf.below,7)theideaofaÔnaturalorderÕ,thelogicandoptimalityofwhichÐunchangingovertime,sinceitisintrinsictotheverynatureofthingsÐshouldbeevidenttoanypersonendowedwiththelightofreason,andwhichanenlightenedprinceshouldimplementasÔpositiveorderÕ,eliminatingdefectsduetothedeÞcienciesofthehumanlegisla-tor.48Privatepropertyalsofallswithinthisnaturalorder,sothedefenceofpropertyrightswasconsideredoneofthemaintasksoftheÔposi-tiveorderÕ.Thusthephysiocratsdrasticallymitigatedtheabsolutismimplicitinthetraditionalviewoftheenlightenedsovereign,althoughheretheyseemsomewhatmorebackwardthanLocke,whoantedated47AccordingtoHiggs(1897,pp.25and58),thebirthofthephysiocraticschoolmaybedatedfromthemeetingbetweenQuesnayandMirabeauinJuly1757,anditsendin1776Ð7,whenTurgot,thenministerofÞnance,fellindisgrace,andwithpublicationofSmithÕsWealthofnations.48QuesnaywasinparticularafolloweroftheFrenchphilosopherMalebranche(1638Ð1715),inturnafollowerofDescartes.

Frombodypolitictoeconomictables97them,orSmith,theauthoroftheTheoryofmoralsentiments(1759),theircontemporary.TheimportanceattributedtoagriculturehadbeenevidentsinceQues-nayÕsÞrstpublicationsofaneconomicnature:twoarticlesonFermiers(Farmers)andGrains(Corn),whichappearedintheEncyclop«edieeditedbydÕAlembertandDiderotin1756and1757respectively.However,QuesnayÕsbest-knownworkistheTableau«economique(Economictable),printedinVersaillesin1758.AlsoworthmentioninghereisthearticleonDroitnaturel(Naturallaw),dated1765.49AmongthemainfollowersofQuesnaywemaymentionVictorRiqueti,MarquisofMirabeau(1715Ð89),whoachievedcelebrityin1756withthepublicationofLÕamideshommes(Thefriendofmen)which,aswehavealreadyseen,owedmuchtoCantillonÕswork,andPierreDuPontdeNemours(1739Ð1817),whoeditedQuesnayÕsworks(Physiocratie,1767Ð8)andthejournalsproducedunderphysiocraticinßuence(theJournaldelÕagriculture,ducommerceetdesÞnancesfrom1765to1766,thentheEph«em«eridesducitoyenfrom1768to1772),besidescollaboratingwithTurgotupto1776andeditinghiswritingsinninelargevolumesbetween1809and1811.AlsoworthyofmentionhereisPierre-PaulMercierdelaRivi`ere(1720Ð94),authorofatreatiseentitledLÕordrenatureletessentieldessoci«et«espolitiques(Thenaturalandessentialorderofpoliticalsocieties)dated1767,whichSmithratedthebestexpositionofthephysiocraticdoctrines.Mirabeauandvariousotherphysiocrats(butnotQuesnay,whosethe-oriesarediscussedbelow)sawthecapacityofagriculturetogenerateasurplusasbeingintrinsictothefertilityofthesoil(whichproducesanearofwheatfromagrain),andhenceasagiftofmothernature.ThistheoryontheoriginofthesurplusmaythenbeusedtojustifyappropriationofthesurplusbythenobilityÐnotonlytherightfulownersofthelandsbutmastersoftheserfslivingonthemtoboot.Quesnay,too,consideredagriculturealonecapableofyieldingasur-plus,althoughhisexplanationissomewhatdifferent,takingaccountofthesituationprevailinginFranceatthetime:giventhepricesofagricul-turalproductsandmanufacturesontheworldmarkets,withrecoursetothebesttechnologiesfarmerscanobtainaproductwhosevalueexceedsproductioncosts,whilemanufacturerssimplyrecovertheircosts(includ-ingsubsistenceformanufacturingentrepreneurs).Inotherwords,whatQuesnaysetouttostresswasthepotentialareformedagriculturalsys-temheldforeconomicdevelopmentÐwhathecalledgrandeculture,as49Theclassicaledition(thoughnotexemptfromcriticism)ofQuesnayÕseconomicandphilosophicalwritingsisthatofINED1958,vol.2;vol.1containsinterpretativeessaysbyvariousauthorsandabibliography.

98TheWealthofIdeascomparedwithpetiteculture,theformercharacterisednotonlybylargerconcerns,butalsobytechnologieswithhighercapitalintensity(morespeciÞcally,theploughdrawnbyhorsesratherthanoxenwaspracticallyawatchwordofthephysiocrats).Thus,inhiswritingsQuesnaystressedthepotentialitiesofanagri-culturalrevolutionthathadalreadybegunbutthat,inhisopinion,waslaggingbehindtheexpansionofcapitalismintrade.ThestancehetookwasopposednotsomuchtotheÐstillverymuchaliveÐmercantilisttraditioningeneral,butabovealltoColbertism,orinotherwordsColbertÕseconomicpolicyofsupportingcommerceandmanufacturesbyliberalisingtheimportationofrawmaterialsanddutiesonmanufac-turingimports(cf.above,2.6).Thiswasobviouslynotgoingtohelpthedevelopmentofagriculture,reducingitsproÞtabilitywhileincreas-ingthatofmanufactures.Onthecontrary,Quesnayargued,agriculturalproductsshouldbegivenabonprix,orinotherwordsapricesufÞcientnotonlytocoverproductioncosts,butalsotofavourtheÞnancingofinvestmentsbyensuringadequatereturns.Neitherthebonprixnortheprixfondamental(whichcorrespondedtomerecostsofproduction,sothatdifferencesbetweenthebonprixanditcorrespondedtotheproÞtsofthefarmer)werepricesspontaneouslygeneratedbythemarkets,andQuesnayfailedtoseeanymechanismsthatautomaticallyledtoeitherofthesetwomarketprices,whichdependedonsupplyanddemandconditions(whileinthecaseofmanufacturespricescorrespondedtoproductioncosts).Implementationofthebonprixwasthusentrusted,amongotherthings,toapolicyfavouringthefreeexporta-tionofagriculturalproductsandconsumptionhabitswithinthecountrysuchaswouldencouragetheluxedesubsistenceascomparedwiththeluxeded«ecoration,orconsumptionofagriculturalproduceÐbutnotofmanu-facturesÐinexcessofthemeresubsistencelevel.50Althoughthenotion50Thephysiocratsthusconnectedhighpriceswiththeideaofaßourishing,developing,economy,inwhichhighpricesarethecause(oroneofthecauses)andeconomicabun-danceistheeffect.Thisviewwaswidelyheldduringthewholeofthemercantilistperiod,butfarfromunanimously,sinceinmanycaseshighpriceswereseenasasymptomofdearth.Onthecontrary,Smithandtheclassicaleconomistsheldthatmoderatepricesareconnectedwithasituationofabundance,ofwhichtheyareessentiallytheeffect.Obviouslyatthelogicallevelthetwothesesarenotmutuallyexclusive,sincetheyarebasedonconsiderationofdifferentaspectsoftheprocessofdevelopment,andhenceoncauseandeffectrelationshipsmovinginoppositedirections.Ontheonehand,relativelyhighpricesstemmingfromhighdemandconstituteastimulustoproduction,whilealowlevelofpricesmaysignaldifÞcultyinabsorptionoftheproductsbythemarket,andmaythusconstituteadisincentiveforproducers;ontheotherhand,increaseinproductivityaccompanyingeconomicdevelopmentleads,undercompetitiveconditions,todecreaseinprices,whilehighpricessignalbottlenecksonthesupplyside,namelythepresenceofobstaclestothegrowthofproduction.Thedebatebetweensupportersofthetwotheses

Frombodypolitictoeconomictables99ofacompetitiverateofproÞtswasstillwanting(itwouldbeoutlinedbyTurgotafewyearslater,andfullydevelopedbySmith),Quesnayfullyrecognisedthecrucialroleofcapitalaccumulationfortheproductivepro-cessandaboveallinallowingimprovedtechnologiestobeadopted.Ques-naydistinguishedbetweenavancesfonci`eres(initialbasicinvestments,requiredforcultivatingapieceoflandandincreasingitsproductivity),avancesprimitives(productionimplements,cattle)andavancesannuelles(circulatingcapital:seed,wagesandthelike).Thiswastherefore,again,anaspectoftheeconomythatdrewhisattentiontoagriculture;atthesametime,however,hemadedecidedstridesinthedirectionsubse-quentlyfollowedbyTurgot,Smithandthewholeclassicaltradition,ofconsideringcapitaladvancesasarequirementfortheproductionandaccumulationofcapitalacrucialelementforeconomicdevelopment.OpposingtheColbertianapproachtoeconomicpolicy,QuesnayandthephysiocratsdevelopedatheoryadmirableinitsÔspiritofsystemÕandconsistency.Inparticular,QuesnaywastheÞrsteconomisttorecogniseandrepresentinananalyticalschemetheproductiveinterrelationslinkingthedifferentsectorsthat,inaneconomicsystembasedonthedivisionoflabour,stemmedfromheterogeneityofmeansofproductionineachsector.Thisproblemwastackled,inthetableau«economique,byfocusingontheexchangesrequiredtoensurethecontinuousfunctioningoftheeconomicsystem.Letusexamineinbroadoutlinethefunctioningoftheeconomicsys-temlyingatthefoundationsofQuesnayÕsmodel.Agriculture,aswesawabove,wasconsideredthesoleproductive(i.e.capableofgeneratingasurplus)sectorintheeconomy;inhismodel,Quesnayassumedthatthemostadvancedtechnology,thegrandeculture,wasgenerallyadoptedinagriculture.Otheractivities,andintheÞrstplacemanufacturing,weregroupedundertheÔsterilesectorÕheading,so-calledbecausetheseactiv-itiesmerelytransformedintoprocessedproductsagivensetofrawmate-rials(includingmeansofsubsistencefortheworkersofthesector);thevalueoftheprocessedproductsprovedequaltothevalueofthemeansofproductionandsubsistenceutilisedtoobtainthem,sothattherewasnosurplus,orinotherwordsnocreationofnewvalue.Subdivisionoftheeconomicsystemintosectorsthuscorrespondedtothefollowingsubdivisionofsocietyintosocialclasses:theproductiveclasscomposedofthoseactiveinagriculture(peasantsandfarmers),thesterileclasscomposedofartisans(includingmanufacturingworkersandshowedfrequentconfusionbetweentheoreticaldiscussionconcerningdifferentsystemsoflogicalrelations,evaluationofthegreaterorlesserapplicabilitytotherealworldoftheunderlyingrelations,andinterpretationsofspeciÞcreal-worldsituations.

100TheWealthofIdeasmerchants),andthearistocraticclass,thatis,theclassoflandlords,towhichthesurplusobtainedintheagriculturalsectoraccrued,includingthenobilityandtheclergy.QuesnayÕsmaincontributiontoeconomictheorywashistableau«economique:aseriesofgraphswhichoutlinedthestructureoftheeco-nomicsystem,showingtherelations(thatis,theseriesofexchangesofcommoditiesagainstmoney)thatneedtotakeplacebetweenthediffer-entproductivesectorsandthedifferentsocialclassesinordertoallowforthesurvivalanddevelopmentoftheeconomy.QuesnayÕseconomictablesgaverisetoconsiderableinterpretativedebate.51HereweshallillustratethemwithasimpliÞedschemethatdoesnotpretendtoreproducepreciselyallthecharacteristicsofQuesnayÕsanalysis,butshowshowitrepresentedthefunctioningoftheeconomyasacircularprocessinwhich,yearafteryear,thephasesofproduction,exchangeandconsumptionfollowoneupontheother.52Figure4.1illustratesthesituationattheendoftheproductivecycle,beforethebeginningoftheexchanges.Thearistocraticclass(thenobility)hastwounitsofmoney(letussay,twobillionfrancs),receivedfromtheagriculturalsectorinpaymentofrentsforuseofland.Thesterileclass(themanufacturingsector)hasthreeunitsofmanufacturedgoods.53TheproductiveclasshasÞveunitsofproduct:threeofagriculturalfoodproducts,andtwoofrawmaterials.LetMGbethemanufacturedgoods,51Cf.Higgs1897;Tsuru1942;Meek1962;RidolÞ1973;Gilibert1977;thecollectionofessayseditedbyCandelaandPalazzi1979;Vaggi1987andthebibliographythereincontained.52SpeciÞcally,weconsideronlycirculatingcapital(avancesannuelles),whileQuesnayatleastfortheproductivesectortriedtokeepintoaccountalsoavancesfonci`eres(originalinvestmentsonlandimprovements)andavancesprimitives(thestockofcapitalgoodsemployedbythefarmer).TheÞrstonesarerelevantfortheinterpretationoflandownerÕsrentasinterestonthevalueofland,butdonotgiverisetoyearlyßowsofgoods;thesecondonesgiverisetocommodityßowsfromthesteriletotheproductivesectorforthereintegrationofthatpartofÞxedcapitalwhichgoesoutofuseyearly.(Alternatively,wemightconsiderthislatterßowasincludedintheunitofmanufacturedgoodswhichtheproductivesectoracquireseachyearfromthesterilesector.)53WhileotherdatamirrorthoseofQuesnayÕsTableau,theproductionofmanufacturesinourexampleprovesgreaterbyoneunit.Asweshallsee,thisadditionalunitdoesnotenterintocirculation:fromthepointofviewofthesterileclassasawhole(butnotnecessarilyfromthepointofviewofthesingleproductiveunit)thisisproductionforself-consumption,anditispossiblethatQuesnayhaddisregardeditpreciselyforthisrea-son.However,itseemsobviousthatthesterileclassalsorequiresmanufacturedgoodsasmeansofproductionandsubsistence;hencethechangetothenumericalvaluesutilisedbyQuesnay(whichprobably,asRidolÞ1973suggests,constitutedanimplicitevalua-tionofthemainmagnitudesofthenationalaccountsofFranceatthattime).Analo-gously,Quesnaydidnotconsidertheuseofagriculturalproductsasmeansofproduction(e.g.asseed)withintheproductivesector,whileinourschemeweexplicitlyconsideraunitofrawmaterialwhichisyearlyproducedandusedasmeansofproductionwithintheproductivesector,withoutgivingrisetocommodityßowsbetweensectors.

Frombodypolitictoeconomictables101Aristocratic class Sterile class M M MG MG MG A A A RM RM Productive class Figure4.1RMtherawmaterials,IAtheagriculturalfoodproductsandIMmoney(eachsymbolrepresentsaunitofcommodityormoney).Inthissituationitisnotpossibletobeginanewproductivecycle.Theagriculturalsectorneedsmanufacturedgoodsasmeansofsubsistenceandproduction(clothing,spadesandploughs),andmoneywithwhichtopaytherentsfortheland.Themanufacturingworkersinturnneedfoodandrawmaterials,requiredforsubsistenceandasmeansofproduction.Thearistocraticclassalsoneedsfoodandmanufacturedgoodswithwhichtomaintaintheircomfortablelifestyle,butwithoutwhichtheycannotevensurvive.Thecontinuousfunctioningoftheeconomicsystemthusrequiresexchangesbetweenthedifferentsectors,or,inQuesnayÕsrepresentation,betweenthedifferentsocialclasses.Letadottedlinerepresentmoneymovements,andacontinuouslinecommoditymovements;wemaythendescribetheprocessofexchangeasfollows.First(Þgure4.2),thenobil-ityutilisesmoneytoacquireoneunitofmanufacturedproductsfromthesterileclassandoneunitofagriculturalfoodproductsfromtheproduc-tiveclass.Immediatelyafterthis(Þgure4.3),thesterileclassutilisesthemoneyithasreceivedtoacquireoneunitofagriculturalfoodproductsfromtheproductiveclass.Inturn,theproductiveclassutilisesthemoneyreceivedfromthenobilitytoacquireoneunitofmanufacturedproductsAristocratic class Sterile class M M MG MG MG A A RM A RM Productive class Figure4.2

102TheWealthofIdeasAristocratic class Sterile class A MG M MG MG M A RM A RM Productive class Figure4.3fromthesterileclass.Finally,thesterileclassutilisesthemoneythusreceivedtoacquirefromtheproductiveclassoneunitofrawmaterials.TheÞnalsituation,aftertheexchanges,isillustratedinÞgure4.4.Aswecansee,theseexchangessettheeconomyreadytostartanewproductivecycle.Thenobilitycanenjoytheiragriculturalandmanufac-turedproducts.Theproductiveclasshasthemanufacturedandagricul-turalproductsnecessarytotheirsurvival,rawmaterials(suchasseed)andmanufacturedgoodsrequiredasmeansofproduction,andtwounitsofmoneywithwhichtopayrents.Thesterileclasshastheagriculturalandmanufacturedproductsrequiredforitssurvival,andtherawmaterialsrequiredasmeansofproduction.Attheendoftheproductiveprocess,thesystemcomesbacktotheinitialsituation.Thenobilityhaveconsumedtheiragriculturalandman-ufacturedproducts,andreceivedmoneyfromtheproductivesectorasrentfortheland.Thesterileclasshaveutilisedtheirmeansofsubsis-tenceandofproduction,threeunitsinall,toproducethreeunitsofmanufacturedproducts.TheproductiveclasshaveutilisedtheirthreeunitsofmeansofsubsistenceandofproductiontoproduceÞveunitsofproduct(threeunitsofagriculturalproductsandtwounitsofrawmateri-als)onthelandrentedfromthenobility.Wearethusdealingwithavitaleconomicsystem,functioningunderconditionsofsimplereproduction.Aristocratic class Sterile class A MG A RM MG MGM M A RM Productive classFigure4.4

Frombodypolitictoeconomictables103Ascanbeseen,thesurplus(namelytheproductleftoncethemeansofproductionandofsubsistencefortheworkersemployedintheeconomyhavebeenreintegrated)correspondstotheconsumptionofthenobility,whoproducenothingandareabletoacquireyearafteryearagriculturalandmanufacturedproductsonlybecausetheyreceivetheirrentsfromtheproductivesector.InQuesnayÕsscheme,thesurplusoriginatesinagriculture:inthissectortheuseofthreeunitsintheproductiveprocess(asmeansofproductionandofsubsistence)yieldsÞveunitsofproduct.InthecircularprocessdescribedbyQuesnaythedifferentsectorsandsocialclassesareinterconnected;thedistributionoftheproductamongthedifferentsocialclassestakesplacesimultaneouslywiththeprocessofexchangesthatalloweachsectortoreintegratetheinitialendowmentsofmeansofproductionandofsubsistence.However,QuesnayfailedtoprovideasufÞcientlythoroughaccountofthedistributionofthesurplusamongthevarioussectorsandthevarioussocialclasses.Theideasofhisfollowersinthisrespectreßectedsome-whatsimplisticallythesocialstructureofthetime,characterisedbyaprivilegedpositionforthearistocraticclass:sinceallsurplusoriginatedwithinagriculture,itwasÔnaturalÕforittogotothenobilityinpossessionofthelandwhoseproductivepowerguaranteedtheveryexistenceofthesurplus.Asweshallsee,thisviewwascriticisedbySmith,whosawthesurplusasoriginatingnotintheagriculturalsectorbutintheeconomicsystemasawhole,andtobeattributednottoaspeciÞcmeansofpro-duction(theland),butrathertotheÔactiveelementÕintheproductionprocess,namelylabour(aviewthathadalreadybeensketchedoutbyPetty,withhisreferencetolabourastheÔfatherÕandlandastheÔmotherÕofallwealth:cf.above,3.5).Thephysiocraticdoctrinedidnot,however,implydefenceofthenobil-ityÕsincomes:iftherentofthelandlordscoincidedwiththesurplus,thenthisaloneshouldobviouslybeartheentiretaxburden.Infact,attemptstobringtaxestobearonothersocialclasseswerenotonlydoomedtofail-ure,throughthetransferprocesses,butwerealsocostlyfortheeconomicsystemasawholegiventheadjustmentstheyrequired,inparticularforthedisincentivetoaccumulationandtechnicalchangeentailedbytaxesonfarmers,viewedbyQuesnayandthephysiocratsastheactiveagentsforeconomicdevelopment.7.ThepoliticaleconomyoftheEnlightenment:TurgotAswehaveseen,theinßuenceofthephysiocratswasimportant,butshort-lived.Theclosedformwhichtheyinsistedonfortheirschoolitselfindicatestheexistenceofdifferentopinionsinthecultureofthetime.AlongwithCantillonandthephysiocrats,theeighteenthcenturywasrich

104TheWealthofIdeasineconomists,orperhapsweshouldsayintellectualswhotookeconomicissuesintoconsiderationamongotherthings.Thecultureofthetime,initsgeneralandnotstrictlyeconomicsense,wasdominatedbytheEnlightenment.TheeighteenthcenturyisknownasthecenturyoftheEnlightenment,orÔtheageofreasonÕ.Thegeneralcharacteristicwasafaithinbothmaterialandcivicprogress,ofsocietyasofman,guidedbyReason.54Infact,aswesawwhileconsideringtheideaofthedouxcommerce(above,2),humannatureitselfmayprogressandimprove.55Withintheseverybroadlines,whilebearinginmindboththesub-stantiallyinternationalnatureofthecultureofthetimeandthedom-inantroleplayedbyParis,wemaydistinguishvariouscurrentsintheFrench,Scottish,Italian(Neapolitan,MilaneseandTuscan)andGermanEnlightenment.PariswasatthetimethecentreofEuropeanculturallife.Anum-berofleadingintellectualsfromothercountries,suchastheScotDavidHumeortheNeapolitanFerdinandoGaliani,residedthereasstaffoftheirrespectiveembassies;forAdamSmithavisittoFrancewithaperiodofresidenceinParismarkedacrucialstageinthedevelopmentofhisideas.AdeeplyrootedcharacteristicofagreatpartoftheFrenchEnlighten-mentwasrepresentedbytheheritageofDescartes56Ðanespritdesyst`emeandarationalismraisedtothelevelofanabsolutemethodology,andultimatelytoacultofthegoddessReasonintheseasonofrevolutionaryTerror.57AclearÔsystemicspiritÕisevident,forexample,intheanalyticalconstructionofthephysiocraticschoolanditscorollariesforeconomicpolicy.However,thereweremanyandvariouspositions:sufÞcetomen-tionthespiritofopennessandtoleranceofoneprotagonistloominglargeonthescene:Voltaire(1694Ð1778).Animportantsignoftheseman-ifoldtrendsistobeseenintheeconomicentriesinthemonumentalEncyclop«edieeditedbyDiderot,whichsawthecollaborationofmanyofourprotagonists,includingQuesnay,Turgot,RousseauandCondillac.54ForillustrationofEuropeansocietyandcultureintheeighteenthcentury,cf.forinstanceImHof1993;Chaunu1982.55Cf.Pollard1968.56Ren«eDescartes(1596Ð1650),Frenchphilosopherandmathematician,authorofarenownedDiscoursdelam«ethode(1637)andfounderofanalyticalgeometry.57Take,forinstance,theinßuenceofJean-JacquesRousseau(1712Ð78;theContratsocialisdated1762)ontheideasprevailingwithintheFrenchRevolutiononthejuridicalsystems.AnotherexampleistheAbb«eAndr«eMorellet(1727Ð1819),translatorintoFrenchoftheThewealthofnations;asLyttonStracheywroteinhisÞneportraitofthispersonage(1931,p.99),afterÞveyearsattheSorbonneMorelletcameoutofitÔanAbb«eandaninÞdelÕ:whichwasnotarareoccurrenceatthetime.ToÔCartesianeconomicsÕPribram(1983,pp.97Ð114)devotesachapterofhishistory,dealingthereamongotherthingswiththephysiocrats.Inasense,wemayconsiderWalrasÞrstandDebreulaterasheirsoftherationalistictraditionofFrenchEnlightenment:cf.below,ch.12.

Frombodypolitictoeconomictables105OneoftheeconomiccommitmentsoftheEnlightenmentwasacritiqueoftheinstitutionofguildsinheritedfromtheMiddleAges,withtheirrigidregulationofproductiontechniques,productquality,wagesandtheworkingconditionsofapprentices.LetusrecallforinstancethebrilliantapologuebyGabrielFranücoisCoyer(1707Ð82),Chinki,aCochin-Chinesestorythatcouldbeusefultoothercountries,wherethemisadventuresaretoldofaseriousandlaboriousworkerwhoishamstrunginanyactivityheundertakesbyabsurdregulations,leadingtoruinforhimandhisfamily(Coyer1768).Aswehavealreadyseen(1),theEnlightenmentdistinguisheditselffrommercantilisminitsrevaluationofagricultureincomparisonwithforeigntradeandmanufactures.Moreover,inthewakeofPettyandCantillon,thebestauthorsdealingwitheconomicissuesbasedtheiranalysesonthenotionsofsurplusandvalue,andtookproduction,dis-tributionandcirculation(exchange)asconnectedprocesses.Oftentheyweresupportersofhighwagesforeconomicreasons,andweredrivenbyahumanitarianspirittoapproachtheproblemsstemmingfrommiseryandthedifÞcultiesofthepoorinpracticalterms(consider,forinstance,thedebateÐwhichwillshortlybeconsideredbelow,in6.1Ðonthecreationofcharitableinstitutionsandhospitalsandonpublicassistanceforthesickandorphans).Moregenerally,thewritersofthisperiodtendedtoattributeimportancetotheconnectionbetweeneconomicdevelopmentandcivicprogress.Ontheotherhand,theEnlightenmentcanbedifferentiatedfromthesubsequentclassicalschoolonaccountofitsÐatleastpartlyÐpre-capitalisticview,failingtotakefullaccountofproductiveinterrelationsandcompetitionbetweensectorswhile,ontheproblemofvalue,tendingÐespeciallyonthecontinent,andwithimportantexceptionslikethephys-iocratsÐtowardssubjectivetheories(inwhichthepriceofeachcommod-itywasdeterminedbycomparisonbetweendemandandscarcity).58AneminentrepresentativeofFrencheconomiccultureinthisphasewasAnne-RobertJacquesTurgot(1727Ð81),amanofletters,economistandhigh-rankingfunctionary,responsibleforeconomicaffairsinLimogesfrom1761,thenministerofÞnancefrom1774to1776.HisbestknownworkistheR«eßexionssurlaformationetladistributiondesrichesses(Thoughtsonthebuildingupanddistributionofwealth,1766).5958Asfaraseconomicpolicyisconcerned,commonelementsweretheproposalofasingletaxonthenetincomeofland,andthehostilitytoartsandcraftsguildsalreadyrecalledabove.59AmongthevariouseditionsofTurgotÕsworks,aftertheÞrst,inninevolumes,editedbyDuPontdeNemours(1809Ð11)andaftertheeditioninÞvevolumeseditedbySchelle(1913Ð23),whichisthemostcommonlyutilised,wemaymentiontherecentpaperbackeditedbyRavixandRomani(1997),withTurgotÕsmajorwritingsandusefulbio-bibliographicalapparatus.

106TheWealthofIdeasTurgotbelongedtothenextgenerationafterQuesnay,andinvariousrespectsrepresentedabridgebetweenthephysiocratsandhiscontempo-rary,AdamSmith.InmanyrespectsTurgotwasnearertothelatterthantothephysiocrats:whilesharingtheirsupportforfreetrade(speciÞcally,freedomofexportsofagriculturalproducts),hewasclearlynotateasewithabsolutepoliticalpower,sharingSmithÕsbelief(statedintheTheoryofmoralsentiments,1759:cf.below,5.3)thateachhumanbeingisbet-terablethananybodyelsetorulehisorherownlife.TurgotÕstheoriesarerememberedinparticularfortheroleattributedtocapitalandthecapitalist-entrepreneursintheprocessofproductionandforhisdecid-edlyliberalviews,summedupbythephraselaissez-nousfairewhichhecitedinthelengthyobituarydedicatedtohisfriendVincentdeGournay(1712Ð59),stressinghisferventeconomicliberalism.60Laissez-fairewasalsothehallmarkofanumberofpolicymeasuresadoptedbyTurgotinLimogesandthenasminister,includingnotablyliberalisationofthecorntradeandabolitionofthejurandes,orcraftguilds.HispolicymeasuresconstitutedpossiblythelastattemptatrationalisingstateinterventionintheFrencheconomybeforetheRevolution,buttheyclashedwithvestedinterests,arousingantagonismandeventuallyleadingtoTurgotÕsdownfall.FollowingMontesquieuÕsidea(inLÕespritdeslois,1748)ofaconnec-tionbetweenthepoliticalinstitutionsandthesocialstructureofacoun-tryanditsproductiveorganisation(or,instrongerterms,thematerialistideathattheconditionsofeconomiclifeinßuenceallotheraspectsofasociety),Turgotdevelopedtheso-calledÔfourstagestheoryÕ,accordingtowhichhumanhistoryismarkedbyasequenceoffourstages:hunt-ing,cattle-raising,agricultureandcommerce.Moreorlesssimultane-ouslywithTurgot,whosewritingonÔUniversalhistoryÕwaspublishedposthumously,61asimilartheorywaspropoundedbyAdamSmithinhisGlasgowlectures,alsopublishedposthumously,andthenintheWealthofnations.Onastrictlyanalyticallevel,Turgotoutlinedatheoryofexchangevaluebasedonutility.Allevaluationsaresubjective;buyerandselleraccepttheexchangebecausetheyhavedifferentevaluations(valeursestimatives)ofthecommodityinquestion,constitutingthelowerandupperpricelimits.60Cf.Turgot1759,p.151.TurgotattributedtoGournaythethesisaccordingtowhichÔamanknowshisowninterestbetterthananothermantowhomthatinterestiswhollyindifferentÕ(ibid.,p.131)ÐanexpressionrecallinganobservationbySmithintheTheoryofmoralsentiments(publishedinthesameyearasthe«Eloge):ÔEverymanis[…]ÞtterandablertotakecareofhimselfthanofanyotherpersonÕ(Smith1759,p.219;cf.below,5.3),whichmaybetracedbacktotheGreektradition(cf.above,2.2).61Cf.RavixandRomani1997,pp.95Ð121.

Frombodypolitictoeconomictables107Theactualpricewould,accordingtoTurgot,comemidwaybetweenthesetwolimits,coincidingwiththevaleurappr«eciativegivenbytheaverageofthevaleursestimatives.62OtheraspectsofhisanalysisforeshadowedÐorhavebeenconsideredasprecursorsofÐsubsequenttheories.Forinstance,histheoryofincreasingreturnsfocusedonwhatwastobecalledtheintensivemargin,thatis,utilisationofanincreasingnumberofdosesofcapitalandlabouronagivenplotofland;thistheorywastobeoneofthemainpointsofreferenceinSraffaÕscriticismsinanarticleof1925(cf.below,16.4),butitwasdisregardedinthedebatesgivingrisetothedifferentialrenttheoryin1815(below,7.2).WemaynowfeelthatcertainmetaphoricalreferencestotheinterrelationslinkingelementsintheeconomicÞeldweresomewhatovervalued,includingtheparalleldrawnbetweenthevariouscommoditymarketsandasystemofhydraulicconnectionsinequilibrium.ThisparallelapparentlysufÞcedformanyahistorianofeconomicthoughttohailTurgotasaforerunnerofWalrasandthetheoryofgeneraleconomicequilibrium.63Asamatteroffact,Turgotdidnotgetmuchfurtherthanmeremetaphors,andthesesimplyexpressedtheidea,wellrootedatthetimeandalreadywidespreadinthepreviouscentury,thatthereisaparallelbetweentheÔsocialbodyÕandthephysicalworld,andinparticulartheastronomicsystemgovernedbytheNewtonianlawofgravitation.Furthermore,whileQuesnayelaboratedupontheseideasintheattempttobuildananalyticscheme,Turgotleftuswithafewsomewhatgenericobservations.8.TheItalianEnlightenment:theAbb«eGalianiIncomparisonwiththeFrenchEnlightenment,theScottish(whichwebrießyconsiderinthenextsectioninrelationtoSmithÕsbackground)andNeapolitanbrands,onthefringeofEuropeanculturallifecentredonParis,showedgreaterreadinesstorecognisetheimperfectionsofhumannatureandtheimpossibilityofdeducingdirectlyfromapriorireasoninginterpretationsofspeciÞceconomicphenomenaorclear-cutrecipesforeconomicpolicy.AnexampleofthisapproachisprovidedbytheDialoguessurlecom-mercedesbl«eds(Dialoguesonthecommerceofcorn,1770)bytheAbb«e62Thisthesis,whichTurgotenunciatedbutdidnotelaborateandwhichappearedunjus-tiÞedwithintheframeworkofthemodernsubjectivetheoryofvalue,possiblyderivedfromtheScholasticdebateonthejustprice,andinparticularfromthethesiswidespreadintheSpanishScholasticschoolatthebeginningofthesixteenthcentury,accordingtowhichÔthereisparitywheneachparticipantreceivesanequaladvantageÕ(Chafuen1986,p.106).63Cf.forallSchumpeter1954,p.249,whopointstoasequenceTurgotÐSayÐWalras.

108TheWealthofIdeasFerdinandoGaliani(1728Ð87),whohadalreadywrittenacelebratedtreatise,Dellamoneta(Onmoney,1751),atthetenderageoftwenty-three.64Hisremarksonthephysiocraticdoctrineswerebasedondirectcriticismoftheespritdesyst`emeandshowedtheimportanceofthespe-ciÞccircumstancesofeachrealsituationwhenreasoningoneconomicpolicy.65TheDialogueswerepublishedanonymouslyinFrenchandmetwithwidefavourintheintellectualcirclesofParis.GalianihadrecentlyhadtoleaveParisafterastayofsomeyearstoreturntoNaples,andwasmissedinmanysalonsofEuropeÕsculturalcapitalforhislivelystyleandimpudentirony.TheÔlittleAbb«eÕ,agreatloverofParisianlifeandwomen,thenentereduponacopiousexchangeofcorrespondencewithhisfriends(inparticularLouisedÕ«Epinay),leavinguswithanexcep-tionallyrichpictureofthatworldandthatcrucialphaseinthedevel-opmentofEuropeanculture.66GalianiwasmoreovertheintermediarythroughwhichtheEncyclop«edieentourageabsorbedtheinßuenceoftheNeapolitanphilosopherGiambattistaVico(1668Ð1744),heldbySchum-peter(1954,pp.135Ð7)tobeÔoneofthegreatestthinkerstobefoundinanyageintheÞeldofthesocialsciencesÕ,whodevelopedÔanevolutionaryscienceofmindandsocietyÕ(inthesenseÔthatmindandsocietyaretwoaspectsofthesameevolutionaryprocessÕ).Vicothusfedinsomehistori-cistantibacteriathattoacertainextentcounteractedtheanti-historicistrationalismoftheCartesiancurrentoftheEnlightenment.Galianiwasachampionoftheoreticalminimalism.ÔIaminfavourofnothing.IamoftheopinionthatweshouldnottalknonsenseÕ,67hedeclared,andallhiswritingsconsistentlyshowthevalidityofanyideaattheleveloftheoryoreconomicpolicyasrelativetotimeandplace.InthisrespecthestandsasamajorexponentofthescepticalcurrentoftheEnlightenment,evenmoreextremeinthisthanVoltaire.GalianicanalsobeconsideredthemostimportantexponentofthesubjectiveapproachinItaly.InhisDellamoneta(1751),hespentafewpages(section2ofbook1)ontheroleofscarcityandutilityindeter-miningthevalueofcommodities.HereGalianisawapredecessorin64Asecondedition,publishedin1780,includesanewlongprefaceandthirty-Þvelongend-notes,butthemaintextissubstantiallyunchanged.65ÔNobodyevermakesamistakewithoutareason.Thuseverybodywantstofollowreasonandexperience,butifyoufollowanideareasonableinitselfandrelyonanexperienceoratrueanddemonstratedfact,butwhichdoesnotÞtinÐisnotapplicabletothecaseathandÐyouthinkyouaredoingwell,andyouarewrongÕ(Galiani1770,p.55).Oragain:ÔNothinginpoliticscanbepushedtotheextreme.Thereisapoint,alimituptowhichgoodisgreaterthanevil;ifyoupassbeyondit,evilprevailsovergood.[…Thispoint]onlythesageknowshowtoÞnd.Peoplefeelitbyinstinct.ThemaninpowerneedstimetoÞndit.ThemoderneconomistdoesnotevensuspectitÕ(ibid.,p.233).66PartofithasbeentranslatedintoItalian,cf.dÕ«EpinayandGaliani1996.67Galiani1770,p.61.

Frombodypolitictoeconomictables109BernardoDavanzati,inthesecondhalfofthesixteenthcentury,whilestressing,however,thelatterÕsinabilitytosolvewhatwastobeknownastheÔparadoxofwateranddiamondsÕ,thatis,thehighvalueofgoodstowhichnormallylowutilityisattributed,andonthecontrarythelowvalueofgoodsthatareconsideredasnotjustuseful,butnecessary.InfactDavanzatiwasconcernedwithmonetaryandcurrencyproblems,andonlyenpassantwiththethemesunderdiscussionhere;allGaliani(1751,p.44)couldquotewithapprovalwasthefollowingpassage:ÔTheratisamostdisgustinganimal;butinthesiegeofCasilinoeverythingwassodearthattwohundredßorinswerepaidforarat;anditwasnotdear,sincethepersonwhosolditdiedofhunger,whilethepersonwhoboughtitsurvived.ÕAswashiswontinhisearlywriting,Galianidevelopedhisreasoningwithawealthoferuditequotations.HisthesiswasthatÔtheestimate,orvalue,istheideaofaproportionbetweenownershipofonethingandownershipofanotherinamanÕsmindÕ(ibid.,p.39).Thesubjectiveapproachtothetheoryofvalue,however,wasmoderatedbyrecognitionthatÔintheesti-matemen,astheSchoolmensay,passivesehabentÕ(ibid.,p.38),sothattheestimatedependedonthecharacteristicsofthecommodityitselfandontheconditions,againexternal,determiningitsabundanceorscarcity.Indeed,ÔValue[…]isareason;andthisinturniscomposedoftworea-sons,whichIcall:utility,andrarityÕ(ibid.,p.39),whereÔIcallutilitytheattitudeofsomethingtogiveushappinessÕ(ibid.),andÔIcallraritytheproportionbetweenthequantityofathingandtheusewhichismadeofitÕ(ibid.,p.46).Atthispoint,theconclusionreachedbyGalianimaysoundsurprisingÐbutitwasfarfromuncommonamongauthorsconsideredasforerunnersofthesubjectivetheoryofvalue.Indeed,Galianidistin-guishedtwocategoriesofgoods:thosewhicharescarcebynatureandthosewhichareproducedandcanbereproduced,forwhichheadoptedtheassumptionofconstantreturns;withrespecttothislattercategoryhereferredagaintoproductioncosts,inparticulartolabourrequirements:therearetwoclassesofbodies.Inoneclass,[thequantityavailableofthings]dependsonthedifferentabundancewithwhichnatureproducesthem;intheotherclass,itonlydependsonthetoilandworkemployed.[…]IfwerefertotheÞrstofthesetwoclassesinourcomputations,weshouldonlykeepintoaccountthetoilforharvesting,sincethequantityofthematerialonlycorrespondstoit.(ibid.,p.47)WhilestillinNaples,weshouldalsomentionAntonioGenovesi(1713Ð69),theÞrstholder(since1754)ofachairinpoliticalecon-omy,whostressedinhiswritingthecloselinkbetweentheeconomyandthecivicissuesofinstitutionalorganisationandpublicmorals.HismajorworkintheeconomicÞeld,Dellelezionidicommercio(Lectures

110TheWealthofIdeasoncommerce,1765Ð7),wasessentiallydidactic,aimedatupliftingthehumanspiritandenhancingtheknowledgeoftheyoungwithintheper-spectiveoftheEnlightenment.Thetheseshesupportedwerenotnew:atheoryofeconomicdevelopmentthroughstages,apositionfavourabletoconsumption(butnottohighwages),asubjectivetheoryofvalueincludingsomereferencetothecostofproductionside(possiblyderivedfromGaliani,1751)anddiscussionofthefactorsfavouringthewealthofnations,notunlikeSerraÕsbutlesswellstructured.ThegreatsuccessofGenovesi,praisedtothepointofbeingplacedonthesameplaneasAdamSmith,maywellbeduetohisadroitblendingofphilosophyandpoliticaleconomy,wellbeÞttingthespiritofthetime.68TheintellectualswritingabouteconomicissuesinMilanandinTuscanyweremoreinterestedintheimmediateproblemsofreformsaim-ingatfavouringeconomicdevelopment,aboveallinthemanagementofstateassetsandagriculture.CesareBeccaria(1738Ð94),ratedbySchum-petersuperiortoAdamSmith,wastheauthorofatreatise,Elementidieconomiapubblica(Elementsofpubliceconomics),publishedposthu-mouslyin1804intheserieseditedbyCustodi.ButhewasbestknownforhisessayDeidelittiedellepene(Oncrimesandpunishments,1764),aworkthatprobablyowedmuchtohisfriendPietroVerri(1728Ð97).InhiscondemnationofthealltooliberalapplicationofthedeathpenaltyBeccariahadrecoursetoasortofutilitarianismanticipatingBentham(cf.below,6.7).BothVerriandBeccariaadoptedasubjectivetheoryofvaluebasedoncomparisonbetweenscarcityandutility;ingeneral,theyconceivedthemarketasthepointwherebuyersandsellersmet(andthisheldtruealsofortherateofinterest,determinedbydemandforandsupplyofloans).Moreover,bothVerriandBeccariatookawideinterestinpracticalissues,fromtheÞscalandmonetarysituationtoproblemsofcustomsduties,seasonalunemployment,andconcessiontoprivateagentsofmonopoliesforcommoditiessuchassaltandtobacco.Onthelatterissue,forinstance,Verri,inhiscapacityasahigh-rankingfunctionaryintheAustro-Hungarianempire,succeededinobtaininganimportantvictorywithabolitionoftheconcessionsin1770.6968OnGenovesiÕsthoughtandfortunescf.Faucci2000,pp.49Ð57,andthebibliographyquotedthere.Cf.alsotheextensiveÔNotaintroduttivaÕbyVenturi,theÔVitadiAntonioGenoveseÕandtheselectionoftextscollectedinVenturi1962:respectively,pp.3Ð46,47Ð83and84Ð330.ToGenovesiÕsschoolbelongedvariousprotagonistsoftheNeapoli-tanreformismofthesecondhalfoftheeighteenthcentury,includingGaetanoFilangieri(1752Ð88)andGiuseppePalmieri(1721Ð93).69Verriwastheauthor,amongotherworks,oftheDiscorsisullÕindoledelpiacereedeldolore;sullafelicit`a;esullaeconomiapolitica(1781).OnVerriandBeccariacf.Biagini1992;Faucci2000,pp.72Ð91,andtheliteraturequotedthere.Schumpeter1954,p.178,attributedtoVerri,withsomeexcessofenthusiasm,aÔconstant-outlaydemand

Frombodypolitictoeconomictables1119.TheScottishEnlightenment:FrancisHutchesonandDavidHumeTheEnlightenmentnotionofaÔnaturalorderÕwasadoptedinScotlandpurgedofCartesianrationalismandhencetransformedintotheviewofaÔspontaneousorderÕ.Suchanorderwasconsideredtheresultofanadaptiveevolutionaryprocess,inwhichamultiplicityofindividualchoicesledtoaresultÐasetofcomplex,sufÞcientlywell-functioning,socialstructuresÐnotassumedastheobjectiveofabroad,rationaldesign(thussomewhatdistantfromthetraditionofconstructiverationalismthatbeganwithDescartesandultimatelyledtoattributionofacentralroletothedeusexmachinarepresentedbyabenevolentandenlightenedlegislator).Smithwasthemostillustriousexponentofthiscurrent,buthiscon-tributiondidnotemergefromavacuum.Beforehim,andaroundhim,otherprotagonistsofferedimportantcontributionsinvariousÞeldscon-nectedtothecentralthemeoftheorganisationandevolutionofhumansocieties,frommattersliketheoriginoflanguagetojuridicalprocedures.ObviouslysomereferencewasalsomadetoquestionscommonlyincludedintheÞeldofpoliticaleconomy.WemaybeginwithFrancisHutcheson(1694Ð1746),whotaughtSmithinGlasgowandwrote,amongotherthings,aSystemofmoralphilosophyinthreevolumes,publishedposthumouslyin1755.Asweshallseebelow(6.7),Hutchesoncontributedtotheutilitarianapproachthethesisthatthebestmoralactionisthatwhichensuresthemaximumofhappinesstothegreatestnumberofpersons.Onpricetheory,hehadlittletosay:pricesdependonthedemandforthecommodityunderconsiderationandonthedifÞcultyofacquiringit(withsimultaneoushintsastoitsscarcityandtoitscostofproduction:thereisananalogy,here,withPufendorfÕsideasillustratedabove,in1).Hismajorcontributions,however,movedinadifferentdirection.Hutchesonconsideredmanasanessentiallysocialanimal,totheextentofrejectinganyseparationbetweenethicsandpol-itics.Benevolencetowardsothers,togetherwithutility,regulateshumanÔmoralÕactions;followingthisbehaviouralrulepeoplecanobtaintheirowngoodwithoutthisconstitutingthedirectobjectiveoftheiractions,curveÕandÔaclearifundevelopedconceptionofeconomicequilibriumbased,inthelastinstance,upontheÒcalculusofpleasureandpainÓÕ.OntheterrainofpragmaticreformismweÞndvariousotherprotagonistsoftheLombardEnlightenmentandÐwiththefocusonagriculturalmattersÐoftheTuscanEnlightenment.Foranampleselectionoftextsaccompaniedbyrichcriticalapparatus,cf.Venturi1968.OntheItalianEnlight-enmentasawholethemainreferencetextisthepainstakingreconstructionofferedbyVenturi1969Ð90.

112TheWealthofIdeasandthuswithoutanycontrastarisingbetweenutilityandvirtue.Aswewillseeinthenextchapter,Smithopposedthethesisthatbenevolenceconstitutestheguidingprincipleofhumanactions.Nevertheless,eveniftheprivategoodÐpublicgoodlinkisinverted,aninterestingparallelismremains:accordingtoSmitheachpersonfollowshisorherownprivateinterest,butindoingsoalsorealisesthepublicgood,albeitinvoluntarily.Furthermore,HutchesonintroducedtheconceptofÔsympathyÕintohisanalysisofhumannature,althoughwithoutattributingtoittheroleitwastohaveinSmithÕsanalysis;alsohistreatmentofeconomicissuesshowed,inembryonicform,someofthecharacteristicsthatreappearinSmith,suchasthechoiceofthedivisionoflabourasthestartingpointforanalysis.AdamFerguson(1723Ð1816)belongedtoSmithÕsgeneration;hismainwork,Anessayonthehistoryofcivilsociety(1767;itwentthroughseveneditionsbeforetheauthorÕsdeath)arguesamongotherthingsanevolu-tionaryviewofthebirthoflanguage.Moreover,Fergusondealtatlengthwiththedivisionoflabour,alsostressingitsnegativeaspects.Forsomeofhisthesesheprobablydrew,withoutacknowledgement,onSmithÕsuniversitylectures;thusFergusonwascreditedwithÞrstpublication(Thewealthofnationscameouttenyearslaterthanhisbook)butatthecostofsometensionbetweenhimselfandSmith.70YoungerthanSmithwereJohnMillar(1735Ð1801),hispupil,andDugaldStewart(1753Ð1828),whowastobeSmithÕsÞrstbiographer(Stewart1811).71AlittleolderthanSmith,JamesSteuart(1713Ð80)wasoneofthemajorprotagonistsofScottishpoliticsandculture.InexileforalongtimeafterthedefeatoftheJacobiterebellioninthebattleofCulloden(1746),henceindirecttouchwithFrenchandGermanculture,Steuartwastheauthorofamassivework,Aninquiryintotheprinciplesofpoliticaloeconomypublishedin1767,nineyearsbeforeSmithÕsWealthofnations,whichwouldthenovershadowit.72However,SteuartisnottobeseenasoneoftheprotagonistsoftheScottishEnlightenment,butclassedratheramongthelastrepresentativesofmercantilismgiventheroleheattributedtoactivepublicinterventionintheeconomyandtheprotectionofman-ufactureswithduties,togetherwiththeplaceheascribedtodemandin70Cf.Ross1995,p.230.71ForaninterpretationoftheScottishEnlightenmentthatassignsacentralroletothetheoryofspontaneousordercf.Hamowy1987,whoalsoprovidesanamplebibliographyofwritingsbythemajorauthorsoftheperiod.72ConsideredbySchumpeter1954,p.250,asÔtheonegreatpre-SmithiansystemofeconomicsthatEnglandproducedÕ,thisworkwasvaluednegativelybySmithhimself,whoinaletterof1772spokeofitinthefollowingterms:ÔWithoutoncementioningit,Ißattermyself,thateveryfalseprincipleinit,willmeetwithaclearanddistinctconfutationinmineÕ(Smith1977,p.164).

Frombodypolitictoeconomictables113macroeconomicequilibrium.Hedealtatlengthwithpopulation,whichinhisviewtendstogrowuntilcheckedbyfoodsupplies:thisappearstoforeshadowMalthus,butalsoechoesCantillonandothers.Onvalue,weÞndthesimplenotionthatpricesdependonsupplyanddemand.73Thereisalsotheideathatdemandforluxuriesstimulatesproduction,butdemandforforeignluxuriesmaybedamaging;adeÞciencyofdemandforinternalproductsmayreduceemployment.Infact,SteuartÕsmainpolicyobjectivewasahighlevelofemployment,whileleavingasidetech-nicalprogress(hencetheroleofthedivisionoflabourandofcapitalaccumulation);hestressedrepeatedlytheneedtopreserveÔthebalanceofworkanddemandÕ.LikeGaliani,SteuartstronglyopposedtheideaofÔgeneralrulesÕ:Ôinevery[…]partofthescienceofpoliticaloeconomy,thereishardlysuchathingasageneralruletobelaiddownÕ(Steuart1767,p.339).74TwelveyearsolderthanSmith,andwhobecameagreatfriendofhis,wastherenownedempiricistphilosopherDavidHume(1711Ð76),authorofthecelebratedTreatiseofhumannature(1739Ð40).Aspontaneousorderininstitutionsasdifferentaslanguageandmoneygraduallyemergesasanunforeseenconsequenceofmanifoldindividualactionsguidedbyself-ishnesstemperedwithasentimentofbenevolence.Asforhumanactions,itishabitratherthanreasonthatguidesthem.EconomistsarebestacquaintedwithHumeÕsPoliticaldiscourses(1752).IntheÞrstessayofPartTwo,ÔOfcommerceÕ,HumetriedtodemonstrateÔthebeneÞcenceofeconomicprogressanditscomplementaritywiththeincreaseofhappinessandfreedomÕ(Hutchison1988,p.202).Inthesecondessay,ÔOfreÞnementsintheartsÕ,theroleofluxuryconsump-tioninprovidingstimulustoeconomicactivityincommercialsocietiesisstressed.Infact,importsofluxurygoodsareconsideredastheele-mentofnoveltyinstagnantagriculturalsocietieswhichgivesimpetustothegenerationofsurplusproduceandthetransitiontoacommer-cialsociety.Excessiveluxuryisofcoursecastigated;butluxury,insofarasitisidentiÞedwithÔreÞnementÕ,enhancesthemind,favourssocia-blenessandstimulatesactivity,sothatitsimultaneouslycontributestoprogressinÔindustry,knowledgeandhumanityÕ(Hume1752,p.271).73MorespeciÞcally,Ôthevalueofthingsdependsuponmanycircumstances,whichhowevermaybereducedtofourprincipalheads:First,Theabundanceofthethingstobeval-ued.Secondly,Thedemandwhichmankindmakeforthem.Thirdly,Thecompetitionbetweenthedemanders;andFourthly,TheextentofthefacultiesofthedemandersÕ(Steuart1767,p.409).74OnSteuartseeSkinnerÕsintroductiontothecriticaleditionofhisbook,Sen1957,Hutchison1988,pp.335Ð51.Akhtar1979proposesatranslationofSteuartÕstheoryofgrowthintoamacroeconomicmodel,hisaimbeingtorevalueitincomparisonwiththeSmithiantheory.

114TheWealthofIdeasInthethirdandfourthessays,ÔOfmoneyÕandÔOfinterestÕ,Humemaintained,againstthemercantilisttradition,thatÔthegreaterorlessplentyofmoneyisofnoconsequenceÕ(ibid.,p.281),andthatÔlownessofinterestÕshouldnotbeÔascribedtoplentyofmoneyÕ,butrathertoÔanincreaseofcommerceÕ,sothatitisconnectedtoÔlowproÞtsofmerchan-dizeÕ(ibid.,pp.295and302).IntheÞfthessay,ÔOfthebalanceoftradeÕ,HumeillustratedtheadjustmentmechanismthatÐunderthegoldstan-dardÐbringsthebalanceoftradeofdifferentcountriesintoequilibrium.Thismechanismwasbasedonthequantitytheoryofmoney:ineachcountrypricesincrease(decrease)whenthequantityofmoneyincircu-lationincreases(decreases).Thus,wheneveracountryhasafavourablebalanceoftrade,andsoexperiencesaninßuxofgold,thesupplyofmoneywithinitincreases,togetherwithinternalprices.Thisreducesthecom-petitivenessofinternallyproducedcommoditiesandhencethecountryÕsexports.ExactlytheoppositehappensforcountrieswithabalanceoftradedeÞcit.75Inthisway,Humecriticisedthetraditionalmercantilisttenetaccordingtowhichinordertoincreasewealthacountryshouldaimatapositivebalanceoftrade.Onthesameline,inanadditionalessaypublishedin1758,ÔOfthejealousyoftradeÕ,HumemaintainedthatprogressinanycountryisbeneÞcialtotheothercountries,andthattradeisbeneÞcialtoall.Asfarasweareconcernedhere,however,HumeandHutcheson,andwiththemtheotherprotagonistsoftheScottishEnlightenment,areimportantaboveallforthenotionofmanandsocietywhichtheypropounded:anotionthat,notwithstandingsomeevenimportantdiffer-encesbetweenthedifferentauthors,displayedamoderateoptimismwithregardtotheautomatic,involuntaryrealisationofsoundinstitutionalorganisationforsociety,andamoderatelypositiveevaluationofhumannature,whileneverthelessrecognisingitsmanyimperfections.75Obviouslythistheory,towhichHumedidnotattributetheimportancesomewhatinaptlyattachedtoitbysomanysubsequentscholars,isbasedonasizeablesetofassumptions:thatthequantitytheoryofmoneyholds,thattheratiobetweengoldbaseandquantityofmoneyincirculation(includingbankingmoney)issufÞcientlystable,thatthebalanceoftradeisthedominantcomponentofthebalanceofpaymentsand/orthattheothercom-ponentsdonotundergosigniÞcantvariations,thatthepercentageincreaseofquantitiesexportedandimportedissuperiortothepercentagedecrease(increase)ofthelevelofpricesforimportedandexportedgoods.Finally,asisobvious,thegoldstandardmustrule.

5AdamSmith1.Life1AdamSmithwasborninthesmalltownofKirkaldy(populationabout1,500atthetime),ontheeasterncoastofScotland,in1723.Theprecisedateofhisbirthisnotknown;weonlyknowthatitmusthavebeenafewweeksafterthedeathofhisfather,acustomsofÞcer,whichoccurredinJanuary,andbefore5July,thedayofhischristening.TheyoungSmithhadaplacidchildhood,raisedbyhismotherMargaretwiththehelpofrelativesÐamoderatelywell-to-dofamilyoflandownersÐuntil1737,whenhemovedtoGlasgowinordertoattendthelocaluniversity.Amonghisteachers,hisfavouritewasFrancisHutcheson,whomwemetinthepreviouschapter(4.9).Atthetime,fourteenwasnotanuncommonagetoenteruniversity,whichwasinfactasortofuppersecondaryschool.TheyoungAdamhadalreadystudiedsomeLatininKirkaldy,andwasimmediatelyadmit-tedtoGreeklectures;healsotooklessonsinlogic,whichapparentlyfollowedtheAristoteliantraditionbutalsoincludedsomerecentdevel-opments(DescartesandLocke),innaturalphilosophy,inmathematicsandphysics(EuclidÕsElementsandNewtonÕsPrincipiamathematica)andinmoralphilosophy(withFrancisHutcheson).IntheScottisheducationalsystem,atalllevels,thestudentspaidtheirteacherscoursebycourse.ThetotalsalaryofthelatterhencedependedontheirstudentsÕassessmentoftheirteaching:asystemthatSmithhim-selfwouldexperiencelaterasaprofessor,andwouldconsiderbyfarsuperiortothatofthegreatEnglishuniversitieslikeOxford,Þnancedbypublicfundsandprivatedonations,wheretheprofessors,receivingaregularsalary,hadnoincentivetoputzealintotheirprofession.1Afteralonggestation,thebiographypainstakinglycompiledbyRoss(1995)isnowatlastavailable.SmithÕsÞrstbiographerwashispupilDugaldStewart(1753Ð1828);onhisinterpretation(Stewart1794)wereturnbelow,in8.Amongrecentbiographicalwritings,letusmentionatleastWest1976.115

116TheWealthofIdeasItwasinfactatOxford,atBalliolCollege,thatSmithcontinuedhisstudiesasfrom1740,withascholarship(theSnellscholarship)thatguar-anteed£40yearlyforelevenyears,aspreparationforanecclesiasticalcareer.Asmentioned,SmithdidnottaketothecelebratedEnglishuni-versity,traditionalistandauthoritarianasitwas.Learningbyroteandreadingsummariesratherthanoriginalworks,weretherule.Tradition-allysanctionedtopicsÐAristotleoverandagainÐwereimposedonthestudents,buttheworkloadwasfarfromheavy;compulsoryprayersdom-inatedovercompulsorylessons,andSmithhadplentyoftimetospendintheBodleianLibrary,followinghisowninterests,ÔperhapsindeÞanceoftheOxfordguardiansoforthodoxyÕ(Ross1995,p.78).Forinstance,theyoungAdamwaspunishedwhencaughtreadingtheTreatiseofhumannature(1739Ð40)byDavidHume,asupporterofavaguetheismandwhowouldlaterbecomeoneofSmithÕsbestfriends.ItmayhavebeenthesereadingsthatputSmithofftheideaofembracinganecclesiasticalcareer.2Thus,aftersixdifÞcultyears,in1746SmithdecidedtoreturntoScotland,toKirkaldy,wherehespenttwoyearsstudyingonhisownandwritingsomeessaysonliteraryandphilosophicalsubjects.Forthreeyears,from1748to1751,SmithheldpubliclecturesinEdinburghonrhetoricandEnglishliterature,withsomesuccessintermsofaudienceandÞnance(aboutahundredpeoplepaidaguineaayeareachtolistentotheyounglecturer,whilethesponsors,includingLordKames,paidtheexpenses).Onthestrengthofthefameobtainedwiththeselectures,in1751SmithbecameaprofessoratGlasgowUniversity,Þrstholdingthechairoflogic(buthislessonswereessentiallyonrhetoric,likehisEdinburghlectures)andsubsequentlythemoralphilosophychair.3Thisinvolvedlecturingonnaturaltheology,ethics,jurisprudenceand,inthesamesetoflessons,politicsandpoliticaleconomy.Fromthoseyearswehavethenotesonacourseoflessonsonrhetoric,takenbyastudentin1762Ð3,foundin1958andpublishedin1963,andthenotesoftwocoursesonÔjurisprudenceÕ(takenin1762Ð3andin1763Ð4,discoveredrespectivelyin1958and1895andpublishedin1978and1896).Thesetexts,apartfromhavingconsiderableinterestinthemselvesÐintermsofthestudyofhumannatureandtheformsofcommunication,andforanalysisofinstitutionsandtheirdevelopmentinthecourseofhistoryÐshowthattheauthoralready,hencebeforecoming2InProtestantism,whichisdeclaredlyhisownreligion,Smith1977,pp.67Ð8,appreciatesaboveallÔthepretiousrightofprivatejudgementforthesakeofwhichourforefatherskickedoutthePopeandthePretenderÕ.WhenteachinginGlasgow,Smithaskedtobeexemptedfromthetraditionalprayeratthebeginningofthelessons,anditissaidthathisprayerswereanyhowinspiredbyÔnaturalreligionÕ(Ross1995,p.118).3OnSmithÕsexperiencesasateacherandonhispupils,cf.Ross1995,pp.128Ð56.

AdamSmith117intouchwiththeFrenchphysiocrats,hadthemainthemesthatwouldweavetogetherintoThewealthofnationsclearinhismind.InthesameperiodSmithwroteandpublishedhisÞrstbook,Thetheoryofmoralsentiments(1759),whichisdiscussedbelow(3).Thisbookmetwithsuccess,andreachedsixeditionsbeforeSmithÕsdeath.AmongthereadersofthebookwasCharlesTownshend,stepfathertotheyoungDukeofBuccleuch,whoinvitedSmithtoactastutortotheyoungnobleman,accompanyinghimonatouronthecontinent.Theproposalwasanattractiveone,notonlybecauseitmeantalifeannuityof£300,butalsobecauseoftheprospectofcomingintodirectcontactwiththeliveliestcentresofculturallifeofthetime.Smithacceptedand,atthebeginningof1764,resignedfromhischairatGlasgow.ThetravelsonthecontinentgaveSmiththeopportunitytomeetVoltaireinGeneva,andinParisdÕAlembert,Quesnayandmanyothers.4Scotlandhadatthetimeafairculturallife,relativelyfree(especiallyincomparisonwiththeauthoritarianismandconformismthatprevailedintheEnglishuniversities)andrichinsolidgoodsense,especiallyintheÞeldofthesocialsciences;buttherealcentreofintellectuallifewasFrance,especiallyParis.WhenSmitharrivedthere,QuesnayhadpublishedafewyearsearlierhisTableau«economique(1758),whileTurgothadstilltopublishhisR«eßexions.ThecultureoftheEncyclop«edie(publicationofwhichbeganin1751),basedonfaithinreasonandprogress,wasalsofeltinotherEuropeancountries,butthelivelinessofthecelebratedParisiansalonswasunique.ThestayinParisofferedSmithstimulithathewouldworkuponinthefollowingyears.Attheendofhistravelsonthecontinent,infact,thankstotheannuityoftheDukeofBuccleuch,SmithwasabletodedicatehimselffullytothecompositionofThewealthofnations,inthetranquilenvironmentofhisnativeKirkaldywherehelivedwithhismotherbetween1767and1773.In1773hemovedtoLondontofollowtheprintingofhisbookwhich,however,tookthreemoreyearsofwork.Finally,on9March1776,themostfamouseconomicsbookofalltimearrivedinthebookshops,meet-ingwithawarmreceptionfromthepublic(thebookwentthroughÞveeditionsintwelveyears).HisgreatfriendHumewrotehimanenthusiasticletteraboutit.Afteralongillness,DavidHumediedinthesameyear.SmithwroteanaccountofthelastmonthsofhisfriendÕslife,stressinghisstoiccourage:publishedin1777,itÔbroughtuponmetentimesmoreabusethantheveryviolentattackIhadmade[inThewealthofnations]uponthewhole4OnSmithÕstravelonthecontinentandonhisactivitiesasatutor,cf.Ross1995,pp.195Ð219.

118TheWealthofIdeascommercialsystemofGreatBritainÕ(asSmithwroteinalettertoAndreasHoltofOctober1780).5In1778,consultedontheAmericansituation,Smithwroteamem-oranduminwhichhearguesthecaseforadoptingauniformsystemoftaxationforGreatBritain,IrelandandtheAmericancolonies,accom-paniedbytheelectionofrepresentativesoftheselatterpopulationstoParliament(onthebasisoftheprinciplecommonlysummarisedinthesayingÔnotaxationwithoutrepresentationÕ).Furthermore,Smithfore-sawthelossoftheAmericancolonies(withtheexceptionofCanada)andthegradualshiftoftheeconomicandpoliticalcentreofgravityfromEnglandtoAmerica.6Inthesameyearof1778Smithwasappointedcommissionerofcus-tomsforScotland;hethusmovedtoEdinburgh,accompaniedbyhismother.Therehelivedquietly(thoughdeeplysaddened,in1784,byhismotherÕsdeath),attendedscrupulouslytohisdutiesandmeticu-louslyeditedtheneweditionsofhisbooks,untilhisdeathon17July1790.Complyingwithhisinstructions,theexecutorsofhiswilldestroyedsixteenvolumesofmanuscripts.2.MethodItwouldbeamistaketoignoreSmithÕsÔminorÕwritings,includingthenotesonhislecturestakenbystudents,andtoconcentratesolelyontheWealthofnations,althoughthisiswhatgenerationsofhistoriansofeconomicthoughthavedone.Asweshallseeinthenextsection,ThetheoryofmoralsentimentsisinparticulardecisiveforourunderstandingofthenotionofÔself-interestÕonwhichSmithreliesinhismorestrictlyeconomicanalysis.EventheLecturesonrhetoricandbelleslettres,althoughapparentlyremotefromeconomicsincontents,areimportant,togetherwiththeEssaysonphilosophicalsubjects,foranunderstandingofsomeaspectsofthemethodofenquiryadoptedbySmith.5ThelovingaccountofthelastmonthsofHumeÕslifeiswrittenintheformofalettertothepublisherWilliamStrahan(1715Ð85),dated9November1776(Smith1977,pp.217Ð21),subsequentlypublished,withSmithÕsconsent,inapamphlet(Hume1777,pp.37Ð62).TheÞnallinesofthelettershowthehighregardthatSmithhadforHume:ÔUponthewhole,Ihavealwaysconsideredhim,bothinhislifetimeandsincehisdeath,asapproachingasnearlytotheideaofaperfectlywiseandvirtuousman,asperhapsthenatureofhumanfrailtywillpermit.ÕOnthesubjectcf.Ross1995,pp.288Ð304.ThelettertoHoltisinSmith1977,pp.249Ð53;thequotationisdrawnfromp.251.6SmithwasforalongtimeafriendofBenjaminFranklin(1706Ð90),oneoftheprotagonistsoftheindependenceoftheUnitedStates,whomhehadmetinGlasgowin1759andwithwhomhehadremainedintouchthroughWilliamStrahan.AshisteacherHutchesonandotherintellectualsofthetimehadalreadydone,Smithfurthermoredeclareshimselfagainsttheslavetrade(cf.Ross1995,p.171).

AdamSmith119Ourpointofdepartureisinfactoneoftheseessays,theHistoryofastronomy(thefulltitleofwhich,signiÞcantly,is:Theprincipleswhichleadanddirectphilosophicalenquiries;illustratedbythehistoryofastronomy).Schumpeter(1954,p.182)singlesoutthisamongallSmithÕsworksastheonlyonereallydeservingpraise;andnotsolelyforloveofparadoxsince,asweshallsee(15.2),SchumpeterÕsÔliberalÕmethodologyappearsverysimilartotheSmithianapproach.SmithÕspointofdepartureintheÞeldofepistemology,too,isbasedonanalysisofthemotivationsforhumanaction.Inhisview,ourattitudetowardsscientiÞctheoriesisexplainedbythreeÔsentimentsÕ:ÔWonder,Surprise,andAdmirationÕ.WonderisexcitedbyÔwhatisnewandsin-gularÕ,surprisebyÔwhatisunexpectedÕ,admirationbyÔwhatisgreatorbeautifulÕ.7ÔNatureÕ,Smithsays,Ôseemstoaboundwitheventswhichappearsolitaryandincoherentwithallthatgobeforethem,whichthere-foredisturbtheeasymovementoftheimaginationÕ;thetaskofphilos-ophy(deÞnedasÔthescienceoftheconnectingprinciplesofnatureÕ)isÔtointroduceorderintothischaosofjarringanddiscordantappear-ancesÕ,ÔbyrepresentingtheinvisiblechainswhichbindtogetherallthesedisjointedobjectsÕ.8InthiswayphilosophyÔrender[s]thethe-atreofnatureamorecoherent,andthereforeamoremagniÞcentspectacleÕ.9Inaccomplishingthistaskofenquiringintonature,Ôphilosophicalsys-temsÕarebuilt(suchasthetwodifferentcosmologicalviews,PtolemaicandCopernican)whichÐSmithstressedÐareÔmereinventionsoftheimagination,toconnecttogethertheotherwisedisjointedanddiscordantphaenomenaofnatureÕ.10Inotherwords,theintellectual(ÔphilosopherÕ)whoconsiderstheworldandtriestointerpretitsfunctioninghasanactiverole,creatingratherthandiscoveringthetheories.Withthisthesis,SmithopposedtheGalileanidea(sharedbyPetty,aswehaveseenabove,3.2)accordingtowhichthetaskofthescientistconsistsinrevealing(intheliteraletymologicalmeaningoftakingawaytheveilswhichcoverthem)theÔlawsofnatureÕwhichconstitutetheskeletonoftherealworld:ashesays,theseareÔmereinventionsoftheimaginationÕ.Allthisshouldcomeasnosurprise:afterall,inthisrespectSmithissimplyfollowinginhisgreatfriendDavidHumeÕsfootsteps.InthiswaywemayalsointerpretSmithÕsdeclaredmistrust(cf.above,4.1)towardsPettyÕspoliticalarithmetic.Itwasnot,assomecommen-tatorshavemaintained,amatterofdoubtingthestatisticaldatawhichpoliticalarithmeticiansconstructwithanotableeffortoftheimagination,inasituationwherestatisticscollectionwasrudimentary.ForSmith,itis7Smith1795,p.33.8Ibid.,p.45.9Ibid.,p.46.10Ibid.,p.105.

120TheWealthofIdeasratheraquestionofdenyingtheideaofamathematicalstructureofreality,whichHobbesandthenCondillacÕssensismhadalreadyextendedtothehumanbody,andwhichPettyandthepoliticalarithmeticiansextendedtotheÔpoliticalbodyÕ,namelysociety.11TheÔphilosophicalsystemsÕ,thoughÔinventionsoftheimaginationÕ,mayhelpustogetourbearingsinthechaosofrealevents.However,itisclearlynotpossibletoverifythetheoriesbydemonstratingtheircorrespondencetosupposednaturallaws,unlessweassumethatthelawswithwhichtheyarecomparedhavearealexistenceindependentofthetheoriesthemselves(unless,thatis,suchlawsareinscribed,sotosay,intherealworld,andnotacreationofourthought).Smithdoesnottacklethisissue,whichaswehaveseenabove(1.3)FeyerabendandMcCloskeyproposetosolvebyreferringtoÔhonestdiscourseÕandÔrhetoricÕ.Itis,however,interestingtonotethatSmithhimself,intheLecturesonrhetoric(1983,p.178),proposesthemethodofrhetoric,withparticularreferencetothemodeloflegalproceedings,asthewaytoselectthepropositionstobeacceptedandthosetoberejected.12Thisideashould,however,beunderstood(withaconnection,typicalofSmith,betweenethicsandtheoryofknowledge)intermsofthenotionoftheimpartialspectator.Asweshallseeinthenextsection,tothisspectatorwemayassigntheroleofthearbiter,inthiscasenotofwhatisjustandwhatunjust,but(provisionally,notabsolutely)trueandfalse.Smiththusadoptsaßexiblemethodology,whichleavesroomforagooddegreeofeclecticism.Moreover,abandonmentoftheideaofamathematicalstructureintrinsictorealitycorrespondstoattributingtomenacomplexsetofmotivationsÐtheÔpassionsÕandtheÔinterestsÕdiscussedabove,4.3ÐthebalanceofwhichistheobjectoftheTheoryofmoralsentiments.TheseelementsÐdifÞdencetowardstheideaofÔlawsofnatureÕhardandfastintheirobjectivereality,inthenaturalasinthehumanworld,andsystematicopennesstorecognisingthecomplexityofthemotivationsofhumanactionÐarecharacteristicoftheScottishEnlightenment,theculturalenvironmentinwhichSmithhadgrownupandtothedevelopmentofwhichhecontributedwithhiswritings.11Inmanyrespects,thisSmithianviewresurfacesinKeynes.Cf.below,14.2.12Theseideashavealonghistory.SufÞceittorecalltheSophistsÕoppositiontoSocratesÕ(andPlatoÕs)thesisontheexistenceofTruth,discoveryofwhichmustbetheaimofphilosophicalenquiry.TheSophistsprescribed,rather,opendebateontheelementsinfavourandagainstanyandeverythesis,believingnothesistobetrueinanabsolutesense.OntheSmithianthesisofrhetoricasaninstrumentofresearch,cf.Giuliani1997.AsGiulianistresses(ibid.,p.205),ÔRhetoricisthemethodofenquiryintothedomainoftheopinionandtheprobabletruth.ÕInthisrespect,too,wenoteasigniÞcantafÞnitybetweenSmithÕsideasandthoseofKeynes.

AdamSmith1213.ThemoralprincipleofsympathyAswehavealreadyseen,thebroadcontextofSmithÕsworkwasthedebateonthedifferentmotivationsforhumanaction.Inshort,hiscontribu-tionconsistedinpointingoutthecomplementaritybetweenpursuingself-interestsandattributingacentralroletomoralrulesforthesoundfunctioningofcommonlifeinsociety.ThisinterpretationofSmithÕscontribution,whichconformslargelytothatoftheeditorsofthecriticaleditionofhisworks,13emergesfromreadingSmithÕstwomainworks,ThetheoryofmoralsentimentsandThewealthofnations,ascomplementaryratherthancontradictory.Thethesisofacontradictionbetweenthetwoworksprevailedforacertaintime,constitutingwhathasbeenlabelleddasAdamSmithProblem.Accordingtothisthesis,defenceofthefreepursuitofself-interestwithinamarketeconomyproposedbySmithinThewealthofnationswouldcorrespondtothematurepositionoftheScottisheconomist.SmithistakentohavereacheditafterrejectingthepositionheinitiallydefendedinThetheoryofmoralsentiments,accordingtowhichsympatheticbehaviouramongthemembersofacommunityisnecessaryfortheverysurvivalofthecollectiveentity.14ThisthesisappearsuntenablewhenwerecallthatThetheoryofmoralsentimentswasrepeatedlyreprinted,onalloccasionsunderthecontroloftheauthor,whotookadvantageoftheopportunityofferedbythereprintstointroducechangesintothework,evenafterthepublicationofThewealthofnations.Smithwouldhavehadaschizophrenicpersonalityhadhesimultaneouslysubmittedtohisreaderstwoworkscontradictingeachother!Moreover,inSmithÕscorrespondencethereisnohintthathe13ThesixvolumesoftheGlasgoweditionoftheworksandcorrespondenceofAdamSmith(editedbyD.D.RaphaelandA.S.Skinner,OxfordUniversityPress,Oxford1976Ð83;paperbackfacsimilereprint,LibertyPress,Indianapolis,1981Ð5)includeThetheoryofmoralsentiments,editedbyA.L.MacÞeandD.D.Raphael;Thewealthofnations,editedbyR.H.CampbellandA.S.Skinner;Essaysonphilosophicalsubjects,editedbyW.P.D.Wightman;Lecturesonrhetoricandbelleslettres,editedbyJ.C.Bryce;Lecturesonjurisprudence,editedbyR.L.Meek,D.D.RaphaelandP.G.Stein;andCorrespondence,editedbyE.C.MossnerandI.S.Ross.TheliteratureonSmithisenormous;herewecanmentionMacÞe1967;SkinnerandWilson1975;WilsonandSkinner1976;Winch1978;Pack1991;SkinnerandJones1992.AradicallydifferentinterpretationisofferedbyHollander1973b,whomaintainsthethesisÐinsistentlyrepeated,butveryrarelyinvestigated:Hollanderisanimportantexception,fromthispointofviewÐofSmithasafounderofthetheoryofgeneraleconomicequilibrium;foracritiqueofsuchathesiscf.below,6.14ThisthesiswasdevelopedbyagroupofGermanscholarsinthesecondhalfofthenineteenthcentury,ÞrstofallKarlKnies.Forreferencestothisliterature,andforadetailedcriticismoftheirthesis,cf.RaphaelandMacÞe1976.

122TheWealthofIdeashimselforanyofhiscorrespondentssaweventheslightestcontradictionbetweenthetwoworks.Themistakeofthosearguingacontradictionbetweenthetwoworks,andhencebetweenself-interestandtheethicsofsympathy,isatypicalexampleofareadingmisledbythetheoretical(andcultural,inthebroadsenseoftheterm)tendenciesprevailingintheperiodinwhichtheinter-preterlives.Inourcase,theprevalenceofamono-dimensionalnotionofman15ledcommentatorstoconsiderascontradictorythesimulta-neouspresenceoftwomotivationsofhumanactions.Weshouldrecallthat,aswesawabove(4.3),intheeigthteenthcenturythesimultane-ouspresenceofevenconßictingpassionsandinterestsasthefoundationforhumanactionwasconsideredamatteroffactwithwhichtocometoterms.Infact,thecomplementaritysuggestedbySmithbetweenthemoralprincipleofsympathyandself-interestconstitutesboththebasisforaricherandmorecomplexnotionofthemarketthanthoseproposedlaterandatheoreticalcontributionthatremainshighlyrelevant.LetusnowconsiderthecontributionofferedbySmithinThetheoryofmoralsentiments.ItiscentredontheproposaloftheÔmoralprincipleofsympathyÕ,theimportanceofwhichindrivinghumanbehaviourhadalreadybeenmaintainedbyHume(1739Ð40).16AccordingtoSmith,ÔthechiefpartofhumanhappinessarisesfromtheconsciousnessofbeingbelovedÕ;sympathy,namelytheabilitytosharethefeelingsofothers,leadsustojudgeouractionsonthebasisoftheireffectsonothersinadditiontotheireffectsonourselves.Thusmanmust[…]humblethearroganceofhisself-love,andbringitdowntosomethingwhichothermencangoalongwith.[…]Intheraceforwealth,andhonours,andpreferments,hemayrunashardashecan,andstraineverynerveandeverymuscle,inordertooutstripallhiscompetitors.Butifheshouldjustle,orthrowdownanyofthem,theindulgenceofthespectatorsisentirelyatanend.Itisaviolationoffairplay,whichtheycannotadmitof.Thiskindofmoralattitudeisaprerequisitefortheverysurvivalofhumansocieties:ÔSociety[…]cannotsubsistamongthosewhoareatalltimesreadytohurtandinjureoneanother.Õ1715Onthisview,connectedtoBenthamiteutilitarianismandtothesubsequentafÞrmationofthesubjectivetheoryofvaluewithintheframeworkofmarginalism,cf.below,6.7,8.9and10.4.16However,themeaningattributedtosuchaprincipleissomewhatdifferentinthetwoauthors:bythetermÔsympathyÕHumeÔmeansthecommunicationoffeeling,andSmithmeansthepsychologicalmechanismthatprovidesanapproachtomutualityoffeelingsÕ(Ross1995,p.183).17Smith1759,pp.41,83,86.

AdamSmith123Inotherwords,SmithÕsliberalviewsarebasedonatwo-foldassump-tion,namelythatcommonlyeachpersonknowsbetterthananybodyelseherorhisowninterests,andthatamongtheinterestsofeachthereisthedesiretobelovedbytheothersandhencerespectforthewell-beingoftheothers.TheÞrstassumptionexplainstherejectionofacentralisedmanagementoftheeconomy,evenifbyanenlightenedprince;hencethepreferenceforamarketeconomyoveracommandeconomy.Thesecondassumptionconstitutes,withintheSmithianediÞce,anessentialprecon-ditiontoensurethatthepursuitofself-interestonthepartofamultitudeofeconomicagentsincompetitionamongthemselvesleadstoresultsconducivetothewell-beingofsociety;however,inthedevelopmentoftheclassicalschoolofpoliticaleconomyitselfthisassumptionÐwhichcorrespondstotheSmithianprincipleofÔsympathyÕÐwassubmergedbythegrowinginßuenceofutilitarianism.AnothercentralelementinThetheoryofmoralsentimentsisthenotionoftheÔimpartialspectatorÕ.AccordingtoSmith,individualsevaluatetheirownactionsbytakingtheviewpointofanimpartialspectatorwho,endowedwiththeknowledgeofalltheelementstheyknow,judgessuchactionsasanaveragecitizen.18Juridicalinstitutions,thefunctioningofwhichisindispensabletoguaranteethesecurityofmarketexchange,Þndinthisprincipleofmoralbehaviourtheirnecessaryconcretesupport.ThusthemostfamousSmithianstatement,accordingtowhichÔitisnotfromthebenevolenceofthebutcher,thebrewer,orthebaker,thatweexpectourdinner,butfromtheirregardtotheirowninterestÕ,shouldnotbeconsideredinisolation.InthecontextitimpliestheassumptionÐvitalforthefunctioningofamarketeconomyÐofacivilisedsociety,groundedonthegeneralacceptanceofthemoralprincipleofsympathy,andendowedwiththeadministrativeandjuridicalinstitutionsnecessarytodealwiththeinstancesinwhichthecommonmoralityisviolated.1918Naturallythisthesispresupposestheexistenceofacommonculturalbasis(inthebroadsense)fortheindividualsbelongingtoagivensocialsystem.Inthisrespectthereferencetothenation-economycustomaryinthetraditionofclassicalpoliticaleconomyimpliesrelativelyminordifÞcultiescomparedwithmodernreferencetotheworld-economy.19Smith1776,pp.26Ð7.Thispassage,orvariantsofit,alsooccursintheLecturesonjurisprudenceandintheEarlydraftofpartsofÔThewealthofnationsÕ(nowreprintedinSmith1978,pp.562Ð81).Cf.Smith1978,pp.348:LJ-A,vi.45Ð6;493:LJ-B,219Ð20;571Ð2:Earlydraft,23.Asnotedabove(4.9),SmithÕsreferencetobenevolenceisanimplicitwayofdrawingattentiontothethesisofhismasterHutcheson,whoattributedtoitanimportantroleasaguidetohumanaction.Itmaybeworthstressingthatinasocietyinwhichmerchantsfeltnocompunctioninsellingadulteratedfood(andinwhichmerchantswhodidsowouldnotbesuedbythestatejustice)productionforself-consumptionwouldgrow,withregressioninthedivisionoflabourandhenceeconomicdecline,uponwhichcivicdeclinewouldinevitablyfollow.

124TheWealthofIdeasThedistinctionbetweenprivateandpublicinterestbecomesopposition,irreconcilableconßictÐSmithsaysinsubstanceÐonlyiftheprivateinterestisinterpretedinarestrictiveway,asselÞshnessratherthanself-interest,thelatterimplyingattentiontooneÕsowninterestsmoderatedbytherecognition(or,better,ÔsympathyÕ)fortheinterestsofothers.20WhatSmithattempts,followinginthetraditionoftheScottishsocio-logicalschool,isadifÞculttaskofdeÞnitionofathirdwayforthethe-oryofmanandsociety,differingbothfromtheAristoteliantraditionandfromthenaturallawphilosophersdiscussedabove(4.2).Smithrejectsthearbitraryabsolutismthatthesocialandpoliticalstructureofhistimesinheritedfromfeudalism,andwhichcanbeassociatedwiththeAristoteliantradition.However,heequallyrejectsHobbesÕscontractu-alism,inwhichastate,thoughenlightenedandbenevolent,dominatesthelifeofitssubjects.(Itisthisstatism,whichtheÔmercantileÕtheoriesareimbuedwith,thatSmithisopposedto,moreindeedthanheistotheÔmercantileÕidentiÞcationofwealthwithmoneyandthethesisofthepreferenceforanactivebalanceofpayments,thelatterbeingSmithÕsowninterpretationofthehistoryofeconomicthoughtprecedinghim,proposedinthefourthbookofThewealthofnations,althoughinmanyrespectsitappearsforced.)SmithproposesthelineofagreaterconÞdenceintheself-governingcapacityofindividuals:ÔEverymanis,nodoubt,bynature,Þrstandprincipallyrecommendedtohisowncare;andasheisÞttertotakecareofhimselfthanofanyotherperson,itisÞtandrightthatitshouldbeso.Õ21However,thefreepursuitofpersonalinterestcomesupagainsttwolimits:oneexternaltotheindividual(theadministrationofjustice,one20InThetheoryofmoralsentiments(section7.2.4)SmithcriticisestheÔlicentioussystemsÕ,inparticularMandevilleÕsone:ÔItisthegreatfallacyofDr.MandevilleÕsbooktorepre-senteverypassionaswhollyvicious,whichissoinanydegreeandinanydirection.Itisthusthathetreatseverythingasvanitywhichhasanyreference,eithertowhatare,ortowhatoughttobethesentimentsofothers:anditisbymeansofthissophistry,thatheestablisheshisfavouriteconclusion,thatprivatevicesarepublicbeneÞtsÕ(Smith1759,pp.312Ð13).Anarticulateviewofself-interest,notreducibletothemonomaniafortheaccumu-lationofwealth(or,inotherterms,toamono-dimensionalmaximisingbehaviour),isevidentforinstanceinthefollowingpassage:ÔWhatcanbeaddedtothehappinessofthemanwhoisinhealth,whoisoutofdebt,andhasaclearconscience?Tooneinthissituation,allaccessionsoffortunemayproperlybesaidtobesuperßuous;andifheismuchelevateduponaccountofthem,itmustbetheeffectofthemostfrivolouslevityÕ(Smith1759,p.45).21Smith1759,p.82.Thepassageisrepeatedwithnearlythesamewordingfurtheroninthetext(ibid.,p.219):ÔEveryman,astheStoicsusedtosay,isÞrstandprincipallyrecommendedtohisowncare;andeverymaniscertainly,ineveryrespect,Þtterandablertotakecareofhimselfthanofanyotherperson.ÕAswecansee,SmithdoesnotsaythateverymanisÞtterthananybodyelsetotakecareofhimself,butthatevery

AdamSmith125ofthefundamentalfunctionsthatSmithattributestothestate),andoneinternaltohim,ÔsympathyÕforhisfellowhumanbeings.Thesimultane-ousrecoursetothesetwoelementsshowshowSmith,faithfulinthistotheAristoteliantraditionofhostilitytoextremepositions,hasapositivebutnotidealisedvisionofman.22Smith(1759,p.77)isexplicitinthisrespect:Wearenotatpresentexamininguponwhatprinciplesaperfectbeingwouldapproveofthepunishmentofbadactions;butuponwhatprinciplessoweakandimperfectacreatureasmanactuallyandinfactapprovesofit.[…]Theveryexistenceofsocietyrequiresthatunmeritedandunprovokedmaliceshouldberestrainedbyproperpunishments[…].Thoughman,therefore,benaturallyendowedwithadesireofthewelfareandpreservationofsociety,yettheAuthorofnaturehasnotentrustedittohisreasontoÞndoutthatacertainapplicationofpunishmentsisthepropermeansofattainingthisend;buthasendowedhimwithanimmediateandinstinctiveapprobationofthatveryapplicationwhichismostpropertoattainit.Itispreciselyfromthenon-idealisedviewofmanandsocietythatthevariousexamplesstemofstateinterventionthat,asweshallseebelow(8),maybeattributedtoSmith.23Tosumup,inSmithÕsviewvariouselementsconcurtoguaranteetheverysurvivalanddevelopmentofcivilisedsocieties:moralbehaviourbasedonthesentimentofsympathy(hencegroundedonasentimentwhichisinnateinman,notimposedfromoutside),thedrivingforceofawell-conceivedpersonalinterest,asetofjuridicalrulesandcustoms,manisÞttertotakecareofhimselfthanhecouldofanybodyelse.Thedifferenceisnotenormous;however,SmithÕsmeticulousnessandcautionemergeonsuchoccasions,qualifyinghisliberalism.JohnStuartMillreproposesthisthesis(withoutquotingSmith)inhisfamousessayOnliberty(Mill1859,p.76):EachpersonÔisthepersonmostinterestedinhisownwell-beingÕ.22ThisviewofhumannatureconstitutesacentralelementfortheScottishEnlightenment,butiswidespread.Forinstance,Kant(ayearyoungerthanSmith)alsoadoptsapositionsimilartoSmithÕs(oneofhisfavouritereadings,bytheway:cf.Ross1995,pp.193Ð4;theGermantranslationofThetheoryofmoralsentimentsisdated1770).Letuscomparetwopassages:ÔThecoarseclayofwhichthebulkofmankindareformed,cannotbewroughtuptosuchperfectionÕ(Smith1759,pp.162Ð3);ÔFromatwistedwood,suchasthatofwhichmanismade,nothingentirelystraightcancomeout.OnlytheapproximationtothisideaisimposedonusbynatureÕ(Kant1784,p.130).BeforebothSmithandKant,theideaofasubstantiallybenevolenthumannatureismaintained,forinstance,byHutchesonandShaftesbury,whoopposeittothethesisofasubstantiallyselÞshhumannaturearguedinparticularbyHobbesandMandeville.23Viner(1927)recallssuchexamplesinordertocriticisetheinterpretationsofSmithÔasadoctrinaireadvocateoflaisssez-faireÕ(ibid.,p.112).ThearticlebyViner,oneofthemostauthoritativeexponentsoftheÔÞrstChicagoschoolÕ,isanantelitteramcritiqueofStiglerÕssayingatthebi-centennialcelebrationsofThewealthofnations:ÔSmithisaliveandwell,andlivinginChicago.Õ

126TheWealthofIdeasandpublicinstitutionsdesignedamongotherthingstoguaranteetheadministrationofjustice.Thisisaviewthatisgroundedonsolidgoodsense;atthesametime,itisthefruitofreÞnedtheoreticalelaborationinvolvingthewholeÞeldofthesocialsciencesandentailing,stepbystep,Þne-tunedselectionamongthedifferentculturaltraditionsandstreamsofthoughtcontributingtothelivelinessoftheÔcenturyofEnlightenmentÕ.4.ThewealthofnationsSmithÕscontributions,aswehaveseen,concernmanyÞelds:rhetoric,moralphilosophy,jurisprudence,politicaleconomy.Herewefocusatten-tiononthelatterÞeld,theonewhichSmithoweshisfameto.However,itisimportanttostressthat,aswesawintheprevioussection,hisreßec-tionsonthistopic(andthusthebookinwhichtheyareillustrated,Thewealthofnations)arepartofawiderresearchonmanandsociety:twoelementsthat,ashismasterHutchesonheld,actuallyconstituteasingleobjectofstudy.24Aninquiryintothenatureandcausesofthewealthofnations(Smith,1776)issubdividedintoÞvebooks.TheÞrstconcernsthedivisionoflabour(andthustechnologicalprogress),thetheoryofvalueandincomedistribution;theseconddealswithmoneyandaccumulation;thethirdisabrief,thought-provokingexcursusinthehistoryofinstitutionsandtheeconomysincethefalloftheRomanempire;thefourthcriticallyillustratesthemercantiledoctrinesandthephysiocratictenets;Þnally,theÞfthconcernspublicexpensesandreceiptsand,moregenerally,theroleofthestateintheeconomy.ThestartingpointofSmithÕseconomicreßectionisrepresentedbythedivisionoflabour.HisobjectistoexplainthefunctioningofaneconomicsysteminwhicheachpersonisengagedinaspeciÞctaskandeachÞrmproducesaspeciÞccommodity.Thedivisionoflabourisnotanewphenomenon,andSmithisnottheÞrsttodrawattentiontoit.Schumpeter(1954,p.56)calleditÔthiseternalcommonplaceofeconomicsÕ:authorsfromclassicalGreecesuchasXenophonandDiodorusSiculus,PlatoandAristotle(cf.above,2.2),hadalreadydiscussedit,aswellasauthorsofthepreviouscenturysuchasWilliamPetty.Smith,however,istheÞrsttobringthedivisionoflabourtothecentreofanalysisappliedtoexplainwhicharetheelementsthat24InThewealthofnationsandinotherwritings(especiallytheLecturesonjurisprudence:Smith1977)SmithadoptsatheoryofthestagesofsocialdevelopmentÐhunting,stock-raising,agriculture,commerceÐanalogoustotheoneproposed,probablyindependently,byTurgot,undertheinßuenceofMontesquieuÕsDelÕespritdeslois(1748,inparticularbookeighteen):cf.Meek1977,pp.18Ð32.

AdamSmith127determinethestandardoflivingofagivencountryanditstendenciestoprogressorregress.SmithÕsthesismaybesummarisedasfollows.Firstofall,theÔwealthofnationsÕisidentiÞedwithwhattodaywecallpercapitaincome,orinsubstancethestandardoflivingofthecitizensofthecountryundercon-sideration.25ThisisanidentiÞcationwenowtakeforgranted,butitwasbynomeanssowhenSmithintroducedit.Indeed,withitwasabandonedthetendencyofthecameralistandmercantilistwriters,counsellorstotheprinceinthepreviousdecades,totakeasthegoalthemaximisationofthetotalnationalincomeofacountryassourceofeconomicpowerandhenceofmilitaryandpoliticalpower(aviewthatwouldseeSwitzerlandaslessÔwealthyÕthanIndia).Secondly,letusrecallthatnationalincome(Y)isequaltothequantityofproductobtainedonaveragebyeachworker(orlabourproductivity,)multipliedbythenumberofworkersemployedinproduction(L):Y=L.Ifwedividenationalincomebypopulation(P),weobtainpercapitaincome;asaconsequence,percapitaincomeprovesequaltolabourpro-ductivitymultipliedbytheshareofactiveworkersovertotalpopulation.Inotherterms:fromY=L,dividingbyP,weobtainY/P=L/P.Namely,thestandardoflivingofthepopulationdependsontwofactors:theshareofcitizensemployedinproductivelabourandtheproductivityoftheirlabour.Herethedivisionoflabourcomesintoplay.Infact,accordingtoSmith,labourproductivitydependsmainlyonthestagereachedbythedivisionoflabour.Inturn,thisdependsonthesizeofthemarkets.25ThesearetheveryÞrstlinesofThewealthofnations(Smith1776,p.10):Theannuallabourofeverynationisthefundwhichoriginallysuppliesitwithallthenecessariesandconveniencesoflifewhichitannuallyconsumes,andwhichconsistalways,eitherintheimmediateproduceofthatlabour,orinwhatispurchasedwiththatproducefromothernations.Accordingtherefore,asthisproduce,orwhatispurchasedwithit,bearsagreaterorsmallerproportiontothenumberofthosewhoaretoconsumeit,thenationwillbebet-terorworsesuppliedwithallthenecessariesandconveniencesforwhichithasoccasion.Asamatteroffact,SmithÕsviewiswider:inacivilisedsocietymaterialwealth,liberty,individualdignityandsharedrules(lawsandmoralnorms)allmatter.Aßourishingeconomyisimportantbothinitselfandasaprerequisiteforthedevelopmentoflettersandarts,andbecauseofthecivilisingfunctionattributedtocommerce(thedouxcommercethesismentionedabove,4.1).

128TheWealthofIdeasLetustakeacloserlookatthesetwotheses.TheÞrstoneÐthepositiveeffectofthedivisionoflabouronproductivityÐisillustratedbySmith(1776,pp.14Ð15)withthewell-knownexampleofthepinfactory,whichistakenfromtheitem«EpingleintheEncyclop«edieeditedbydÕAlembertandDiderot.26SmithidentiÞesthreecircumstancesthatconnectproductivitytothedivisionoflabour:theimprovementintheskillsoftheworker,whenheregularlyaccomplishesaspeciÞctaskratherthanamultiplicityoftasks;thesavingoflabourtimeusuallylostwhenshiftingfromonetasktoanother;andtechnicalprogressinducedbythepossibilityoffocusingattentionononespeciÞcworktask.27Letusnowconsiderthesecondthesis,theconnectionbetweengrowthofthemarketanddevelopmentofthedivisionoflabour.28LetusrecallthatwhenaÞrmexpandsinordertorealiseanimproveddivisionoflabourwithinitself,itwillhavetoplaceonthemarketaproductthathasincreasedbothbecauseoftheincreaseinthenumberofworkersemployedandtheincreaseintheirproductivity.InSmithÕsexampleofthepinfactory,aworkerwhodoeseverythingbyhimselfproducesaroundtenpinsaday,whileasmallfactorywithtenworkersproducesabout50,000pinsaday.ProductionasawholehasincreasedbyÞvethousandtimes,asaresultofatenfoldincreaseinthenumberofworkersandaÞve-hundredfoldincreaseintheirproductivity.ThusthemarketmustalsogrowbyÞvethousandtimes,inordertoabsorbtheproductionofthesmallfactory,comparedwiththesizeofthemarketsufÞcientfora26Theitem«Epingle(writtenbyAlexandreDeleyre,knownasthetranslatorofFrancisBacon)isincludedintheÞfthvolume(1755)oftheEncyclop«edie,publishedbetween1751and1772,andmentioned(witherroneousreferencetotheneedle,ÔaiguilleÕ)intheprogrammaticmanifestoofthework,dÕAlembertandDiderotÕsDiscourspr«eliminaire(1751,p.141).Theimportanceofthedivisionoflabourhad,however,alreadybeenrecognisedbytheGreekwriters(cf.above,2.2)and,nearertoSmith,byauthorssuchasWilliamPetty,whousesasexamplesthefabricationofdresses,shipsandclocks(Petty,1690,pp.260Ð1and1899[1682],p.473),andtheanonymousauthoroftheConsiderationsontheEastIndiatrade,whousesthesameexamples(Anonymous1701,pp.590Ð2).TheexampleofpinsmighthaveappearedsuggestivetoSmithbecauseofthepossibility,forhimselfandforthereadersamonghisfellowcitizens,ofadirectcomparisonwiththeconditionsinwhichtheScottishseamenproducedthenailsfortheirboats,asasubsidiarypartoftheirÞshingandsmugglingactivities(withtheresultoflowproductivityandbadqualityoftheproduct).TheexampleoftheneedlewasusedbyamedievalMuslimauthor,Ghazali(1058Ð1111):cf.Hosseini1998,p.673.27Cf.Smith1776,pp.17Ð20.28TheSmithianconnectionbetweenthesizeofthemarketandthedivisionoflabourhasoftenbeeninterpreted,inthetermsofthetraditionalmarginalisttheoryoftheÞrmbasedontheU-shapedcostcurves(cf.below,ch.13),asathesisconcerningincreasingreturnstoscale.Cf.forinstanceStigler1951.Inthecontextofthemarginalisttheory,however,thereturnstoscaleconcernstaticcomparisonsamongalternativesequallyavailabletotheentrepreneuratagiveninstantoftime,whileintheSmithianframeworkthedivisionoflabour(morespeciÞcally,technologicalchange)andtheexpansionofthemarketareprocessesthattakeplaceintime.

AdamSmith129singleworkerproducingpins.Clearly,therefore,thesizeofthemarketconstitutesthemainconstraintonthedevelopmentofthedivisionoflabour.HenceSmithÕseconomicliberalism:whateverisanobstacletocommerce,alsoconstitutesanobstacletothedevelopmentofthedivisionoflabour,andsotoincreasesinproductivityandtheincreaseinthewelfareofthecitizens,orinotherwordstothewealthofnations.Obviously,inanalysingamarketeconomybasedonthedivisionoflabourwecannotstopatanaggregatenotionsuchasthatofthewealthofnations.Indeed,therearethreeconnectedbutdistinctaspectsofthedivisionoflabour:themicroeconomicdivisionoflabour,amongthedif-ferentworkerswithinasameplant;29thesocialdivision,amongdifferentjobsandprofessions;andthemacroeconomicdivision,amongÞrmsandsectorsproducingdifferentcommoditiesorgroupsofcommodities.30ItisthereforenecessarytoconsiderboththesocialstratiÞcationtypicalofsuchaneconomicsystem,andtherelationsthatsetinbetweenthedif-ferentproductivesectors.OntheseaspectsSmithgoeswellbeyondtheeconomicthoughtprecedinghim,althoughhetakesanumberofelementsfromit.TheÔpoliticalarithmeticiansÕKingandDavenanthadillustratedtheeconomicsituationofEnglandutilisingapartitionofthenationalecon-omyintogeographicalareas:achoicewecanunderstandforatimewhencommercewasgreatlyhinderedbythedifÞcultyoftransportation.Subse-quently,instead,thecriteriongainedgroundofdividingsocietyintosocialclassesandproductivesectors.InthewakeofCantillonandQuesnay,Smithconsideredasocietydividedintothreeclasses.HistripartitionÐworkers,capitalistsandlandlords(withthethreecorrespondingkindsof29Theexampleofpinsobviouslyconcernsthemicroeconomicdivisionoflabour,namelythedivisionoflabourwithinanindividualproductiveunit(orÞrm).Theexpansionofthemarketmaythereforeconsistnotonlyinanincreaseinthequantityoftheproductdemandedbythebuyersasawhole,butalsoinanincreaseinthemarketshareoftheindividualÞrmthroughaprocessofindustrialconcentration.However,suchaprocessimpliesagrowingefÞciencyofthemarket.Forinstance,thenumberofÞrmsproducingpinsinGreatBritainmaydecreaseiftransportlogisticsallowtheproductofanyÞrmtoreachdistantareasofthecountry.ItisinanycaseclearthatSmith,althoughnotexcludingit,doesnotrefersomuchtotheexpansionofthemarketfortheindividualÞrmastothemarketforaproductasawhole.(ItisonlywithinthemarginalisttheoryoftheequilibriumoftheÞrmthatincreasingreturns,conceivedinstaticalterms,enterintocontradictionwiththeassumptionofcompetition;onthispointcf.below,13.3and16.4;herewelimitourselvestostressingthedynamic,notstatic,nature,oftheSmithiananalysisofthedivisionoflabour,andtheabsenceinitofthemarginalistnotionofequilibrium.)30EvenifSmithdidnotexplicitlydiscussthisconnection(nordistinguishexplicitlythesedifferentaspectsofthedivisionoflabour),itisclearthatthemacroeconomicdivisionoflabourstemsfromthemicroeconomicdivision,throughtheexternalisationofsomeareasofactivityofaÞrmgivingrisetonewÞrmsandnewbranchesofactivity.Cf.Corsi1991.

130TheWealthofIdeasincome:wages,proÞtsandrents)Ðisdifferentfromthatofhispredeces-sors(agriculturalworkersandfarmers,artisans,nobilityandclergy).ThelatterclassiÞcationmirrorsasocietyintransitionfromfeudalismtocap-italism,whileSmithÕsclassiÞcationmirrorsacapitalistsociety(thoughnowadayslandlordshavelostpracticallyalltheirimportance,whilethemiddleclasseshaveexpanded).Thus,inthisrespecttooSmithmarkstheriseoftheconceptualschemethatcharacterisedsubsequenteconomicscience.ThenotionoftherateofproÞts,thoughnotnew(ithadalreadybeenutilisedbyTurgotandothers),deÞnitivelyacquiresacentralrole:theexpediencyofalternativelinesofactivityisevaluatedbylookingattheratiobetweenproÞtsandthevalueofcapitaladvances,ratherthanatthedifferencebetweenreceiptsandcosts.Becauseofthedifferencesinbargainingpowerbetweencapitalistsandworkers,31wemayassumethatthelatterreceiveawagejustsufÞcienttomaintainthemselvesandtheirfamilies.Theincomesofcapitalistsandlandlords,namelyproÞtsandrents,maythusbeconsideredequalintheirtotaltothesurplusobtainedwithintheeconomy.Intheprocessofdevelopment,Smithadds,rentsincrease,whiletherateofproÞtstendstodecreaseduetotheÔcompetitionofcapitalsÕ.Asaconsequence,theinterestoflandownersaccordsinthisrespectwiththegeneralinterestofsociety,whiletheoppositeholdstrueforthecapitalists.3231Whatarethecommonwagesoflabourdependseverywhereuponthecontractusuallymadebetweenthosetwoparties,whoseinterestsarebynomeansthesame.Theworkmendesiretogetasmuch,themasterstogiveaslittleaspossible.Theformeraredisposedtocombineinordertoraise,thelatterinordertolowerthewagesoflabour.Itisnot,however,difÞculttoforeseewhichofthetwopartiesmust,uponallordinaryoccasions,havetheadvantageinthedispute,andforcetheotherintoacompliancewiththeirterms.Themasters,beingfewerinnumber,cancombinemuchmoreeasily;andthelaw,besides,authorises,oratleastdoesnotprohibittheircombinations,whileitprohibitsthoseoftheworkmen.Wehavenoactsofparliamentagainstcombiningtolowerthepriceofwork;butmanyagainstcombiningtoraiseit.Inallsuchdisputesthemasterscanholdoutmuchlonger.[…]Inthelong-runtheworkmanmaybeasnecessarytohismasterashismasteristohim;butthenecessityisnotsoimmediate.(Smith1776,pp.83Ð4)ItshouldbenotedthatSmithmaintainsthethesisofadownwardpressureonthewagetowardsthesubsistenceminimum(forthenecessaryconsumptionoftheworkerandhisfamily)withargumentsofahistorico-institutionalkind;changessuchasthelegalisationofthetradeunionsandtherighttostrikemodifythesituationandmakeitpossibleforwagestoberaised,evenagreatdeal,abovethesubsistencelevel,butdonotdetractfromthevalidityofSmithÕsapproachtotheissueofdistribution,seenasaproblemofrelativebargainingpower.ThesamecannotbesaidfortheÔironlawofwagesÕbasedontheMalthusianpopulationprinciple,whichwillbediscussedbelow(6.2).32Cf.Smith1776,pp.264Ð7.ThisdoesnotmeanthatSmithÕsattitudeisfavourabletothelandlords:theyÔlovetoreapwheretheyneversowedÕ(ibid.,p.67),andrentÔisnaturally

AdamSmith131ThesurplusÐanotionthatSmithtakesoverfromPetty,CantillonandQuesnayÐisequaltothatpartoftheproductthatexceedswhatisnec-essarytoreconstitutetheinitialinventoriesofmeansofproductionandmeansofsubsistencefortheworkersemployedintheproductiveprocess.ThisnotionisthecoreoftheclassicalrepresentationofthefunctioningoftheeconomyasÔproductionofcommoditiesbymeansofcommoditiesÕ.Periodafterperiod,withintheeconomicsystemÞrmsutilisetheinitialinventoriesofmeansofproduction(andtheworkersutilisetheinitialinventoriesofmeansofsubsistence)inthecourseoftheproductivepro-cess,attheendofwhichtheyobtainaproductwhichisusedÞrstofalltoreconstitutetheinitialinventoriessoastobeabletorepeattheproduc-tivecycle;whatisleftafterthis,namelythesurplus,maybeutilisedtoincreasetheinventoriesofmeansofproductionandsubsistence,increas-ingthenumberofworkersemployedintheproductiveprocessandhencetheproduct,orforÔunproductiveÕconsumption(whichincludestogetherwithluxuryconsumptionalsothesubsistenceconsumptionoftheunem-ployedorofthosewhoseworkdoesnotgiveconcreteresults,thatis,doesnotgiverisetocommoditiesthatcanbesoldinthemarket).Smithattributesnotableimportancetotheprocessofaccumulation,orinotherwordstotheproductiveutilisationofthesurplus.Accumulationconsistsnotonlyininvestmentinnewmeansofproductionbutalsointheincreaseinthenumberofworkersemployed,andsointhewageadvancesforsuchworkers,consistingintheuseofpartofthesurplusasmeansofsubsistencefortheadditionalproductiveworkers.Heretheproblemarisesofthedistinctionbetweenproductiveandunproductiveworkers.Inthisrespect,SmithappearstooscillatebetweenthreedifferentdeÞnitions.AccordingtotheÞrstone,productivelabouristhatlabourthatgivesrisetophysicalgoods:labourinagricultureandmanufacture,thatis,butnotlabourintheservicessector.TheseconddeÞnitionidentiÞesasproductivethatlabourwhichrecoupsthefundsemployedinproductionandinadditiongeneratesaproÞt.AccordingtothethirddeÞnition,thatlabourisproductivethewageforwhichisdrawnfromcapital,whileweareconfrontedwithunproductivelabourwhenthewageisdrawnfromtheincomeofthemaster,asisthecaseforservants.33amonopolypriceÕ(ibid.,p.161).ButtheattitudetowardsÔthosewholivebyproÞtsÕisevenharsher;notonlyistheirinterestopposedtoeconomicdevelopment,itisalsoÔtonarrowthecompetitionÕ(ibid.,p.267:cf.thepassagequotedbelow,innote63).33ForthethreedeÞnitions,cf.Smith1776,respectivelypp.330Ð1,332,332Ð3.Itshouldbestressedthatbecauseofthisnotionofproductivelabour,SmithÕsnotionofnationalincome(Yintheequationsabove)ismorerestrictivethanthecurrentdeÞnitionofincomeinmodernnationalaccounts.NearertoSmithÕs(becauseofMarxÕsadoptionofavariantoftheSmithianconceptofproductivelabour)wasthenotionofnationalincomeadopteduntilrecentlyinthenationalaccountsofcommunistcountries.

132TheWealthofIdeasAsamatteroffact,thesearenotnecessarilythreealternativedeÞni-tions.Thelastisusefulforillustrativepurposes,sinceithelpsthereadertoconcretelyunderstandSmithÕsreasoning,butasatheoryitwouldimplyalogicallyviciouscircle.34ThesecondandtheÞrstdeÞnitionmaycoincide,ifweassumethatagricultureandmanufacturecorrespondtotheÞeldofactionofcapitalisticenterprises.Withsuchanassumption,wemaycreditSmithwithanablecompromisebetweenthetraditionthatidentiÞesproductivelabourwiththeproductionofdurablegoods(alongascaletoppedbypreciousmetalsandforeigntrade,thelatterbeingthemeanstoobtainthem)andthesubsequentview,thatwillbecomedom-inantinKarlMarxÕswork,accordingtowhichthedistinctionbetweenproductiveandunproductivelabour,asfarasthehistoricalstageofcap-italismisconcerned,correspondstothedistinctionbetweenwhatcomeswithinandwhatremainsoutsideofthecapitalisticareaoftheeconomy.Inotherwords,Smithkeepsaccountofthetraditionalviewbutatthesametimetransformsit,throwingabridgetowardsthelessambiguousMarxiandeÞnition.35Asforthethemeofproductivelabour,againontheissueoftheoriginofthesurplusSmithgoesbeyondthetraditionalviewofahierarchyofproductivesectors.Inparticular,thephysiocraticideathatagriculturealoneiscapableofgeneratingasurpluscameunderÞrefromSmithafewyearsafterpublicationofthemainworksofthephysiocrats.3634Indeed,whenacapitalisthiresaworker,wemaysaythattheexpenseforthewagecomesfromhiscapitaliftheworkerisaproductiveworker,whileitcomesfromhisincomeiftheworkerisunproductive:thedistinctiondependsonwhattheworkerdoes,notonthefactthathiswagecomesfromonespeciÞcbankingaccountratherthananother.(Similarly,thepurchaseofacaronthepartofanentrepreneurmaytodaybeclassiÞedasaninvestmentoraconsumptionexpenditureaccordingtotheusethatismadeofthecar.)35TheidentiÞcationofproductivelabourwiththatwhichgivesrisetomaterialgoodsistheobjectofcriticismonthepartofJean-BaptisteSay(1803),whodeÞnesservicesasÔimmaterialproductsÕ.AccordingtoSay,wemaydeÞneasproductiveanyactivitythatgivesrisetousevalues,namelytogoodsandservicesconsideredusefulbythepurchaser:aviewthatfallsintothetraditionofthesubjectivetheoryofvalue.(OnSaycf.below,6.3).Asfarasunproductivelabourisconcerned,Smithsuggestsadistinctionbetweenusefulanduselessjobs(forinstance,thephysicianandthebuffoon;cf.Smith1776,p.331).Inessence,wemayconsiderasusefulthatworkwhichcontributesindirectlytothefunctioningoftheeconomicsystem,forinstancebyguaranteeingtheobservanceofpropertyrights;wemayincludeinthisÞeldteachersandphysicians,whocontributetothesurvivaloftheworkersandtothedevelopmentoftheirabilities.36Smith1776,pp.674Ð9.HereSmithexplicitlyalsoconsidersasproductivethelabourofthemerchants,atthesamelevelasthatofagriculturalworkers,artisansandmanu-facturers,andinmaintainingthisthesisheagainrecallstheelementsthatcharacterisethethreedeÞnitionsofproductivelabourillustratedabove.Theargumentshereused

AdamSmith133Letussummarisethepointsmadesofar.Wehaveseenthataccord-ingtoSmiththewealthofnations,interpretedastheaveragepercapitaincomeofthecitizensofacountry(Y/N),dependsontwofactors:theproductivityoftheworkersemployedintheproductionofcommodities(productiveworkers),,andtheshareofproductiveworkersinthetotalpopulation,L/N.Letusrecallthatlabourproductivitydependsonthestagereachedbytheprocessofincreasingdivisionoflabour,whichinturndependsontheconsumersÕincome(thatis,onY/N)andonthemoreorlessfreetradepoliciesadoptedbypublicauthorities,inadditiontoimprovementsintransport.Atthesametime,theshareofproductiveworkersinthetotalpopula-tion,L/N,dependsonthestagereachedbytheprocessofaccumulation,namelyontheamountofmeansofproductionavailabletogiveworktonewproductiveworkers,oninstitutionalelementsandoncustoms,suchaslawsonprimarypubliceducationforallorchildlabour,orcustomsconcerningwomenÕsattitudestowardsworkinginafactory.Inturn,suchinstitutionalfactorsandcustomsareinßuencedbythepoliticalchoicesofthepublicauthorities.Usingarrowstoindicatecauseandeffectrelations,wemayrepresentthecomplexofrelationsasinÞgure5.1.Aswecanseefromthescheme,theadoptionofpoliciesaimingateliminatingtheobstaclestofreetradeandatfavouringtheexpansionofthemarketsmaysetinmotionaÔvir-tuousspiralÕ:theexpansionofthemarketsfavoursanincreasingdivisionoflabour,andwithitanincreaseinproductivitythatinturngivesrisetoanincreaseinpercapitaincomeand,consequently,afurtherexpan-sionofthemarkets.Atthesametime,theseandsimilarpoliciesfavouranincreaseinpercapitaincomethankstotheiractioninfavourofanincreaseintheshareofproductiveworkersinthetotalpopulation.ThesebySmith,however,mainlyrefertotheerroneousnessofconsideringunproductivethemanufacturingandthemercantilesectors,ratherthanthefactthatinasystemofpro-ductiveinterrelations,inwhichthedifferentsectorsdependoneuponanotherfortheprovisioningoftheirmeansofproduction,itisnonsensetosaythatthesurpluscanonlyspringfromthenaturalpoweroftheland,andsoonlyintheagriculturalsector.Indeed,landhasnoautonomousroleintheproductiveprocess,andwouldnotyieldanythingifleftuncultivated,iflabour(hencemeansofsubsistence)andmeansofproductionhadnotbeenutilisedtogetherwithit.Thereforetheproductcannotbeattributedtoasingleelementamongthevariouselementsemployedinanyindividualproductiveprocess.Thus,sincemeansofproductionatleastinpartcomefromothersectors(becauseofthedivisionoflabour,inagriculturemanufacturingproductsareused,andviceversa),itisnotpossibletoestablishwhetherthesurplusspringsfromonesectororfromanother,withoutÞrstexplaininghowtheexchangeratiosaredetermined.Indeed,thesurplusisanotionrelatedtotheeconomicsystemasawhole,nottoanindividualeconomicsector.

134TheWealthofIdeas L/N Accumulation Y/N Institutional factors and habits π Size of the markets Division of labour Improvements in transports and communications Economic policies Figure5.1dynamicmechanisms,ofacumulativekind,constitutetheessenceoftheSmithiantheoryofthewealthofnations.5.ValueandpricesOneofthecrucialconceptualdistinctionsforthedevelopmentofclassicalpoliticaleconomyisthatconcerningvalueinuseandvalueinexchange.ThisdistinctionisperfectlyclearinAdamSmith:Thewordvalue[…]hastwodifferentmeanings,andsometimesexpressestheutilityofsomeparticularobject,andsometimesthepowerofpurchasingothergoodswhichthepossessionofthatobjectconveys.TheonemaybecalledÔvalueinuseÕ;theother,ÔvalueinexchangeÕ.Thethingswhichhavethegreatestvalueinusehavefrequentlylittleornovalueinexchange;and,onthecontrary,those

AdamSmith135whichhavethegreatestvalueinexchangehavefrequentlylittleornovalueinuse.Nothingismoreusefulthanwater:butitwillpurchasescarceanything;scarceanythingcanbehadinexchangeforit.Adiamond,onthecontrary,hasscarceanyvalueinuse;butaverygreatquantityofothergoodsmayfrequentlybehadinexchangeforit.37AccordingtoSmithandclassicaleconomistsingeneral,valueinuseisaprerequisiteofvalueinexchange:agoodwhichhasnouse,andwhichisnotdesiredbyanybody,cannothaveapositivevalueinexchange.38ButoncethisconditionissatisÞed,thevalueinexchangeofanycommodityisdeterminedonthebasisofelementsdifferentfromvalueinuse:asweshallbetterseebelow,valueinexchangedependsontheconditionsofreproductionoftheeconomicsystem,notontheutilityofthecommod-ityunderconsideration.Moreprecisely,theclassicaleconomistsdonotconsiderthevalueinuseofacommodityasameasurablequantity.Atmost,likeSmithinthepassagequotedabove,wemayspeakofagreaterorlesservalueinuse,butinarathergenericwaythatcertainlydoesnotentitleustothinkofacompleteorderingofthepreferencesofeco-nomicagents.Inanycase,Smithhimselfexplicitlyrejectstheideathatitispossibletoexplainthevalueinexchangeoftwocommoditiesonthebasisoftheirgreaterorlesservalueinuse.Nevertheless,aconnectionbetweenthetwonotionsbasedontherepresentationofvalueinuseasamono-dimensionalmagnitude(eitherasameasurablemagnitude,asinthecardinalutilityapproach,orassimplysubjecttocomparison,asintheordinalutilityapproachandinthetheoryofrevealedpreferences)wastobethebasisforthemarginalisttheoryofvalue.39Whentheyrefertothevalueofacommodity,theclassicaleconomistscommonlymeanvalueinexchange.However,theproblemofvaluemayassumedifferentfeatures,accordingtowhether:(i)theaimistogobacktotheÞrstprincipleÐtheÔsourceÕÐofvalue;(ii)thefocusisonthepracticalissueofthestandardofvalueforinter-temporalcomparisonsorcomparisonsinvolvingdifferentcountries;(iii)thetheoreticalproblemistackledofdeterminingexchangevalues.37Smith1776,pp.44Ð5.Theparadoxofwaterandthediamondsisacommonplaceineconomicliterature.Galiani,forinstance,referstoitinordertostresstheroleofscarcity,alongsidethatofutility,inthedeterminationofexchangevalues(cf.above,4.8).38ForSmith,asforsomanyotherauthorsbeforetheÔmarginalistrevolutionÕ,utilityhasanobjectivesenseasthecapacityofagoodtosatisfysomeneed,notinthesenseofsubjectiveevaluationonthepartofoneormoreindividuals.LetusrecallthatthesetwoaspectshadalreadybeendistinguishedÐasvirtuositasandcomplacibilitasÐbyBernardineofSienaandAntoninusofFlorenceatthebeginningoftheÞfteenthcentury:cf.above,2.539TheideaofaconnectionbetweenvalueinuseandvalueinexchangewasalreadypresentbothinearlierauthorsandinSmithÕstimes.Cf.below,10.2.

136TheWealthofIdeasItisunderstandablethat,whateverspeciÞcproblemcameundercon-sideration,theeconomistsshouldinitiallyhavefocusedonlabour.Aswehavealreadyseen,theoriesoflabour-valuewerealreadycommonamongthenaturallawphilosophers;labourreappears,sidebysidewithland,amongtheelementsthatconstitutethecontentinvalueofacommodityinthetheoriesofPettyandCantillon.Aswehaveseen,however,labour-valuetheoriesassumedifferentmeaningsinthedifferentauthors.Ontheonehand,thenaturallawphilosophersconceivelabour-valuesasanindexofthesacriÞcemadebypeopleinordertoobtainthedesiredcommodity.Ontheotherhand,authorslikePettyandCantillonarenearertoatheoryofphysicalproductioncosts;labour-valueshaveforthemthemeaningofasimplematteroffact,devoidofthemetaphysicalfeaturesthatcharac-terisetheideaoflabourassacriÞce:thatis,labour-valuesarenothingbutasimpliÞedwayofexpressingtherelativedifÞcultyofproductionofthecommodityunderconsiderationinrelationtothatofothercommodities.InSmithbothfeaturesaresimultaneouslypresent;furthermore,thelabour-valuetheoryisproposedbothasatheoryofnecessarylabour(labourrequiredfortheproductionofthecommodity:labourcontained,inMarxÕsterminology)andasatheoryoflabourcommanded.LetusconsiderthislatterÞrst:Everymanisrichorpooraccordingtothedegreeinwhichhecanaffordtoenjoythenecessaries,conveniences,andamusementsofhumanlife.Butafterthedivisionoflabourhasoncethoroughlytakenplace,itisbutaverysmallpartofthesewithwhichamanÕsownlabourcansupplyhim.Thefargreaterpartofthemhemustderivefromthelabourofotherpeople,andhemustberichorpooraccordingtothequantityofthatlabourwhichhecancommand,orwhichhecanaffordtopurchase.Thevalueofanycommodity,therefore,tothepersonwhopossessesit,andwhomeansnottouseorconsumeithimself,buttoexchangeitforothercommodities,isequaltothequantityoflabourwhichitenableshimtopurchaseorcommand.Labour,therefore,istherealmeasureoftheexchangeablevalueofallcommodities.40WemaynotethatinthepassagequotedaboveSmithdoesnotintendtopointoutthefactorsthatdetermineexchangevalues,butsimplytoindicatethestandardwithwhichtomeasurethem,andamongotherthingshejustiÞesthischoicebyreferringmoregenerallytothecentralroleoflabourintheeconomy.Labourcommandedmoreoverconstitutesastandardparticularlysuitedtocomparisonbetweendifferentcountriesordifferenttimeswithinthesamecountry,41andisthusappropriatefor40Smith1776,p.47.41Eventodaytheuseofsuchastandardisfrequent:ahaircutÔcommandsÕanhouroflabourinonecountry,twohoursoflabourinanother.Thechoiceofthestandardisheremotivatednotbyalogicalnecessityinternaltothetheory,butbytheparticularroleoftheman,andespeciallytheworker,intheeconomistsÕeyes.Letusalsoobservethat

AdamSmith137aÔdynamicÕtheoryofthewealthofnationssuchasthatproposedbySmith.WemayalsonotethataccordingtoSmithlabourcommandedisanappropriatemeasureforasocietybasedonthedivisionoflabour.Infact,whenasocietyisbasedonthedivisionoflabour,exchangebetweentheproductsofdifferentsectorsisinsubstanceanexchangethatconnectstheworkersofthedifferentsectors:behindtheactofexchangethereisarelationshipreciprocallyconnectingtheworkersofthedifferentsectors,bringingthemtogetherinasingleeconomicsystem,inasinglesociety,withinwhicheachpersondependsonthelabouroftheothers.Onthebasisofworktimewecanthusexpressinquantitativetermstheeconomicrelationsthatholdtogetherthedifferentproducersinasocietybasedonthedivisionoflabour.However,theproblemofvalueremainsopen,atleastinthesenseitusuallyhasineconomicliterature,namelythatofidentifyingthefactorswhichdeterminethevalueinexchangeofthedifferentcommodities.Inasocietywheretheworkersdonotowntheirmeansofproduction(thatis,inwhichtheyaremostlydependentworkers),labourcommandedgivesthenumberofhoursoflabourrequiredtoearnawageequaltothepriceofthecommodity.Thus,forinstance,wemaysaythattwohoursoflabourÔacquireÕ(orÔcommandÕ)akilogramofmeat.Wemayobtainthequantityoflabourcommandedbyagivencommoditybydividingitspricebythewagerate,althoughthisclearlypresupposesknowledgeofbothpriceandwagerate.Asolutiontotheproblemofthedeterminationofexchangevalues,alreadysuggestedinthepassagequotedabove,isprovidedbythenec-essarylabourtheory,accordingtowhichtheexchangeratiosbetweentwocommoditiesareproportionaltothequantitiesoflabournecessarytoproducethem.Smith,however,considersthistheoryvalidonlyinanÔearlyandrudesocietyÕ:Inthatearlyandrudestateofsocietywhichprecedesboththeaccumulationofstockandtheappropriationofland,theproportionbetweenthequantitiesoflabournecessaryforacquiringdifferentobjectsseemstobetheonlycircumstancewhichcanaffordanyruleforexchangingthemforoneanother.[…]Itisnaturalthatwhatisusuallytheproduceoftwodaysortwohourslabour,shouldbeworthdoubleofwhatisusuallytheproduceofonedayÕsoronehourÕslabour.42inSmithÕstimesatheoryofindexnumberswasnotavailable,suchascouldhavesup-pliedanalternativeinstrumentofmeasurementofthechangesineconomicmagnitudes;moreover,evenindexnumbersprovideonlyapproximatesolutionstothemeasurementproblem.42Smith1776,p.65.WemuststressthatSmithdoesnotrefertoanyrealprimitivesociety,buttoanidealmodelofsocietyinwhicheconomicagents(huntersandÞshers)adopttheÔrationalÕbehaviourtypicalofamercantilesociety,whiletheprimitivecharacterisgivenbytheabstracthypothesisofabsenceofdivisionintothesocialclassesofworkers,capitalistsandlandlords.

138TheWealthofIdeasHowever,Smithsays,wecannolongerutilisenecessarylabourtoexplainexchangevalueswhenwerefertoasocietyinwhichworkersarenolongertheownersofthecapitalgoodsandlandwhichtheyuseintheirwork.Infact,necessarylabourtakesnoaccountoftherentsandproÞtsthatenterintothepriceofeverycommoditywhencapitalistsandlandlordsconstitutesocialclassesdistinctfromtheworkingclass.Insuchasociety,exchangevaluescorrespondtotheÔnaturalpricesÕ,whichSmithdeÞnesinthefollowingpassage,distinguishingthemfromÔmarketpricesÕ:ÔWhenthepriceofanycommodityisneithermorenorlessthanwhatissufÞcienttopaytherentoftheland,thewagesofthelabour,andtheproÞtsofthestockemployedinraising,preparing,andbringingittomarket,accordingtotheirnaturalrates,thecommodityisthensoldforwhatmaybecalleditsnaturalprice.Õ43Inotherwords,themarketpriceisthepriceweseelookingattheactualactsofexchange;thenaturalprice,instead,isthetheoreticalpricethatexpressestheconditionsofreproductionoftheproductiveprocess.Inasocietydividedintosocialclasses,theexchangevaluesorÔnaturalpricesÕmustcoverproductioncostsandguarantee,inaddition,areturnequaltothatobtainableinothersectorsforthecapitalinvestedintheproductiveactivity.ObviouslyreferencetocostsofproductionisinitselfinsufÞcienttobuildatheoryofprices,sinceitwouldimplycircularlogicalreasoning:ifweneedsteelinordertoproducecoal,andcoalinordertoproducesteel,wecannotdeterminethepriceofcoalifwedonotalreadyknowit.Forthisreasonsomeeconomists,beforeandafterSmith,hadrecoursetoaÞrstprinciplesuchasnecessarylabour(orlabour-and-land,asinthecaseofPettyandCantillon),whichallowedthemtoexplainpriceswithouthavingtobeexplainedinturn.However,aswehaveseen,Smithdidnotagree,sinceheconsiderednecessarylabourasanexplanatoryprincipleacceptableonlyforanÔearlyandrudesocietyÕ.ExchangevaluesremainanopenissueinSmithÕsanalysis.Anattemptatsolvingitisseenbysomeinterpreters(forinstancebyDobb1973,pp.44ff.)inwhathasbeencalledtheÔadding-up-of-components-theoryÕ:namely,theideathatÔthepriceofeverycommodityÞnallyresolvesitselfintosomeoneorother,orallofthosethreepartsÕ,Ôrent,labour,andproÞtÕ.44Inotherwords,thepriceofacommoditycorrespondstowages,proÞtsandrentsplusthecostsborneforthemeansofproductionotherthanlabourandland;suchcostsareinturndecomposedintowages,43Ibid.,p.72.44Ibid.,p.68.TheinclusionofproÞtinthepricemaybeconsideredastepforwardfromPetty,CantillonandQuesnay:cf.OÕDonnell1990,p.54.

AdamSmith139proÞts,rentsandcostsforthemeansofproduction;wethusproceedbackwardsuntilthecostsforthemeansofproductionhavedisappearedorbecomeinsigniÞcant.ThevalueofacommoditythusdependsonthetechnologyandontheÔnaturalÕratesforwage,rentandproÞt.Inthistheory,however,thereseemstobeimplicitanidea,whichwastocomeundercriticismfromRicardo,thatanincreaseinthewageratecausesanincreaseinthepricewhileleavingunchangedtherateofproÞts.AsamatteroffactsuchcriticismonlyholdsifweassumeÐasSmithdidnot,atleastnotexplicitlyÐthatthethreedistributivevariablesareinde-pendenttheonefromtheother.Theadding-up-of-components-theory,however,doesnotconstituteanadequatesolutiontotheproblemofexchangevalues,sincetheresidualofmeansofproductioncannotingen-eralbereducedtozero.45Thetheorythusrepresentsratherre-proposalatthelevelofanindividualcommodityofanationalaccountingprinciple:thevalueofthenationalproductcorrespondstothevalueofnationalincome,namelytothesumoftheincomesofthedifferentsocialclasses.Infact,itispreciselythispointwhichisstressedbySmith(1776,p.69).Wecansay,inconclusion,thatSmithdoesnotprovideafullyadequatetheoryofexchangevalues;whathedoesprovide,withthelabourcom-mandedtheory,ismoresimplyanindicationofhowtomeasurethepricesofcommoditiesthatappearstobeparticularlyusefulforaneconomybasedonthedivisionoflabourandinwhichcontinuoustechnologicalevolutiontakesplace.46ItisonlywithRicardothatthetheoryofvalue,initsmodernmeaningoftheoryofrelativeprices,comestocentrestage.6.NaturalpricesandmarketpricesAswehavealreadyseen,thedivisionoflabourposesaproblemofcoor-dinationamongthedifferenteconomicagents.EachÞrmproducesacommodityorgroupofcommoditiesand,inordertocontinueproduc-ing,itneedstodisposeofpartatleastofwhatithasproducedinexchangeforthemeansofproductionrequiredforthecontinuanceofitsactivity.Similarly,theworkersobtainawagethattheyneedtoconvertintotheirmeansofsubsistence.45Strictlyspeaking,ÔcompletereductionÕisonlypossiblewhennocommodityisdirectlyorindirectlyrequiredfortheproductionofitself:cf.Sraffa1960,pp.34ff.46Followingsimilarlines,andshowinghowrelevanttheproblemofmeasurementinspa-tialandintertemporalcomparisonswastoSmithiananalysis,wastheproposaltotakecornasstandardofmeasure:cf.Smith1776,pp.55Ð6.SylosLabini1976,illustratingtheproposal,remarksthatinSmithÕsopiniontheproductionofcornischaracterisedbyrelativecostsmoreorlessstableovertime,unlike,ontheonehand,otheragricul-turalproducts,characterisedbyincreasingcosts,and,ontheotherhand,manufactures,characterisedbydecreasingcosts.

140TheWealthofIdeasAccordingtoSmith,themarketeconomyasawholefunctionsinafairlysatisfactoryway:foreachcommodity,theßowofproductioncomingoutoftheÞrmsproducingitmoreorlesscorrespondstotheßowofthedemandcomingundernormalconditionsfromthebuyers.Themarketmechanismsguidetheeconomyinsuchawayastoensurethematerialwelfarethatisanindispensablepreconditionforacivilisedlife.Letusconsidertheissueinsomemoredetail.Theexchangesbetweenthedifferentsectors,necessaryforthecontinuousfunctioningoftheeconomy,maybecoordinatedbyacentralauthoritywithaplanfortherepartitionoftheglobalproductamongthedifferentsectorsandthedifferentproductiveunits:suchisthecaseinacommandorplannedeconomy.Inamarketeconomy,onthecontrary,exchangestakeplacefreelyandthedecisionsonquantitiestobeproduced,soldandacquiredandonexchangesandpricesaredecentralised.Itisthemarketthatlinksuptheproductiveunitsoperatinginthedifferentsectorsoftheeconomy,intwodistinctways.Firstofall,throughmarketexchangeseachproduc-tiveunitobtainsfromtheotherswhatitneedstocontinueitsactivityinexchangeforitsownproduct.Second,themarketlinksuptheproduc-tiveunitsthroughthecompetitiontheyconductamongthemselves;itisfromherethatthemechanismderivesensuringtherequiredcoordina-tionamongthemyriadofdecentraliseddecisionalcentres,producersandbuyers.Wemaydistinguishtwokindsofcompetition,bothtakenintocon-siderationbySmith.TheÞrstiscompetitionwithinthemarketforeachcommodity.Eachbuyerseeksamongthemanysellerspresentinthemar-kettheonethatsellsthedesiredcommodityatthelowestpossibleprice;thesellerwhoaskstoohighapricerisksbeingleftwithunsoldmer-chandise.Similarly,eachsellerseeksamongthemanybuyerspresentinthemarkettheonethatisreadytopaythehighestpriceforthecom-modityonsale;thebuyersofferingtoolowapriceriskbeingleftempty-handed.Underidealconditions,whencompetitionamongthesellersandamongthebuyersdoesnotmeetwithobstacles,thepriceofeachcom-modityisoneandthesameforallthebuyersandallthesellers.Thisistheso-calledÔlawofonepriceÕ,emergingasanecessaryoutcomeofcompetition.Thereisthenasecondkindofcompetition,whichSmithcallstheÔcompetitionofcapitalsÕ:namely,thecompetitionamongcapitalistsinsearchoftheemploymentthatoffersthehighestreturnsontheircapital.Whencapitalistsarefreetomovetheircapitalsfromonesectortoanotherinsearchofthemostfruitfulemployment(inSmithÕs1776,p.73,terms,ÔwherethereisperfectlibertyÕ),thereisfreecompetition:itscharacteristicispreciselytheabsenceofobstaclestothefreemovementofcapital(or,

AdamSmith141asitisalsoput,theabsenceofbarrierstoentryintothedifferentsectorsofeconomicactivity).47Whenfreecompetitionrules,itisnotpossibleforasectortooffercapitalistsareturnhigherthanthatobtainableinothersectorsforalongstretchoftime,sinceotherwisenewcapitalswouldßowintoit,withtheconsequencethatproductionwouldincrease,themarketpricewoulddiminish,andwithitalsoproÞtsandtherateofreturnwoulddecrease.Inthesameway,itisnotpossibleforasectortooffercapitalistsareturnlowerthanthatobtainableinothersectors,sinceotherwisetherewouldbeanoutßowofcapitalsfromthatsector,causingafallinproduction,withanensuingriseinthemarketpriceandhenceinproÞtsandinthesectorÕsrateofreturn.Therefore,underÔperfectlibertyÕ,namelygeneralisedfreecompetition,thereturnoncapitalÐtherateofproÞtsÐtendstobeequalinallsectors.InthiswaytheÔcompetitionofcapitalsÕlinksupinasinglecapitalisticmarketthedifferentsectorsoftheeconomy.Hereweseethecentralroleofthiskindofcompetition,whichdistinguishesthecapitalisticsystemfromanon-capitalisticmarketeconomy.48Asaresultoftheassumptionofcompetition,wemayidentifythecon-ditionswhichdeÞnethetheoretical(ÔnaturalÕ)price.Itistheexchangevaluewhichcorrespondstoreproductionovertimeofaneconomybasedonthedivisionoflabour;therefore,thepricemustbesuchastoallowtherecoveryofproductioncostsandthepossibilityofearningaÔnaturalÕproÞt.InSmithÕswords:ÔwhenthepriceofanycommodityisneithermorenorlessthanwhatissufÞcienttopaytherentoftheland,thewagesofthelabour,andtheproÞtsofthestockemployedinraising,preparing,andbringingittomarket,accordingtotheirnaturalrates,thecommodityisthensoldforwhatmaybecalleditsnaturalpriceÕ(Smith1776,p.72).Thistheoreticalvariable,deÞnedonthebasisofanalyticalconditions,hasanempiricalcounterpartintheso-calledmarketprice:ÔTheactualpriceatwhichanycommodityiscommonlysoldiscalleditsmarketprice.Itmayeitherbeabove,orbelow,orexactlythesamewithitsnaturalprice.ÕAndSmithgoeson:ÔThemarketpriceofeveryparticularcommodityisregulatedbytheproportionbetweenthequantitywhichisactually47Forthecomparisonbetweenthisnotionofcompetitionandtheneoclassicalone,cf.SylosLabini1976.48Thiselementislostsightofinthemarginalisttheories,whichconsiderthecapitalmarketamarketlikeallothers,andthetendencytoauniformrateofproÞtsasaspeciÞcinstanceofthelawofoneprice.Inthiswaythemarginalisttheoriesconfusethenotionofcompetitionwithineachindividualmarket,basedonthenumberofbuyersandsellers,withthenotionofthefreecompetitionofcapitals,basedonthefreedomofentryintothevarioussectorsoftheeconomy.

142TheWealthofIdeasbroughttomarket,andthedemandofthosewhoarewillingtopaythenaturalpriceofthecommodityÕ,namelyeffectualdemand.49Thecounterpositionbetweennaturalandmarketpricemaybecon-siderednotonlyasthedistinctionbetweenatheoreticalvariableanditsempiricalcorrelate,butalsoasasubtlewayinwhichSmithcounterposedhisowntheoryofexchangevalues,basedontheanalyticalconditionsdeÞningthenaturalprice,andthesubjectivetheoriesofvalue,vaguelyreferringtoscarcityandutility,tosupplyanddemand,prevailingamongScholasticwritersorinauthorssuchasGalianiandTurgot.Focusingontheproblemofreproductionovertimeofasocietybasedonthedivisionoflabour,Smith,whileapparentlybringingintohisexpositiontheelementsonwhichthetraditionalsubjectivetheoriesofvaluerelied,conÞnedsuchelementstotheroleof(irregular,non-systematic)disturbancesandbytheverydeÞnitionofnaturalpriceruledthemoutofhisowntheoryofexchangevalues.AttemptsatinterpretingSmithsoastoestablishaconnectionbetweentheobjectiveelementsonwhichthenotionofnaturalpriceisbased,andthesubjectiveelementswhicharebroughtintothepicturewithrespecttothemarketprice,focusattentionontheadjustmentmecha-nismbetweenmarketandnaturalprice.Thismechanismreliesonthetwokindsofcompetitionillustratedabove:whenproductionofacom-modityisinexcessoftheÔeffectualÕdemand(i.e.thequantitythatbuyersarepreparedtoabsorbatthenaturalprice),thencompetitionbetweensellerswillpushthemarketpricebelowthenaturalprice:theproducerswillbeunabletoobtaintheÔnaturalÕproÞts,andanoutßowofcapitalsfromthatsectorwilltakeplace;productionwilldecrease,andtheexcesssupplywillthusbeabsorbed.ItwasinconnectionwiththisadjustmentmechanismthatSmithusedthefamousÔgravitationÕanalogy:Thenaturalprice,therefore,is,asitwere,thecentralprice,towhichthepricesofallcommoditiesarecontinuallygravitating.[…]Butthoughthemarketpriceofeveryparticularcommodityisinthismannercontinuallygravitating,ifonemaysayso,towardsthenaturalprice,yetsometimesparticularaccidents,sometimesnaturalcauses,andsometimesparticularregulationsofpolice,may,inmanycommodities,keepupthemarketprice,foralongtimetogether,agooddealabovethenaturalprice.5049Ibid.,p.73.Smithalreadydiscussednaturalandmarketprices,andtheirrelationship,intheLecturesonjurisprudence(Smith1978,pp.356Ð66:vi.67Ð97);butthesepagescanonlybeconsideredasaroughÞrstdraftofthematuretreatmentoftheissueinbookI,chapter7,ofThewealthofnations.50Smith1776,pp.75and77.Againinchapter7ofbookIofThewealthofnations,SmithstatesthatthemarketpricemayprovehigherthanthenaturalpriceÔformanyyears

AdamSmith143Manyauthors,especiallyinrecentyears,haveinterpretedthemetaphorofgravitationasifitimpliedatheoryofmarketpricebasedonsupplyanddemand.SpeciÞcally,marketpricescametobeinterpretedasshortrun(Marshallian,market-clearing)equilibriumprices.51ThisideaisinfacttotallyalientoSmithÕsthinking,bothbecausethemarketprice,aswehaveseen,isnotatheoreticalvariableforhim,butanempiricalcorrelate,andbecausethereferencetogravitationitself,whichseemstoimplyaprecisetheoreticalstructure,thatofNewtonÕstheory(inwhichthebehaviourofthebodythatgravitatesaroundanotheroneisdescribedbyprecisemathematicallaws),isinfactquitevague.52ThisistestiÞedamongotherthingsbythefactthatineachofthetwosentencesinwhichthetermÔgravitationÕappears,itisaccompaniedbyexpressions(ÔasitwereÕ,ÔifonemaysaysoÕ)whichpointtoitsuseasanimprecisemetaphor.Theinterpretationofthemarketpriceasatheoreticalvariabledeter-minedbytheconfrontationbetweendemandandsupplyaccordingtogeneralandpreciserulesmakesitsappearanceonlytowardstheendofthegoldenperiodofclassicalpoliticaleconomy,withJohnStuartMillandThomasDeQuincey,tobedevelopedlaterbyAlfredMarshallinthewaythathasbecomefamiliarthroughtextbooks.InSmithÕstimes,thetermsÔdemandÕandÔsupplyÕdidnotindicatecurves,ormoregenerallystableandwell-identiÞedfunctionalrelationsconnectingpriceandquantityofacommodity,53butasetofelements,possiblyfortuitousorcontingent,thatcannotbereducedsolelytotechnological(economiesanddiseconomiesofscale)orpsychologicalfactors(consumersÕpreferences).Rather,ref-erencetotheroleofdemandandsupplyinthedeterminationofpricetypicallyreßects,beforeSmith,asituationprecedingthedevelopmentofregularmarkets,withprices,asinvillagefairsorinsea-portcities,subjectedtotheinßuenceofnon-systematicevents.togetherÕ,ÔforcenturiesÕ,ÔforeverÕ,whenevertheoperationofcompetitionisimpededbycustoms,regulations,lawsandnaturalmonopolies.TheÔnaturalpriceÕthusappearsnotonlyasatheoreticalvariablewhichexpressestheconditionsofreproductionoftheeconomicsystem,butalsoasanormcorrespondingtothefulloperationofcompetition.51Cf.forinstanceBlaug1962,p.39.52AccordingtoPhyllisDeane1989,pp.61and68,thereferencetoNewtoncorrespondstotherepresentationofthemarketeconomyasaself-regulatingsystem.ÔTheessenceoftheNewtonianworld-viewwasthatitstartedfromtwoaxioms,twoarticlesoffaithabouttherealworldinitssocialaswellasitsphysicalaspects:1)thatitwascharacterizedbyuniformitiesandconstancieswhichweresufÞcientlyregulartohavetheforceoflawsofnature;and2)thatitwasdesignedandguidedbyanintelligentcreator.[…]therewasasystematic,god-givenharmonyintheoperationsoftheuniverse.ÕHowever,suchanoptimisticandsimplisticviewofthesocialworldappearsalientothetraditionoftheScottishEnlightenmentandclosertotheFrenchCartesiantradition.53Demandcurvesappearineconomicliteraturemorethanhalfacenturylater,withCournotandRau:cf.below,10.2,11.1.

144TheWealthofIdeasThemoderninterpretationsofthemarketpriceinSmith,asdeter-minedbydemandandsupply,arecommonlybasedonthesecondpartofthedeÞnitionofthemarketpricequotedabove:itÔisregulatedbytheproportionbetweenthequantitywhichisactuallybroughttomarket,andthedemandÕ.However,inthispassageSmithspeaksofthemarketpriceasÔregulatedÕ,notÔdeterminedÕ,bytheproportionbetweendemandandsupply;norcantheexpressionÔproportionbetweenthequantity[…]broughttomarket,andthedemandÕbetakenaspointingtoaprecisemathematicalrelationship.ThispassageconstitutesneitheradeÞnitionofthemarketprice,noratheorytoexplainitsdetermination.Smithdoesnotthengoontoillustratelawsconcerningthewaydemandandsupplyreacttoamarketpricedifferentfromthenaturalprice,norlawsonhowthemarketpricereactstodisequilibriabetweendemandandsupplyandtoßuctuationsinthesevariables.Inparticular,thereisnohintoftheidea,commoninmoderntheorybutnotatthetimeoftheclassicaleconomists,ofamarketclearingmechanismdeterminingthemarketprice.54WhatSmithsuggestsareonlyafewgeneralrules.First,themarketpricewillbeabovethenaturalpricewhenforanyreasonsupplyproveslowerthantheÔeffectualÕdemand,andbelowitwhentheoppositeholdstrue.Second,deviationofthemarketpricefromthenaturalpricewillprovokereactionsonthepartofbuyersandproducersalike;withfreecompetitionsuchreactionstendtofavourresolutionofthedisequilibriumsituation.FromtheexamplesthatSmithgives,itisclearthattheconcreteactionofthesegeneralrulesdependsoncircumstances,anditisnotthereforepossibletoformulateprecisereactionfunctionsforthemarketpricestothedisequilibriabetweendemandandsupply,andofthesetwolattervariablestotheprices.55Thus,forSmithgravitationisnothingbutametaphorusedtoevoketheroleofcompetitionasaforcemakingforthestabilisationofthemarket.ThisisalsotheroleoftheÔinvisiblehandÕmetaphor,whichmoreoverSmithusesonlyonceinThewealthofnations,andinaspeciÞccontext54Aswehavealreadyseen,marketclearingÐnamelytheideathatthemarkethasaposi-tionofequilibriuminwhichdemandandsupplyareexactlyequalÐischaracteristicofÞnancialmarkets,notofthemarketsforindustrialproducts;moderntheoryhashadtoresorttoartiÞcialconstructionssuchasÔreservepricesÕinordertoextendsuchanotiontoagriculturalandmanufacturedproducts.Letusalsostressthatthenotionofmarketclearingshouldnotbeconfusedwiththemuchvaguerideaofmarketadjustmentmechanisms.55Letusaddthat,asshownbyEgidi1975andSteedman1984,theserulesshouldbereformulated,referringthemtothesectoralrateofproÞtcomparedtothegeneralrate;furthermore,Steedmanshowsthatinthecontextofmulti-sectoralanalysisthesignofthedeviationofthemarketpricefromthenaturalpriceisnotnecessarilythesameasthatofthedeviationofthesectoralproÞtratefromthegeneralrate,incontrastwithSmithÕssupposition.

AdamSmith145(thecapitalistsÕpreferenceforinvestinginthemostproÞtablesectorsofthenationalindustryratherthaninforeigncountries,althoughmotivatedbypersonalinterest,hasapositiveeffectforsocietysinceittendstoincreasethenationalincome,asÔledbyaninvisiblehandÕ).56Thisisalongwayfromanytheorybasedonmarketclearingmechanisms,supplyanddemandcurvesandthelike.Thedifferencemayseemtorepresentprogressattheleveloftheformalcompletenessofanalysis,butitimpliesradicalchangesintheconceptsutilisedbytheclassicaleconomistsÐsoradicalastomodifythetheoreticalcontextinadecidedlyrestrictivedirection.Wethushaveanetlossasfarastheconceptualrepresentationoftheeconomicsystemisconcerned.57What,however,iscertainisthatthenotionofthemarketpriceasatheoreticalvariableistotallyalientoSmith.Furthermore,theideaoftheÔinvisiblehandofthemarketÕisadistortionofthehistoryofthought;thefactthatithasbeenÐandstillisÐsofrequentlyrepeated,especiallyonthepartofgeneraleconomicequilibriumtheorists,onlyshowstheirignoranceofthetextsandtheirhistoricalsuperÞciality.7.Theoriginofthedivisionoflabour:SmithandPownallTheissueoftheoriginofthedivisionoflabourisconnectedtovariousissuesofsocialphilosophy,andconstitutestheirunifyingground.AsweshallnowseebyexaminingSmithÕsviewsandthecriticismstheyreceived56Cf.Smith1776,p.456.ThetermÔinvisiblehandÕisusedonlytwiceelsewherebySmith,indifferentworksandcontexts(theHistoryofastronomy,III.2:Smith,1795,p.49;andThetheoryofmoralsentiments,IV.1.10:Smith1759,p.184)and,moreover,atleastontheÞrstoftheseoccasions,insomewhatironicaltones.Onthesubjectcf.Rothschild(1994;2001,pp.116Ð56)andGilibert(1998).Asthislattercommentatornotes,nei-therSmithÕscontemporariesnorthestudentsofhisthoughtuptothemiddleofthetwentiethcenturygaveanyattentiontothethemeoftheÔinvisiblehandÕ;itbegantobepropoundedonlyafterArrowandDebreuhaddevelopedtheaxiomaticgeneraleco-nomicequilibriumtheoryandthetwoÔfundamentaltheoremsÕofwelfareeconomicsaccordingtowhichperfectcompetitionensuresanoptimalequilibriumandanyopti-malequilibriummaybeinterpretedastheoutcomeofaperfectlycompetitivemarket(cf.below,12.4).Inthisway,byattributingtoSmiththeideaofthemarketasaninvisiblehandthatleadstooptimalequilibria,moderntheoryhassomeclaimtobeseenascrowningtheSmithianculturaldesign.Inreality,however,thetwoviewsarequitedifferent.57Consider,ontheonehand,thecomplexitiesofmotivationsofhumanactionwithintheSmithiananalyticalframeworkincomparisontothemono-dimensionaleconomicagentofmoderntheory,whoonlyaimsatmaximisingutilityand,ontheotherhand,thedisappearanceofclassicalthemessuchasdistributiveconßictsandemploymentproblemsifitisheldthatthecompetitivemarketensuresoptimalequilibriaandthedistributivevariables(wage,rent,rateofproÞts)areconsidered,undercompetition,asequilibriumpricesoftheÔfactorsofproductionÕ.

146TheWealthofIdeasfromPownall,58theoriginofthedivisionoflabourmaybetracedtothehumanpropensityforsociallife,ortoinnatedifferencesinabilities.Thetwotheseshaveprofoundlydifferentimplicationsforissuessuchasthesocialcontracttheory,theviewofsocialstratiÞcationasafactofnatureandindeedthepositiveornegativeevaluationoflabouritself.Beforeconsideringtheseaspects,however,itmaybeusefultoillustrateÞrstSmithÕsposition,andthenPownallÕscriticisms.Smithtacklestheissueoftheoriginofthedivisionoflabourinchapter2ofbookIofThewealthofnations:Thisdivisionoflabour,fromwhichsomanyadvantagesarederived,isnotorig-inallytheeffectofanyhumanwisdom,whichforeseesandintendsthatgeneralopulencetowhichitgivesoccasion.Itisthenecessary,thoughveryslowandgradualconsequenceofacertainpropensityinhumannaturewhichhasinviewnosuchextensiveutility;thepropensitytotruck,barter,andexchangeonethingforanother.Whetherthispropensitybeoneofthoseoriginalprinciplesinhumannature,ofwhichnofurtheraccountcanbegiven;orwhether,asseemsmoreprobable,itbethenecessaryconsequenceofthefacultiesofreasonandspeech,itbelongsnottoourpresentsubjecttoenquire.Itiscommontoallmen,andtobefoundinnootherraceofanimals,whichseemtoknowneitherthisnoranyotherspeciesofcontracts.59SmithÕsthesisis,then,thatdivisionoflabouroriginatesinthetendencyofmentoenterintorelationsofreciprocalexchange,orinotherwordsÐwemightsayÐintohumansociability.TothischaracteristicSmithalsoattributestheoriginoflanguage;moreover,itdistinguishesmenfromanimals.InSmithÕsownwords(1776,p.26):Nobodyeversawadogmakeafairanddeliberateexchangeofoneboneforanotherwithanotherdog[…].Whenananimalwantstoobtainsomethingeitherofamanorofanotheranimal,ithasnoothermeansofpersuasionbuttogainthefavourofthosewhoseserviceitrequires.[…]Mansometimesusesthesameartswithhisbrethren[…].Hehasnottime,however,todothisuponeveryoccasion.Incivilizedsocietyhestandsatalltimesinneedofthecooperationandassistanceofgreatmultitudes,whilehiswholelifeisscarcesufÞcienttogainthefriendshipofafewpersons.Inalmosteveryotherraceofanimalseachindividual,whenitisgrownuptomaturity,isintirelyindependent,andinitsnaturalstatehasoccasionfortheassistanceofnootherlivingcreature.Butmanhasalmost58ThomasPownall(1722Ð1805)hadbeenin1757Ð9governorofMassachusetts;from1767to1780hewasaMemberofParliament.59Smith1776,p.25.ThisisathesisthatconstitutesaÞxedpointinSmithÕsthought;hehadalreadystatedit,invirtuallythesameterms,intheuniversitylecturesandintheÞrstdraftofThewealthofnations(Smith1978,p.347:LJ-A,vi.44;pp.492Ð3:LJ-B,219;pp.570Ð1:Earlydraft,20Ð1).

AdamSmith147constantoccasionforthehelpofhisbrethren,anditisinvainforhimtoexpectitfromtheirbenevolenceonly.Hewillbemorelikelytoprevailifhecaninteresttheirself-loveinhisfavour,andshewthemthatitisfortheirownadvantagetodoforhimwhatherequiresofthem.ThislongquotationisusefulbecauseitbringstotheforeanimportantlogicalstepthatSmithtakesperhapstoorapidly,fromthepropensitytobarterasthebasisforthedivisionoflabourtotheroleofself-interestforthesoundfunctioningofasystembasedonthedivisionoflabour.Thisnexusimpliesthatthepropensitytobartermaybeseenassociabilityonlyifwedonotconfusethelatterconceptwiththeideaofaltruism.Ontheotherhand,aswesawinourillustrationofThetheoryofmoralsentiments,Smithconsidersthemarketeconomyasbasedonself-interestratherthanmereselÞshness.ItisthisspeciÞcationofthetwoterms,propensitytobarterandself-interest,thatallowsfortheirimmediateconnection.Letusnowreturntothepropensitytobarter,seenasthedesiretomakecontactwithourfellowcreatures,without,however,havingtobearcostsforthisbut,rather,lookingforadvantages.AtÞrstsightthisideamightseemnottodiffergreatlyfromPownallÕsthesis,accordingtowhichÐasweshallnowseeÐthedivisionoflabouroriginatesinthedesiretoexploittheinnatedifferencesoflabourabilitiesofthedifferentindividuals.Infact,Pownall(1776,pp.338Ð9)criticisedSmithnotbecauseofmistakesinhisstatements,butbecausehehadstoppedhisanalysistoosoon,withoutreachingtheÞrstprinciples:IthinkyouhavestoppedshortinyouranalysisbeforeyouhavearrivedattheÞrstnaturalcauseandprincipleofthedivisionoflabour.[…]Beforeamancanhavethepropensitytobarter,hemusthaveacquiredsomewhat,whichhedoesnotwanthimself,andmustfeel,thatthereissomethingwhichhedoeswant,thatanotherpersonhasinhiswayacquired[…].Naturehassoformedus,asthatthelabourofeachmusttakeonespecialdirection,inpreferenceto,andtotheexclusionofsomeotherequallynecessarylineoflabour[…].ManÕswantsanddesiresrequiretobesuppliedthroughmanychannels;hislabourwillmorethansupplyhiminsomeoneormore;butthroughthelimitationandthedeÞneddirectionofhiscapacitieshecannotactuatethemall.Thislimitation,however,ofhiscapacities,andtheextentofhiswants,necessarilycreatestoeachmananaccumulationofsomearticlesofsupply,andadefectofothers,andistheoriginalprincipleofhisnature,whichcreates,byareciprocationofwants,thenecessityofanintercommunionofmutualsupplies;thisistheformingcause,notonlyofthedivisionoflabour,buttheefÞcientcauseofthatcommunity,whichisthebasisandoriginofcivilgovernment.PownallÕspositionhastwopresuppositionsthatappearextraneoustoSmithÕsviewofthefunctioningofthesocietyandtheeconomicsystem.TheÞrstpresuppositionisthateachindividualknowswhathewantsandwhattheotherscanofferbeforecomingintocontactwiththem,andin

148TheWealthofIdeasparticularbeforeenteringintorelationsofexchange.Inmodernterms,wemightsaythatPownallpresupposestheknowledgeonthepartofeacheconomicagentofhisownabilitiesandpreferencesandofthegoodsthatothereconomicagentsmakeavailable,orbetteroftheirabilitiesandpreferences;suchknowledgeshouldbeinnate,inordertoconstitutetheoriginofthedivisionoflabourandofexchanges.Thesecondpresuppo-sitionofPownallÕsthesisisthatthereareoriginaldifferencesinabilitiesamongthedifferentindividuals:suchdifferences,apartfromconstitutingtheoriginalspringthatdeterminesthedivisionoflabour,alsoconstituteaÔnaturalÕpresuppositionofsocietyÕseconomicstratiÞcation.60AsfarastheÞrstaspectisconcerned,theviewoftheindividualasalogicalpriuswithrespecttosocietyisopposedtotheSmithianidea,typicalofthewholetraditionoftheScottishEnlightenment,oftheindi-vidualasanintrinsicallysocialbeing.Asforthesecondaspect,namelytheexistenceofanaturalbasisforeconomicandsocialdifferentiations,itisexplicitlyrejectedbySmith.Infact,heafÞrmsthatheconsidersthedifferentworkingabilitiesasmostlyacquiredasaconsequenceofthedivisionoflabour:Thedifferenceofnaturaltalentsindifferentmenis,inreality,muchlessthanweareawareof;andtheverydifferentgeniuswhichappearstodistinguishmenofdifferentprofessions,whengrownuptomaturity,isnotuponmanyoccasionssomuchthecause,astheeffectofthedivisionoflabour.Thedifferencebetweenthemostdissimilarcharacters,betweenaphilosopherandacommonstreetporter,forexample,seemstoarisenotsomuchfromnature,asfromhabit,custom,andeducation.6160Thedoctrineoftheintrinsicdifferencesofabilitiesisalreadypresent(anddominant)intheGreektraditionandthenintheScholasticperiod:cf.above,2.2and2.4.Aroundthemiddleoftheeighteenthcentury,thisdoctrineistakenup,intheframeworkofasubjectivetheoryofvalue,byGaliani(1751,p.49):ÔByprovidencemenareborntovariouscrafts,butinunequalproportionsofrarity,correspondingwithwonderoussagacitytohumanneeds.ÕThispassagealsoindicatesacrucialdifÞcultyofthetraditionalview:ifweadmitthatthedistributionofabilitiesamongtheindividualsisinnate,onlytheÔinvisiblehandÕofProvidencecanguaranteethattheavailabilityofabilitiescorrespondstotherequirementsofsociety,sinceanysocialmechanismofadjustmentisruledoutbydeÞnition.Galiani(ibid.,p.50)isalsoawareoftheimplicationsofthedoctrineoftheinnatedifferencesofabilitiesforincomedistribution,conceivedasÔjustÕinsofarasitmirrorstheinnateabilitiesoftheindividual:ÔItwillbeseenthatwealthdoesnotgotoanypersonotherwisethaninpaymentforthejustvalueofhisworks.Õ61Smith1776,pp.28Ð9.OnanalogouslinesweÞndtheSmithianviewoftheentrepreneurasanormalperson,withatmostthecharacteristicsofagoodpaterfamilias,quitediffer-entfromtheheroicviewoftheentrepreneurthatwouldsubsequentlybeproposedbyMarshall,andespeciallybySchumpeter.ActuallySmith,withcharacteristicprudence,doesnotdenytheexistenceoforiginalindividualdifferencesor,aswewouldsaytoday,differencesduetogeneticcharacteristics:whathemaintainsisthecrucialimportanceoftheelementsofdifferentiationacquiredthroughthevicissitudesoflife,andinpar-ticularthroughworkingexperience.Thusworkacquiresanadditionaldimension,asaformativefactor,beitpositiveornegative.

AdamSmith149ThecontrastbetweenthedemocraticcontentoftheSmithianthesisandtheconservativeelementinPownallÕsthesisthusappearsevident:acontrastworthstressing,bothbecauseitmayhelpusinunderstandingtheinnovativeandprogressivenatureofSmithÕssocialphilosophy,andbecausethecontrastbetweenthetwoviewsrepeatedlymanifestsitselfinthecourseoftime.628.Economicandpoliticalliberalism:SmithÕsfortuneTosaythatSmithwasthefounderofeconomicsciencewouldbewrong:apartfromtheproblemsintrinsictothenotionofanindividualfounderofpoliticaleconomy,thereisthefactthatbeforehimauthorslikePetty,Cantillon,QuesnayandmanyothershadtackledanalysisofspeciÞceco-nomicissuesor,moregenerally,ofhowasocialsystemfunctionsintermsofitsmaterialaspects.ItwasindeedonthemanywritingsalreadyexistingonsuchissuesthatSmithlargelyreliedinhiswork,drawingontheminmanyrespects.Perhaps,incomparisonwithpreviousauthors,SmithÕsdistinctivecharacteristicisthatofbeinganacademician,dealingwiththeobjectofhisanalysisunderthestimulusofpoliticalpassion,too,butsufÞcientlydetachedfromimmediateproblemsandinterestsand,aboveall,dedicatinggreatcareandanenormousamountoftimetotheprecisedeÞnitionandaccuratepresentationofhisideas,withagreatcapacitytomediatebetweendifferentviewsandtheseswhilecapturingthepositiveelementsineachofthem.ThisSmithiansubtlety,therefusalofclear-cuttheseswithoutquali-ÞcationsandspeciÞcations,rendersinterpretationofhisworksdifÞcultandinterestingatthesametime.Inthenextfewpageswewilldiscusssomeexamplesoftheinterpretativeissuesthathaveattractedparticularinterest.TheÞrstoftheseexamplesconcernsSmithÕsliberalism.Weshouldstress,inthisrespect,thatSmithÕswasaprogressiveattitudetothemajorpoliticalthemesofhistime,suchastheconßictovertheindependenceoftheAmericancolonies.Inpre-andpost-revolutionaryFranceThewealth62ThemodernmarginalisttheoryofwagedifferentialsmaybetracedbacktoPownallÕsposition(innatedifferencesamongthedifferentkindsofpersonalabilities)ortodifferentcapacitiesofaccumulationandinvestmentinÔpersonalcapitalÕ,whileSmithpointsrathertotheimportanceofcircumstancesthatdeterminetheworkroleofeachindividual,largelyconnectedtothepre-existingsocialplacement,sothatsocialstratiÞcationemergesasamechanismendowedwithself-reproducingcapacity.PolicyinterventionsintheÞeldofeducation,suchasthosesuggestedbySmithinbookVofThewealthofnations(cf.below,8),thushavenotonlythefunctionofaremedytotheperverseeffectsthatthedivisionoflabourhasonhumannature,butalsothefunctionofademocraticmechanismofßuidiÞcationofsocialstratiÞcation.

150TheWealthofIdeasofnationswasviewedwithfavourbytheprogressiveelementsofthetime,includingCondorcet(1743Ð94),whopublishedasummaryofitin1791(whileafterhisdeathhiswidow,MadamedeGrouchy,preparedatrans-lationofThetheoryofmoralsentiments).InEngland,SmithbecameareferencepointintheyearsimmediatelyfollowinghisdeathforradicalthinkerssuchasThomasPaine(1737Ð1809)andMaryWollstonecraft(1759Ð97).TogetherwithHume,Smithwasseenasadangeroussubver-sivebytheconservativeintellectualsofthetime.Thepointisthatallthesethinkers,favourableoraversetoSmithÕsviews,sawnodifferenceinhisthoughtbetweenliberalisminthepoliticalÞeldandeconomicliberalism,betweenthedefenceofpoliticalfreedomandthedefenceoffreetrade.63Thesituationwentthroughfar-reachingchangeintheyearsimmedi-atelyfollowing.EnglishpublicopinionshowedasharpnegativereactiontotheexcessesoftheFrenchRevolution(theTerror),whichinitiallyimpliedagrowingdifÞdencetowardsSmithianliberalism.Soon,how-ever,thanksespeciallytoSmithÕsÞrstbiographer,DugaldStewart(1753Ð1828),reinterpretationofSmithianthoughtbeganwiththeaimofmakingitmoreacceptable,basedpreciselyonthedistinctionbetweeneconomicandpoliticalliberalism.WiththisÞne-tunedreinterpretation,apoliticallyprogressivethesisbringingtotheforetheneedtoÞghtconcentrationsofpowerofanykindwastransformedintoaconservativethesisÐtoleavemaximumfreedomofactiontoentrepreneursÐwhichinthestageofindustrialisationwentsofarastotakeonreactionarytones,servingtojus-tifyatotalindifferenceofthenewentrepreneurialclasstowardstheheavyhumancostsofthenewproductivetechnologiesandthewidespreadmis-erytheybrought:afarcryfromthesensitivityrepeatedlyshownbytheScottisheconomistforhumansufferings,andfromhisinterestinthe63ThehistoryoftheseearlyprogressivereadingsofSmith,andofthesubsequentconserva-tivereinterpretation,isillustratedinaninterestingarticlebyEmmaRothschild(1992).Accordingtoherreconstruction,ÔFreedomconsists,forSmith,innotbeinginterferedwithbyothers:inanyaspectoflife,andbyanyoutsideforces(churches,parishoverseers,corporations,customsinspectors,nationalgovernments,masters,proprietors)Õ(ibid.,p.94).Cf.alsoRothschild2001,pp.52Ð71.InthisrespectwemayalsorecallanaspectofSmithÕsliberalismÐhisdifÞdencetowardsentrepreneurstakingonadirectpoliticalroleÐthatappearsrelevantinthepresentItalianpoliticalconjuncture,butthatclearlyhasamoregeneralvalidity:Theinterestofthedealers,however,inanyparticularbranchoftradeormanufactures,isalwaysinsomerespectsdifferentfrom,andevenoppositeto,thatofthepublick.[…]Theproposalofanynewlaworregulationofcommercewhichcomesfromthisorder,oughtalwaystobelistenedtowithgreatprecaution,andoughtnevertobeadoptedtillafterhavingbeenlongandcarefullyexamined,notonlywiththemostscrupulous,butwiththemostsuspiciousattention.Itcomesfromanorderofmen,whoseinterestisneverexactlythesamewiththatofthepublick,whohavegenerallyaninteresttodeceiveandeventooppressthepublick,andwhoaccordinglyhave,uponmanyoccasions,bothdeceivedandoppressedit.(Smith1776,p.267)

AdamSmith151continuousimprovementoflivingstandardsforthegreatmassofthepopulation.64ForabetterunderstandingofSmithÕsliberalism,wemayrefertobooksIVandVofThewealthofnations.MostofbookIVisdevotedtocritiqueofÔthecommercial,ormercantilesystemÕ,takenmoreasanarrayofinterventionsbythenation-stateintheeconomythanasathe-oreticalsystemofpoliticaleconomyor,perhapsbetter,asetofideascommonlycollectedunderthelabelofÔmercantilismÕ(discussedabove,2.6).65Restraintonimports,supportforexports,treatiesestablishingcommercialpreferences,coloniesÐallareexaminedindetailandsub-jectedtospeciÞccriticism.Achapteronthephysiocratic(ÔagriculturalÕ)systemconcludesthebook,butheretootheaccountconsistsofcriti-cismofspeciÞcinstancesofactivestateintervention,andapleaforÔtheobviousandsimplesystemofnaturallibertyÕ(Smith1776,p.687).ÔNaturallibertyÕmeanspoliticalandeconomicfreedom,butwithinasetofrulessupportedbypublicinterventionandpublicinstitutions.Asageneralrule(ibid.,pp.687Ð8):Accordingtothesystemofnaturalliberty,thesovereignhasonlythreedutiestoattendto[…]:Þrst,thedutyofprotectingthesocietyfromtheviolenceandinvasionofotherindependentsocieties;secondly,[…]anexactadministrationofjustice;and,thirdly,thedutyoferectingandmaintainingcertainpublickworksandcertainpublickinstitutions,whichitcanneverbefortheinterestofanyindi-vidual,orsmallnumberofindividuals,toerectandmaintain;becausetheproÞtcouldneverrepaytheexpencetoanyindividualorsmallnumberofindividuals,thoughitmayfrequentlydomuchmorethanrepayittoagreatsociety.64Theconservativeviewofeconomicliberalismbecamedecidedlydominantasfromthebeginningofthenineteenthcentury,andhassincecontinuedtotakereferencefromSmithnotwithstandingtheinterpretativetwistillustratedabove.Inthelastfewdecades,forinstance,theÔChicagoschoolÕhasdirectlyplaceditselfinalinefromSmith,notwith-standingthecautionoriginallyexpressedbythemostculturedofitsexponents(cf.Viner,1927).InItalywemayrecalltheultra-liberismofFrancescoFerrara(1810Ð1900),editoroftheÞrstseriesoftheimportantBibliotecadellÕeconomista(CuginiPombaEditori-librai,Torino),thesecondvolumeofwhich(1851)offersreadersanItaliantranslationofThewealthofnations(onFerraracf.Faucci1995).65BookIValsocontainsaÔdigressionconcerningbanksofdepositÕ(Smith1776,pp.479Ð88),which,togetherwithchapter4ofbookII(ibid.,pp.350Ð9),constitutesthemainreferencesforSmithÕstreatmentofmonetaryandÞnancialissues.Inverybroadout-line,Smithconsiderstheinterestratetobedeterminedbysupplyofanddemandforloans,wheredemandisinßuencedbytheprospectivereturn,namelytheprevailingrateofproÞts;usurylaws,settingamaximumlimittotheinterestrate,arefavourabletoaccumulation.BanksmaybeinducedbyÔprodigalsandprojectorsÕ(ibid.,p.357)toanover-issueofnotes;therulewhichbanksshouldfollowistheso-calledÔrealbillsdoc-trineÕ,whichwoulddominatetheÞeldformorethanacentury,andwhichheldthattheissueofbanknotesshouldbelimitedtothediscountofsoundcommercialbills.SmithÕsideasonmoneyandbankinghavebeenthesubjectofalivelyinterpretativedebate;cf.forinstanceLaidler1981;Gherity1994reconstructsthedevelopmentofSmithÕsthoughtontheissue.

152TheWealthofIdeasBookVofThewealthofnationsgoesontodealwithÔtherevenueofthesovereignorcommonwealthÕ:Þrsttheexpensesfordefenceandjustice,butalsopublicworksÐmainlytransportinfrastructures:navigablecanals,roads,bridgesÐandeducation,withalongsectiondevotedtothelatter,instrikingcontrasttothehalf-pagedevotedtoÔtheExpenceofsupportingtheDignityoftheSovereignÕ,66andthenpublicrevenue.SmithpreferspublicexpendituretobeÞnancedbytaxesratherthanbypublicdebt;andasfortaxes,fourprincipleswhichwouldbecomecanonicalareclearlysetoutandillustrated:proportionaltaxation,certainty,leastinconvenienceforthetaxpayer,andlowcostofcollection.67Insum,Smithisnodogmaticliberal,butapragmaticone:stronglycriticalnotonlyoffeudalinstitutionsandofpoliciescharacteristicoftheabsolutiststate,butalsoofcapitalisticconcentrationsofeconomicpower,anddifÞdenttowardstheinclinationofÔthedealersÕtoestablishmonopoly.Anotherinterpretativeissue68stemsfromcomparisonbetweentheÞrstandÞfthbookofThewealthofnations,concerningtheapparentlycon-tradictorypositiontakenbySmithtowardsthedivisionoflabour.IntheÞrstbook,thedivisionoflabourisextolledasthefoundationforincreasesinproductivity,henceforthewell-beingofthepopulationandforcivicprogressitself;intheÞfthbook,inanoftenquotedpassagereferredtoastheprecursoroftheMarxiantheoryofalienation,Smithstressesthenegativecharacteristicsoffragmentedlabour,thatcanmakeabruteofman:66SpeciÞcdiscussionisdevotedtotheÔregulatedcompaniesforforeigncommerceÕandtothejointstockcompanies.Smith(1776,p.731)recognisesthatÔsomeparticularbranchesofcommerce,whicharecarriedonwithbarbarousanduncivilizednations,requireextraordinaryprotectionÕ;buthisdetaileddiscussionoftheactualaffairsoftheSouthSeaCompany,theEastIndiaCompanyandsimilarinstitutionsthendevelopsintoarealindictment(ibid.,pp.731Ð56).67ÔI.Thesubjectsofeverystateoughttocontributetowardsthesupportofthegovern-ment,asnearlyaspossible,inproportiontotheirrespectiveabilities;thatis,inpro-portiontotherevenuewhichtheyrespectivelyenjoyundertheprotectionofthestate.[…]II.Thetaxwhicheachindividualisboundtopayoughttobecertain,andnotarbitrary.Thetimeofpayment,themannerofpayment,thequantitytobepaid,oughtalltobeclearandplaintothecontributor,andtoeveryotherperson.[…]III.Everytaxoughttobeleviedatthetime,orinthemanner,inwhichitismostlikelytobeconvenientforthecontributortopayit.[…]IV.Everytaxoughttobesocontrivedasbothtotakeoutandtokeepoutofthepocketsofthepeopleaslittleaspossi-ble,overandabovewhatitbringsintothepublicktreasuryofthestateÕ(Smith1776,pp.825Ð6).68Onthehistoryofthisdebate,whichdatesbacktoMarx,cf.Rosenberg1965.ThenegativeimplicationsofthedivisionoflabourwerewidelyrecognisedintheenvironmentoftheScottishEnlightenment,forinstancebyFerguson(1767,part2,chapter4:ÔOfthesubordinationconsequenttotheseparationofartsandprofessionsÕ).

AdamSmith153Intheprogressofthedivisionoflabour,theemploymentofthefargreaterpartofthosewholivebylabour,thatis,ofthegreatbodyofthepeople,comestobeconÞnedtoafewverysimpleoperations;frequentlytooneortwo.Buttheunderstandingsofthegreaterpartofmenarenecessarilyformedbytheirordinaryemployments.Themanwhosewholelifeisspentinperformingafewsimpleoperations,ofwhichtheeffectstooare,perhaps,alwaysthesame,orverynearlythesame,hasnooccasiontoexerthisunderstanding,ortoexercisehisinventioninÞndingoutexpedientsforremovingdifÞcultieswhichneveroccur.Henaturallyloses,therefore,thehabitofsuchexertion,andgenerallybecomesasstupidandignorantasitispossibleforahumancreaturetobecome.Thetorporofhismindrendershim,notonlyincapableofrelishingorbearingapartinanyrationalconversation,butofconceivinganygenerous,noble,ortendersentiment,andconsequentlyofforminganyjustjudgementconcerningmanyevenoftheordinarydutiesofprivatelife.Ofthegreatandextensiveinterestsofhiscountry,heisaltogetherincapableofjudging.69However,thecontradictionbetweentheÞrstandtheÞfthbookofThewealthofnations,betweenanoptimisticandapessimisticviewofthedivisionoflabour,isonlyapparent.WeshouldnotwonderifanauthorlikeSmith,socarefulincapturingthedifferentsidesofanyissue,attributeddifferenteffects,someofthempositiveandsomenegative,toasinglecause.ItisclearfromthecontextthatSmithconsideredasdominantthepositiveeffectsofthedivisionoflabour.Indeed,confrontedwiththeconcomitantnegativeeffects,hedidnothesitateaninstantonwhichroadtotake,andfarfromraisingdoubtsontheopportunityofpursuingthecontinuousdeepeningofthedivisionoflabour,hepropoundedrecoursetoelementaryeducationasacounterweight.Thereisinthisrespectanaspectthatshouldbestressed,sinceitcon-stitutesperhapsthemainpointofdifferencebetweenSmithÕssocialphi-losophyandthatofMarx,andonwhichwemaymaintainthatitwastheScottishphilosopherwhowasright.BothSmithandMarx,aswesawabove,arefullyconsciousofthenegativeimplicationsofthedivisionoflabour,andoftheneedforwork(orÔcompulsorylabourÕ)thataccompa-niesthem.Marx,however,heldthatthehardneedofcompulsorylabourcanbeovercomeinacommunistsociety,inwhichitwillbepossibletoreachthefulldevelopmentoftheproductiveforces,thatÔmakesitpossi-bleformetodoonethingtodayandanothertomorrow,tohuntinthemorning,toÞshintheafternoon,rearcattleintheevening,criticiseafterdinner,justasIhaveamind,withouteverbecominghunter,Þsherman,69Smith1776,pp.781Ð2.BeforeSmith,wecantracethenotionofalienationinthewritingsoftheSwissJean-JacquesRousseau(1712Ð78),whomSmithwasacquaintedwiththroughHume.(HumeandRousseau,initiallygoodfriends,subsequentlyhadaharshclash:cf.Ross1995,pp.210Ð12).DifferentlyfromSmith,Rousseauisaradicalcriticofthemarketeconomy:cf.Colletti1969b,pp.195Ð292.

154TheWealthofIdeassheperd,orcriticÕ.70Thepossibilityofreachingfullfreedomfromcom-pulsorylabourmorallyjustiÞes,andrenderspoliticallyacceptable,thecostsinbloodandtearsoftheproletarianrevolutionandofthesubse-quentdictatorshipoftheproletariat,asnecessarystages(togetherwithcapitalisticaccumulation)fordevelopmentofproductiveforceswhichconstitutestheindispensablepremiseforreachingtheÞnalobjective.Smith,onthecontrary,consideredovercomingthedivisionoflabourclearlyimpossible.Increasesinproductivityandgrowingeconomicwelfaremadepossiblebythedeepeningofthedivisionoflabourarethepresuppositionforprogressinhumansocieties.Thisis,however,conceivedasacontinuousprocess,withouttherebeinginsightaÔwayoutÕoftheset-upofmarketeconomiesandanovercomingoftheirlim-itsanddefects,suchascompulsorylabourandtheinequalitiesofsocialconditions.ThisSmithianviewmayperhapsbelikenedtothereformistthesespresentinthecontemporarypoliticaldebate,whichopposeboththeconservativestreamsofthoughtthatconsiderasuselessanyinter-ventionaimedatcounteringthesituationsofsocialmalaiseand,ontheoppositeside,therevolutionaryhopesforsocialregeneration.71Asubstantivefaithinman,thoughrecognisedasanessentiallyimper-fectbeing,andinthepossibilityofprogressinhumansocieties,con-stitutedthecommonelementforSmithandforeighteenth-centuryEnlightenmentculture.ButitalsoandmainlyconstitutesthepositivemessagethatrenderstheworkoftheScottishthinkeracentralpointofreferenceforponderingovermanandsociety.70MarxandEngels1845Ð6,p.265.71Cf.Roncaglia1989onSmithand1995conMarx.

6EconomicscienceatthetimeoftheFrenchRevolution1.Theperfectibilityofhumansocieties,betweenutopiasandreformsTheEnglishÔGloriousRevolutionÕof1688tookplacewithpracticallynobloodshedand,albeitmarkingaradicalchangeinthepoliticalorder,producingnodrasticbreakincontinuityfortheEnglishinstitutions.Onthecontrary,theFrenchRevolutionof1789,andespeciallytheradicali-sationitsubsequentlywentthrough,onceagain,andindramaticterms,facessocialscientistswithtwocrucialissues.First,canachangeininsti-tutionsleadtoabettersociety,alsoÐandperhapsaboveallÐasfarasmateriallifeisconcerned,andhenceinthefunctioningoftheeconomy?Second,ifthechangehasacostintermsofviolenceandbloodshed,aswasapparentinthecaseoftheFrenchRevolution,dotheadvantagesthatmaybereapedjustifythesecosts?IntheeighteenthcenturythetraditionoftheEnlightenmentgaveamoreorlesspositiveanswertotheÞrstquestion:interventionbybenev-olentsovereigns,guidedbyreason,mayfavoursocialprogress,whichinanycaseremainsthedirectionhumanhistorytendstomovein.Thesecondquestion,ontheotherhand,hardlyrepresentedarealissueforexponentsoftheEnlightenment,whobyandlargeacceptedasamatteroffacttheabsolutepowerofnationalmonarchiesandlimitedtheirpro-posalsforinterventiontotheÞeldsofeconomicissuesandsocialpolicies.However,atthetimeoftheFrenchRevolution,othercurrentsofthoughthadlongbeenpresentthatgavedifferentanswerstothebasicissuesconcerningtheorganisationofsociety.Ontheonehand,wehavetheconservatives,whoheldthatendeavourstofostersocialprogressarefutile,andontheother,therevolutionaries,whoheldthatradicalchangeisanecessity,forpoliticalinstitutionsalso.ThelatteroftendrewstrengthfromUtopianmodelsofidealsocieties,frequentlycharacterisedbyformsofcollectivismextendingnotonlytocontrolovermeansofproduction,butalsoandabovealltothecustomsofeverydaylife.AsaliterarygenreUtopianwritingshadbeencirculating155

156TheWealthofIdeassincethelatesixteenthcentury;1ineighteenth-centuryFrancetheyseemtohavechimedinwiththerationalisticspiritoftheEnlightenment,ded-icatedtothecultofÔclearanddistinctÕideas(torecallanexpressionusedbyDescartes).Itwasaculturalclimatethatencouragedintellectu-alstobelievethathumanintelligenceiscapableofdesigninginstitutionalsystemssurpassingthoseinheritedfromhistory;furthermore,somepar-ticularlyboldspiritswentsofarastoassertthatwhensuchÔsystemsÕweredeemedsuperiortotheoldones,therewastherightandindeedthedutytoimposetheirimplementationinthefaceofresistancebydiehardrulersorignorantmasses.ThetraditionoftheScottishsociologicalEnlightenmentwasalsofavourabletoinstitutionalchanges:forinstance,wemayrecallSmithÕsÞghtagainsttheremnantsoffeudalism.However,thiswasnotamat-terofaprioridesignsforidealinstitutions,butratherindicationsonpossibleimprovementstotheexistinginstitutions.Trustinreasonwas,moreover,temperedbytwoelements:theliberalidea,maintainedbySmithinThetheoryofmoralsentiments,thateachisthebestjudgeofhisowninterests;andanon-idyllic,althoughbasicallyoptimistic,visionofhumannature,opentoacertainamountofscepticismastothetrueabilitiesandmotivationsofrulers.Inturn,thisimplieddifÞdence,ifnothostility,towardsprojectsforrevolutionarychangeinspiredbytheoreticalmodelsofidealsocieties.ThispositionwassubstantiallysharedbytheNeapolitanEnlightenment,fromGalianiandGenovesitoPalmieriandFilangieri,asalsobytheTuscanintellectuals,mainlyconcernedwithagrarianreforms,andaMilanesecircleincludingVerriandBeccaria.France,too,countedanumberofactiveprotagonistsinpoliticallifeÐTurgotbeingthemostillustriousexampleÐwhomightbeincludedintheÔreformistÕcurrent.2Itisinfactinpre-RevolutionaryFrancethatwehaveaninterestingexampleofconfrontationbetweenreformistandconservativethesesintheclashthatsawNeckerversusTurgot,andsubsequentlyCondorcetversusNecker.3Turgot,theministerofÞnancefrom1774to1776,notonlyofferedtheoreticalsupport(cf.above,4.7)butalsosoughttogivepracticaleffecttoreformsaimingatabolishingfeudalconstraints(restrictionsonfreetradeinagriculturalproduce,corporatistregulationsonlabourandproductiveprocesses)andimprovingsocialpoliciesforthepoor.1Cf.above,ch.2,note11.2EvenmorethanthetermsÔconservativeÕandÔrevolutionaryÕusedabove,thetermÔreformistÕhasinthiscontextasomewhatgenericmeaning,whichonlyinpartcorre-spondstothatwhichthetermhasassumedintodayÕspoliticaldebate.3Forreconstructionofthisdebate,cf.Rothschild1995,2001.

EconomicscienceatthetimeoftheFrenchRevolution157JacquesNecker(1732Ð1804),abanker,politicalopponentofTurgotandthelastministerofÞnancebeforetheRevolution,bycontrast,describedÔthemiseryofthepoorasafactofnatureÕandpopulationgrowthÔastheconsequenceofÒtheimpetuousattractionthatnaturehasplacedbetweenthesexesÓ.Itwilleventuallycometoanend,Òwithsuf-feringsandmortalityÓwhenpopulationexceedssubsistence.Õ4MarieJeanAntoineNicholasCaritat,MarquisdeCondorcet(1743Ð94)wasaphilosopherbelongingtothecircleoftheEncyclopaedists,andamathematicianrenownedforhisstudiesonprobabilitytheory,whichinßuencedthemoderntheoryofsocialchoices.5ReactingtothesessuchasNeckerÕs,hemaintainedthattheproblemsofcontemporarysocietystemmednotfromtheforcesofnature,butfromhumaninstitutions:therefore,measuresofinstitutionalreformmightinßuenceeconomicandcivilprogress.LikeSmith,Condorcetsupportedpublicinterventionsinfavourofuniversaleducation;healsoadvocatedschemesforcollectiveinsuranceagainstaccidentsandtoguaranteeanincometotheold.Moregenerally,ÔThecharacteristicpresumptionofSmithÕsearlyfriendsandfollowersinFrancewas,rather,thatpoliticallibertyandsocialintegrationofthepoorwerecauses(aswellasconsequences)ofeconomicdevelop-ment.Õ6Condorcetwasamongthoseprogressiveintellectualswhoplayedlead-ingrolesintheearlyphasesoftheFrenchRevolutiononlytofallpreytotheTerror,whoseexponentssawmoderatereformismasanenemypossiblyevenworsethanconservatismitself.LikethefateofCondorcet,thereformistcurrentsinFrancewereeventuallyphysicallysuppressedbythefollowersofUtopianextremism.AsareactiontotheradicalisationoftheFrenchRevolution,therewasalsoradicalisationintheoppositiontochange.Wehavealreadyseenanexampleofthis(5.8)inthehostilitythatgatheredagainstSmithÕssocial4ThequotationsaredrawnfromRothschild1995,p.721.EvidentlywehavehereoneofthemanyprecursorsoftheMalthusianprincipleofpopulation,whichwillbediscussedinthenextsection.5Cf.MoulinandYoung1987,McLeanandHewitt1994.6Rothschild1995,p.712.TheÔSmithianÕthesiswasthatuncertaintyconstitutes,ingen-eral,ahindranceforeconomicinitiative.Institutionsadequateforeconomicdevelopmentshouldcreatesecuritywithrespectbothtopersonalrightsandtopropertyrights;Ôsecuritywasapsychologicalaswellasajuridicalcondition,andonethatwasfoundedonsocialaswellaslegalreformsÕ(ibid.,p.713).Securitymustbewidespread:ÔAcivilisedsocietyisoneinwhicheventhepoorhavetherighttosecurelivesÕ(ibid.).ForthisreasonSmithcouldmaintainthatsocialpoliciesinfavourofthelowerclasseswerenotonlyÔjustÕbutalsoimportanttofavouringeconomicdevelopment:ÔNosocietycansurelybeßourishingandhappy,ofwhichthefargreaterpartofthemembersarepoorandmiserableÕ(Smith1776,p.96;quotedinRothschild1995,p.714).Letusrecall(cf.above,5.8)thatCon-dorcetwastheauthorofapamphletthatincludedasummaryofThewealthofnations.OnCondorcetÕsattitudetowardsreforms,cf.Rothschild2001.

158TheWealthofIdeasphilosophyaroundtheendoftheeighteenthcentury,afterthefavourablereceptionaccordedThewealthofnationsonpublication.WeshallseeanotherfamousexampleinthenextsectionwithMalthusÕspamphletonpopulation,whichtookupanddevelopedNeckerÕsviews.Whatwewishtostresshereisthatthereformistcurrents,squeezedbetweentheUtopianextremismofrevolutionaryTerrorandtheconservativereaction,notonlylostgroundbut,moreimportantly,survivedonlywithasigniÞcantchangeinitsverynature:whatoriginallyhadbeenreformisminthebroadsenseofthetermÐsocialandeconomicatthesametimeÐbecamerestrictedtothepurelyeconomicaspects.ÔReformistÕthoughtinthecomprehensivesensewouldagainplayaprincipalroleinthepoliticalandculturaldebateonlyhalfacenturylater,withthecooperativemovementinEnglandandwithJohnStuartMill;butonceagainitwassoontoÞnditselfhemmedin,atleastincontinentalEurope,betweenrevolutionaryradicalismontheonehand(therewasnotonlyMarx,butalsotheParisCommune)andconservativereactionontheother.2.MalthusandthepopulationprincipleIntheyearsimmediatelyfollowingtheFrenchRevolution,aswehaveseen,thesympatheticresponsethatvariousintellectualsinGreatBritainhadshowntothestormingoftheBastillegavewaytoconservativereac-tionagainsttheTerror.AmongthefewwhoretainedapositionfavourabletotheRevolution,togetherwithThomasPaine,7weÞndWilliamGodwin(1756Ð1836).AuthorofawidelyreadEnquiryconcerningpoliticaljustice(1793)andpartneroftheradicalfeministMaryWollstonecraft,Godwiniscommonlyknownasavotaryofanarchism;headvocatedsmall-scaleproductionandsocialdecentralisation,togetherwithadrasticredistri-butionofincomeinfavouroftheneedieststrataofthepopulation.LikeCondorcet,Godwinwasastrenuousupholderoftheperfectibilityofhumanbeings:anendtobepursuedbyabolishingormodifyingthoseinstitutions,bothpoliticalandsocial,thatobstructedeconomicdevelop-mentandthedevelopmentofhumanreasonalike.HisinßuenceontheÔRicardiansocialistsÕ,thecooperativemovementandtheOweniteswasimportant;amongthosewhothrewthemselvesbehindhimimmediately7AnEnglishman,ThomasPaine(1737Ð1809)movedtoAmericain1774,andtherepub-lishedanessay,Commonsense(1776),whichconstitutedoneoftheimmediateintellec-tualfoundationsoftheDeclarationofIndependenceoftheUnitedStates;emigratingtoFrance,in1792Ð5hebecameamemberoftheConvention,opposingRobespierre.IntheRightsofman(1791)hesupported,amongotherthings,aprogressiveÞscalsystemtoÞnancesubsidiestopoorfamiliesandold-agepensions,andextensionoftherighttovotetoalladultmales.

EconomicscienceatthetimeoftheFrenchRevolution159afterthepublicationofhisbookwealsoÞndDanielMalthus(1730Ð1800).DanielÕsson,ThomasRobertMalthus(1766Ð1834)tookanentirelydifferentview.8AstudentatCambridgeÕsJesusCollegebetween1784and1788,ongraduatinghewasappointedaministeroftheAnglicanChurch.Hemarriedin1804andhadthreechildren.In1805hebecameprofessorofhistoryandpoliticaleconomyattheEastIndiaCollege;histeachingwasbasedonSmithÕsWealthofnations.WeshallbeseeingquitealotmoreofMalthusinthefollowingpages,inparticularinconnectionwithhisdiscussionswithRicardo.HismostfamousworkistheEssayonpopulation(1798),whichconstitutedthecon-servativeanswertotheviewsheldbytheEnglishradicalsandheraldedbyGodwin.TheÞrsteditionhadtheairofalively,provocativepoliticalpamphlet;insubsequenteditions9itgraduallyswelledintoaheavy,eru-ditevolume,stuffedwithempiricalreferencesandqualiÞcationstothecentralthesis,butsomewhatindigestible.TheEssayhadawidereader-shipandastronginßuence,stimulatinglively,prolongeddebate.10MalthusÕsthesisisoftensummedupinafamousformula:agricul-turalproductiontendstogrowinarithmeticalproportion,whilepop-ulationtendstogrowingeometricalproportionand,moreprecisely,todoubleeverytwenty-Þveyears.11Actually,thepointÐillustratedbyMalthusinvariousnumericalexamplesÐwasnotessentialtohisargu-ment.TheÔprincipleofpopulationÕconsisted,quitesimply,intheideathatpopulationgrowthisnecessarilylimitedbytheavailabilityofmeansofsubsistence.Assoonasthesebecomeavailableinexcessofthestrictlynecessary,thepopulationtendstogrowmorerapidlythanagriculturalproduction.Theconsequentdisequilibriumhasnegativeeffectsonthe8TheEssayonpopulationwasbornofadiscussionbetweenfatherandson.DanielMalthuswasthefriendThomasreferredtowhenwritingintheprefacetotheÞrstedition:ÔThefollowingEssayowesitsorigintoaconversationwithafriend,onthesubjectofMr.GodwinÕsEssayÕ,anditistohimthathereferredwhencriticisingthosewhobelieveinÔtheperfectibilityofmanandofsocietyÕ(quotedbyMeek1953,p.4).Therelation-shipbetweenaconservativefatherandarevolutionaryson,sofrequentinourtimes,wasinvertedhere,aconservativesonopposingaprogressivefather.ForabiographyofMalthus,cf.James1979;foranintroductiontohisthought,cf.Winch1987.91803,1806,1807,1817,1826;cf.the1989criticaledition,editedbyPatriciaJames.10SomeoftheimmediatereactionsofthetimearereprintedinPyle1994.11Schumpeter(1954,p.579)drylyÐandcorrectlyÐpointsoutthatÔthereisofcoursenopointwhateverintryingtoformulateindependentÒlawsÓforthebehaviouroftwointerdependentquantitiesÕ(aremarkthatalsoappliestothesimplestformulationoftheÔlawofsupplyanddemandÕ,asSraffashowedinhis1925articlewithrespecttoMarshallianpartialequilibriumanalysis:cf.below,16.3).LetusalsoremarkherethatMalthusÕsthesisconcernsthedynamicsofagriculturalproduction:assuch,itcannotbededucedfromtheassumptionofdifferentlandfertilitiesonwhichthetheoryofdifferentialrentisbased(cf.below,7.2).

160TheWealthofIdeaslivingconditionsofthepoorestclasses,untilthepopulationcomesbackinequilibriumwiththeavailabilityoffood.12Moreprecisely,populationgrowthoutrunningtheavailabilityofresourcesgeneratesincreaseinfoodprices,andhencereductioninrealwages.Astheprocessunfolds,thereducedpercapitaavailabilityoffoodspellsdeteriorationinthelivingstandardsoftheworkers,thusforcingdownthegrowthrateofthepopulationasthemortalityraterisesorthebirthratefalls,botheffectsbeingdeterminedbyevermorewidespreadpovertyandhardship.Alongsidethisautomaticmechanismofaneconomicnature,Malthuspointedouttwootherpossibleroutesbasedonactiveinterventiononthepartofmenandwomentopreserveequilibriumbetweenpopulationandmeansofsubsistence:thepathofÔvirtueÕ,namelychastityincelibacyandcontinencewithinmarriage,orthepathofÔviceÕ,namelycontra-ception.Thelatterelementwastoreceiveparticularattentionfromtheso-calledneo-Malthusians(likeFrancisPlace,1771Ð1854;hisIllustra-tionsandproofsoftheprincipleofpopulationisdated1822),buthadalreadybeenaddressedapprovinglybeforeMalthusbyauthorssuchasBenthamandCondorcet.13MalthusÕsthesiswasnotnew.14WehavealreadyseenhowitemergedinFrance,shortlybeforetheRevolution,inthedebatebetweenTurgotandNecker,butasearlyasthesixteenthcenturyanItalian,GiovanniBotero(1544Ð1617),contrastingvirtusgenerativawithvirtusnutritiva,hadstressedthetensionbetweenthepotentialofpopulationgrowthandthedifÞcultiesinincreasingproductionofmeansofsubsistencetokeepupwithit(Dellecausedellagrandezzadellecitt`a(Aboutthecausesofthegreatnessofcities,1588),wasalsotranslatedintoEnglishin1606).JustafewyearsbeforeMalthusÕspamphletcameout,anotherItalian,GianmariaOrtes(1713Ð90),hadpublishedRißessionisullapopolazione12TheMalthusianthesisofaconßictbetweenpopulationgrowthandavailabilityoffoodresourceswasexplicitlyrecognisedbyCharlesDarwin(1809Ð82)asasourceofinspi-rationforhisrevolutionarytheoryofevolutionbasedonnaturalselection,setoutinDarwin1859:cf.Darwin1958,p.144.13OnCondorcet,cf.below,note17.BenthamreferredtocontraceptionasatoolusefulinreducingtheÞscalburdenderivingfromthepoorlawsinthemanuscriptoftheManualofpoliticaleconomy(Bentham1793Ð5,pp.272Ð3).FollowingBentham,JamesMillmadecautiousreferencetotheissueundertheheadingofÔColoniesÕ(1818)intheEncyclopaediaBritannica.Hisson,JohnStuart,whenstillseventeenyearsold,wascaughtbythepolicein1823distributingcontraceptionpropagandapreparedbyPlace.(Somedecadeslater,similarworkinfavourofcontraceptionwasundertakenbytheSwedisheconomistKnutWicksell:cf.below,11.5.)14WecangobackasearlyasthebishopofCarthage,Cyprian(c.200Ð58),whocontra-dictedtheoptimismintrinsicintheBiblesayingÔgrowandmultiplyÕ,consideringover-populationasourceofpovertyeveninhistimes,andproposingchastityasaremedy:cf.above,ch.2,note29.

EconomicscienceatthetimeoftheFrenchRevolution161in1790(Thoughtsonpopulation),whichwasincludedafewyearslaterintheseriesofwritingsofItalianeconomistseditedbyCustodi.Amongotherthings,Ortesstressedthepotentialityofpopulationtogrowingeo-metricalprogression.15NeitherBoteronorOrtesnorCantillonwasquotedbyMalthus,althoughhedidmakereferencetoNeckerandvariousotherwriters,includingRobertWallace(1697Ð1771).InthecaseofWallace,however,Malthuslimitedreferencetoasecondarywork,withnotsomuchasamentionofthefundamentalVariousprospectsofmankind,natureandprovidence(1761),towhichGodwinexplicitlyreferred,criticisingitspes-simism,andfromwhich,somecommentatorsargue,Malthusmayhavederivedhismaintheses.16Bethatasitmay,MalthusÕspamphletplayedaspeciÞcrole,andcor-respondinglyhadastrongerimpactthanthepreviousliteratureonthesubject,focusingattentionnotsimplyontherelationbetweengrowthofpopulationandgrowthofthemeansofsubsistence,butalsoandaboveallontheimplicationsthisrelationshipheldforthestrategicchoiceonwhetherornottopursueobjectivesofchangeÐevenradicalchangeÐinthepoliticalinstitutions.17Anumberofeconomistsofthetime,includingDavidRicardo,referredtotheMalthusianprincipleofpopulationinsupportofatheoryofwagesfrequentlybroughtupindebateonpolicy,theso-calledironlawofwages,accordingtowhichthewageratetendstooscillatearoundthesubsis-tencelevel.Thelatterwasnotinterpretedinmerelybiologicalterms,butinthesocialsense,asthatlevelwhichallowedworkersnotonlyto15AtthebeginningoftheeighteenthcenturyCantillon,too,(1755,p.81)hadstressedthepotentialitiesofpopulationgrowth,whichrapidlyadaptstotheavailablemeansofsubsistence:ÔIftheProprietorsofLandhelptosupporttheFamilies,asinglegenerationsufÞcestopushtheincreaseofPopulationasfarastheproduceoftheLandwillsupplymeansofsubsistence.ÕAswehavealreadyseen(4.5),CantillonÕsworkwasasourceforMirabeau(1756).Schumpeter(1954,p.252)wentsofarastostate,perhapswithsomeexaggeration,thatÔthecradleofthegenuinelyanti-populationistdoctrinewasFranceÕ.OnsomeEnglishprecursorsofMalthusandontheGermanauthorSussmilch,cf.Bonar1931.16Cf.thecriticaledition,editedbyP.James,ofMalthus(1798,vol.2,pp.351Ð2).Ibid.(pp.253Ð357)thereisanÔAlphabeticallistofauthoritiesquotedorcitedbyMalthusinhisEssayontheprincipleofpopulationÕ.Mostofthereferenceswere,however,addedintheeditionsfollowingtheÞrst,andconcernedauthorscontemporarywithMalthuswhotookpartinthedebatefollowingtheoriginalpublicationofMalthusÕspamphlet.17IntheEsquissedÕuntableauhistoriquedesprogr`esdelÕesprithumain,publishedposthumouslyin1794,Condorcethadadvancedsimilarargumentsonthedangersofexcessivelyrapidpopulationgrowth;however,hisconclusionsontheprospectsforhumansocietieswereoptimistic,insharpcontrasttoMalthusÕs.Condorcetstressedtheexistenceofasimpleremedy,contraception,whichcouldreconcileimprovementsinthestandardoflifewithmoderatepopulationgrowth.Theso-calledneo-Malthusians,includingPlaceandÐlaterÐWicksell,rediscoveredCondorcetÕsideas,predatingMalthusÕswork.

162TheWealthofIdeassurviveÐwithintheeconomicsystemconsidered,henceexcludingemi-grationÐbutalsotoformafamilyandraisechildren.18Tosumuptheargumentbrießy,letusassumethatthewageofthegreatmassofworkersisabovemeresubsistencelevel.Thepopulationbeginstogrow,andagriculturalproductionisunabletokeepup;foodpricesconsequentlyrise,andtherealwagedeclines,returningtothesubsistenceminimum.If,onthecontrary,westartfromawageratelowerthanthesubsistencelevel,thenthepopulationdecreases(duetoarisingmortalityrateandfallingbirthrate,butalsoduetoincreasingemigration);hencethedemandforwagegoodsdiminishes,theirpricesfall,andtherealwageincreases.ThethesisthatthewagetendstoremainatsubsistencelevelhadalreadybeenpropoundedbeforeMalthuswithargumentsotherthanthepopu-lationprinciple.Forinstance,aswesawabove(5.4),Smithattributedadownwardpressureonthewageratetothedifferentbargainingpowerofworkersandcapitalists.Aswehavealreadyseen,SmithÕsthesisappearsmoresolidthantheonebasedonthepopulationprinciple.SufÞceittorecallthat,iftheincreaseinpopulationduetoawagerateabovesubsistencelevelisasso-ciatedwithanincreaseinthebirthrateordecreaseintherateofinfantmortality,thenthedownwardpressureonwagescanonlybefeltonthelabourmarketafteralagoffourteenÐsixteenyears,orinotherwordsafterthetimehaselapsednecessaryforanewbornbabytojointhelabourforce.19Moreover,theÔironlawofwagesÕ,basedontheMalthusianpop-ulationprinciple,presupposedtheabsenceoftechnologicalprogressintheprimarysector;inactualfact,ashistoricalexperiencehasshown,adecreasingshareofpopulationhassucceededinproducingfoodmorethansufÞcientforacontinuouslygrowingpopulation.20TheaimofMalthusÕsEssay,however,wasnottoprovideatheoryofincomedistributionbutrathertoasserttheuselessnessofanyattemptatimprovingthesituationofthegreatmassoftheworkers.21Evenif18OnthedeÞnitionsofsubsistencewageinMalthus,RicardoandTorrens,cf.Roncaglia1974.19ThispointwasbroughtupbyMalthushimselfintheÞrsteditionofhisPrinciples(Malthus1820,p.242oftheÞrstedition,inRicardo1951Ð5,vol.2,p.225).20Inthesecondhalfofthenineteenthcentury,inparticular,thesecondagriculturalrevolu-tion,basedontheuseofchemicalfertilisers,speltagreatleapforwardinproductivityperworkerandperacreofcultivatedland.Thefaminesofthenineteenthcenturywereessen-tiallyduetoproblemsofmisallocationofresources,certainlynottoabsolutescarcityoffoodattheworldlevel.21MalthusÕsthesis,intheÞrsteditionofhisEssay,wasthatthepopulationprincipleisÔconclusiveagainsttheperfectibilityofthemassofmankindÕ(quotedbyMeek1953,p.4).Weshould,however,avoidpaintingMalthusasanultra-reactionary(asMarxandEngelsdid):indeed,reproposingsomeideasadvancedbySmith,inhisEssayMalthusadvocatedfreeelementaryeducationforall,andfreemedicalcareforthepoor.

EconomicscienceatthetimeoftheFrenchRevolution163weassumetheseattemptstobesuccessfulintheshortrun,Malthussaid,improvementinthestandardoflivingisneverthelessimmediatelyfollowedbyafasterrateofpopulationincrease,whichbringswagesandthestandardoflivingofthegreatmassoftheworkersbacktosimplesubsistencelevel.Hopesforimprovementshouldnotrelyoninstitutionalchangesorsocialpoliciesinfavourofthepoor:suchhopescanonlyrelyonÔpreventivechecksÕonpopulationgrowthwhich,Malthuswentontoargue,theworkerswillonlyexercisewiththegoadofthespectreofpovertyhangingoverthem.Therefore,measuresaimingtoeliminatepovertyarecounter-productive.Moreover,thefearofpovertyalsoactsasastimulustoindustriousness.OnthislatterpointMalthusÕsthesis(andNeckerÕs,andindeedotherconservativeeconomistsÕ)wasintotalcontrastwiththeideasofSmith,Condorcet,Godwinandthewholeofthereformisttradition.AsRothschildnotes,accordingtothelattertraditionitisthehopetoimproveoneÕsconditions,andnotthefearofpoverty,thatconstitutesÔauniversalinducementtoindustryÕ;Smith,inparticular,declaredinThewealthofnationsthatÔfearisinalmostallcasesawretchedinstrumentofgovernmentÕ;CondorcetmaintainedthatÔfearistheoriginofalmostallhumanstupidities,andaboveallofpoliticalstupiditiesÕ.22Godwintoo,inhisessayOnpopulation(1820)containinghisanswertoMalthus,maintainedthatÔpreventivechecksÕonpopulationincreasearepromptedbyimprovementinthestandardsoflivingoftheworkers,notthespectreofpoverty.23Similarly,thecooperativistWilliamThompson(cf.below,8.6)upheldthatoperationofthelawofpopulationcouldberadicallymodiÞedwiththeeconomicindependenceofwomenandahigherstandardofliving,suchascouldbemadepossibleÐheheldÐwithchangeintheorganisationofthesocialinstitutions.However,itwasMalthusÕsthesesthateventuallydominatedtheÞeldofclassicalpoliticaleconomy.Itwasthesethat,withtheirpessimismregardingtheprospectsofprogressfortheworkingclassesandsocietyasawhole,ledthepublicopinionofthetimetoidentifypoliticaleconomyastheÔdismalscienceÕ:24ableakconstructionofabstracttheoriesthatledtodefeatismcloakedinscientiÞcrigoursince,confrontedwiththehuman22Cf.Rothschild1995,p.731,oursourceforthequotationsofSmith(1776,p.798)andCondorcet.23AlsoMalthusÕssuccessortothechairoftheEastIndiaCollege,RichardJones(1790Ð1855),acriticofthedeductivemethodwhowasconsideredaprecursoroftheÔhistoricalschoolÕ(cf.below,11.2),maintainedthatthefactsdidnotaccordwithMalthusÕsthesis.Giventhescarcityofstatisticsatthetimeandtheirpoorqualitativelevel,however,treatmentoftheissuehadtobebasedmainlyongeneralimpressions.24Theexpression,whichimmediatelybecamefamous,wasduetoThomasCarlyle(1795Ð1881),inanessayof1849,Theniggerquestion(inCarlyle1888Ð9,vol.7,p.84:quotedbyMilgate1987,p.371).CarlyleÕsblow,however,originatedinadifferentcontext,thepro-slaverymovementofmid-nineteenthcenturyledbyCarlylehimselftogetherwith

164TheWealthofIdeaswilltoimproveconditions,itassertstheimpossibilityoflastingprogress.Inasense,politicaleconomywouldrepresentthepessimismofscienceasopposedtotheoptimismofthewill;however,itwasapessimismthat,whenconfrontedwiththefacts,provedsubstantiallymisleading,sinceitunderratedthepotentialitiesopeningupwithtechnologicalprogress.TheromanticclimatethatbegantotakeoverintheÞrsthalfofthenine-teenthcenturywasthusabletostimulateanegativereactionagainstthecoldabstractlogicandpessimismofeconomicscience,insofarasitwasperceivedtobebasedonunrealassumptions.Thusthewholeofclassi-calpoliticaleconomy,andinparticularRicardoandhisfollowers,metwithgrowingdifÞdenceonthepartofpublicopiniondespitethefactthattheMalthusianpopulationprinciplewasnotanessentialcomponentoftheiranalyticstructure.Actually,thischaracterisationofpoliticalecon-omyastheÔdismalscienceÕcontributedtowideningthegulfbetweentheÔscientiÞclawsÕoftheeconomists,ontheonehand,andthestudyofsocialissuesontheother,andhenceinpavingthewaytothemarginalistrevolution.253.ÔSayÕslawÕAfewyearsafterMalthusÕsEssayonpopulationcametheproclamationofwhathascometobeknownasÔSayÕslawÕ,enunciatedbytheFrencheconomistJean-BaptisteSay(1767Ð1832).Initssimplestformulation,itsaidthatÔsupplycreatesitsowndemandÕ.TherehavebeendifferentinterpretationsofthisÔlawÕ.OriginallyitwaspropoundedincriticismofcertainaspectsofthephysiocraticdoctrineutilisedbyvariouseconomistsofthetimewhowereopposedtothecentralroleSmithattributedtosavingsandaccumulationasthefoundationforgrowthoftheÔwealthofnationsÕandwhotriedtorefutehiscriticismwithrespecttoÔunproductiveÕconsumption.Aswehavealreadyseen(4.5and4.6),Cantillonandthephysiocratshadthelandlordsandnobilityplayinganactiveroleinsettingthecircu-lationprocessintomotion:attheendoftheproductiveprocesstheyareinpossessionofthemoneyandutiliseittoacquirecommoditiesfromJohnRuskin(1819Ð1900),thepassionatecriticofindustrialcapitalismwidelyreadalsoamongsocialistsinthedecadesaround1900.25Theroleofpoliticaleconomyinbringingtolightthelimitsofwhatcanbeachievedwithpublicinterventionhasbeenanobjectofdebateforcenturies,althoughtheapproacheshavechangedinthecourseoftime,agoodexamplebeingtheheatedcontroversyofthelastfewdecadesoverthegrowthofthepublicdebtandontheÔfreelunchesÕthatappearedtobesuggestedbyKeynesianpoliciesaimingatincreasingthelevelofincome(cf.below,chapter14).Perhapsstrongeranalogieswiththedebateontheprincipleofpopulationareofferedbytheongoingdebateonthewelfarestate.

EconomicscienceatthetimeoftheFrenchRevolution165theÔsterileÕandtheÔproductiveÕclasses.However,ifthelandlordsandnobilitydecidenottospendpartoftheirincome,andifforanyreasontheirdemandfails,thepossibilityarisesofasituationofÔgeneralover-productionÕorwantofmarketoutlets.Giventheactiverolethatitplaysinthecirculationprocess,thespendingofthelandlordsandnobilityreg-ulatestherateofexchangesandproduction.26ItwasinanswertoviewssuchasthesethatSaysetouthisÔlawÕinhisTrait«edÕ«economiepolitiqueof1803,asuccessfulpublicationalsoutilisedasauniversitytextbookintheUnitedStatesandinBritain(aswellasFrance,whereSaybecametheÞrstprofessorofpoliticaleconomyin1815),andwhichcontainedamongotherthingsatheoryofvaluebasedonutility,andonthebalancebetweensupplyanddemand.27ÔSayÕslawÕwasthentakenup,withsubtlebutoftensigniÞcantdifferences,bymanyeconomistsoftheclassicalschool:ÞrstofallbyJamesMill28inCommercedefendedin1807,tobefollowedin1808byTorrensinTheeconomistsrefuted,29andthenbyMcCulloch,RicardoandJohnStuartMill.Infact,ÔSayÕslawÕ,inaratherstrongversion(asanexanteidentitybetweenaggregatedemandandsupply),becameadistinctivecharacteristiccommonlyattributedtotheÔRicardianschoolÕ.26Notwithstandingthisgeneralorientationoftheirreasoning,wecanÞndinthephysiocratssomepassageswhichappeartoforeshadowSayÕsmotto.AcoupleofsuchpassagesarequotedbyBlaug(1962,p.29);however,theyseemtopointinthedirectionofasystemofnationalaccountingidentitiesratherthaninthedirectionofequilibriumrelationsbroughtaboutbymarketforces.27AnotherthesisforwhichthisbookisknownistheidentiÞcationofproductivelabourwithlabourgeneratingutility.InoppositiontoSmith,thismeantthatlabourthatprovidesservicesisalsoproductive,andnotonlylabourthatproducescommodities.ObviouslythiswasconnectedtoSayÕstheoryofvalue,accordingtowhichthevalueofacommodityexpressesitsutility(whileitspriceexpressesitsvalue,thusdeÞned).Aboveall,however,SayÕsbookisimportantforthenotionofeconomicequilibriumitpropounded;itisforthisreasonthat,asSchumpetersaid(1954,p.492),ÔSayÕsworkisthemostimportantofthelinksinthechainthatleadsfromCantillonandTurgottoWalrasÕ;wewillreturntothisaspectlater(10.2and12.1).OnceagainaccordingtoSchumpeter(ibid.,p.555,italicsintheoriginal),SayÔwastheÞrsttoassigntotheentrepreneurÐperseandasdistinctfromthecapitalistÐadeÞnitepositionintheschemaoftheeconomicprocess[…]tocombinethefactorsofproductionintoaproducingorganismÕ;furthermore(ibid.,p.560),heÔestablishedthetriadschemaandthepracticeofdealing,bothinthetheoryofproductionandinthetheoryofdistribution,withtheÒservicesÓofthethreefactors[labour,capitalandland(orbetter,ÔnaturalagentsÕ)]onthesamefootingÕ.28JamesMill(1773Ð1836),fatherofJohnStuart,ascholarandafriendofBenthamÕs,amongtheleadingexponentsofphilosophicalradicalism(cf.below,10.3);hewasalsoafriendtoRicardoandofferedhimsupportinthewritingofthePrinciples.ForsomeyearshewasatopexecutiveoftheEastIndiaCompany;healsowroteamanualofpoliticaleconomyshowingaRicardianbent(Elementsofpoliticaleconomy,1821).29SigniÞcantly,thephysiocratswereknownasles«economistes.Inparticular,MillandTorrensreactedtotheessaybyWilliamSpence(1783Ð1860),Britainindependentofcommerce(1807).OnTorrenscf.below,8.2.

166TheWealthofIdeasInitsoriginalversion,however,ÔSayÕslawÕwaslessclear-cut,themainaimbeingtoreasserttwothesesalreadypresentinSmith.TheÞrstonewasthepossibilityoftechnologicalprogressgivingrisetolongperioddevelopmentofproduction,withmarkedimprovementinthelivingstan-dardsofthepopulationaccompaniedbyaparallelgrowthindemand;thesecondwastheideathatgrowthisfavouredbysavings(andbyinvest-ments,whichsavingsautomaticallyturninto)morethanbyunproduc-tiveconsumption.30Inupholdingthesetwotheses,whichwerethetrueobjectsofthecurrentdebate,Say(andsubsequentlyJamesMill)alsodevelopedotherarguments:inparticularthethesisthatmoneyperseisnotindemand,butonlyasameanstoacquiregoods,withtheconse-quencethataggregatesupplywouldnecessarilyequalaggregatedemand,andthatnogeneralover-productioncrisiswouldbepossible.Thelat-terthesiswaslaterchristenedÔSayÕsidentityÕbyhistoriansofeconomicthought,inordertodistinguishitfromalessstrongthesis,theso-calledÔSayÕsequalityÕ,accordingtowhichshortperioddisequilibriabetweenoverallsupplyanddemandforgoodsmayexist,butÔthereexistreliableequilibratingforcesthatmustsoonbringthetwotogetherÕ.3130Cf.,forinstance,theoftenquotedpassage:ÔWhatisannuallysavedisasregularlycon-sumed[inacquiringadditionalcapital]aswhatisannuallyspent,andnearlyinthesametimetooÕ(Smith1776,pp.337Ð8).31Baumol1977,p.146.Baumoldistinguishesdifferenttheses(ÔSayÕsFirst[Second,Third…]PropositionÕ),foreachofwhichitispossibletoÞndsomereferenceinSayÕswritings:1.ÔAcommunityÕspurchasingpower(effectivedemand)islimitedbyandisequaltoitsoutput,becauseproductionprovidesthemeansbywhichoutputcanbepurchasedÕ(ibid.,p.147;italicsintheoriginal).2.ÔExpenditureincreaseswhenoutputrisesÕ(ibid.,p.147).3.ÔAgiveninvestmentexpenditureisafarmoreeffectivestimulanttothewealthofaneconomythananequalamountofconsumptionÕ(ibid.,p.149).4.ÔOverthecenturiesthecommunitywillalwaysÞnddemandsforincreasedoutputs,evenforincreasesthatareenormousÕ(ibid.,p.152).5.ÔProductionofgoodsratherthanthesupplyofmoneyistheprimarydeterminantofdemand.MoneyfacilitatescommercebutdoesnotdeterminetheamountsofgoodsthatareexchangedÕ(ibid.,p.154).6.ÔAnyglutinthemarketforagoodmustinvolverelativeunderproductionofsomeothercommodity,orcommodities,andthemobilityofcapitaloutoftheareawithexcesssupplyandintoindustrieswhoseproductsareinsufÞcienttomeetdemandwilltendrapidlytoeliminatetheoverproductionÕ(ibid.,p.154).Itmaybeseenthat,whilethelessrestrictiveversionsofÔSayÕslawÕhadalreadybeentakenupbySmithinsupportoftheimportanceattributedtosavingsforaccumulationanddevelopment,thestrongerversionsofthelawwereutilisedintheRicardianschooltocriticisetheSmithiantheoryoftheÔcompetitionofcapitalsÕ,accordingtowhichaccu-mulationofcapitalwouldimplyagradualreductionoftheproÞtrate,asaconsequenceoftheprogressiveexhaustionofthemostproÞtableemploymentsofcapitalandtheneedtoshifttoeverlessproÞtableuses.InthestrongversionÔSayÕslawÕactuallymaintainsthatproductionbyitselfcreatesexnovomarketoutletswhichguaranteethenewemploy-mentsofcapitalthesamereturnsastheprecedinguses.OnÔSayÕslawÕcf.alsoSowell1972.

EconomicscienceatthetimeoftheFrenchRevolution167ItwasonlyagainstthemostradicalversionsofÔSayÕslawÕthatauthorssuchasSismondi,MalthusandLauerdalelevelledtheircriticism.Whattheseauthorsactuallyarguedwasnottheexistenceoflongperiodten-denciestostagnation,butmoresimplythepossibilityofgeneralover-productioncrises.Muchthesamelinewas,moreover,followedbyvari-ousotherÔRicardianÕeconomists,likeRobertTorrensand,notably,JohnStuartMill,inthesecondoftheEssaysonsomeunsettledquestionsofpolit-icaleconomy(1844).ThislinewaslateradoptedbyMarxandespeciallybyKeynes,whopresentedhistheoriesasdirectlyopposedtoÔSayÕslawÕ,interpretingitintheÔstrongÕsensethatithadacquired,muchmorethaninthewritingsofclassicaleconomists,withinthemarginalisttradition.4.Under-consumptiontheories:Lauerdale,Malthus,SismondiIntheÞrsttwodecadesofthenineteenthcentury,afterMalthushadpub-lishedtheÞrsteditionofhisEssayonpopulationandSaytheÞrsteditionofhisTrait«e,andbeforetheRicardianorthodoxybased,amongotherthings,onÔSayÕslawÕhadasserteditself,anumberofauthorsenteredthearenaupholdingthepossibilityofgeneralover-productioncrises.DeclaredlyhostiletotheSmithianassumptionofanautomatictrans-formationofsavingsintoaccumulationandtoSmithÕsviewsonthepas-siveroleofdemandwasaScottishnobleman,JamesMaitland,eighthEarlofLauerdale(1759Ð1839).InhisInquiryintothenatureandoriginsofpublicwealth(1804;2ndedn.,1819),LauerdalecriticisednotonlytheSmithiandistinctionbetweenproductiveandunproductivelabour,butalsothecentralroleattributedtoprogressinthedivisionoflabourintheprocessofeconomicdevelopment.Moreover,Lauerdalepropoundedatheoryofvaluebasedondemandandsupply,andthusonscarcityandutility,andconsideredland,labourandcapitalasÔsourcesofwealthÕ,thusforeshadowingtheneo-classicalnotionofÔfactorsofproductionÕ(alsowithanoutlinetheoryofcapitalanditsreturns,whichwastobepraisedbyB¬ohm-Bawerk).Aboveall,heproposedatheoryofover-saving,inalllikelihoodtakingupapointthathadalreadymadeapassingappearanceinMalthusÕsEssayonpopulationÐbutforwhichhechosetomakereferencetoQuesnayÐcentredontheideathatsavingsconstituteanoutßowfromthecircularßowofproductionandconsumption,implyingareductioninspending,andhenceinproductionandfutureincome.Inhismainworkoneconomictheory,thePrinciples,publishedin1820,MalthusshowedhimselffarlesshostilethanLauerdaletoSmith,fromwhomhetooktheideaoflabourcommandedasastandardofvalue,whichhecontrastedwiththeRicardiantheoryoflabourbestowedonacommodity.Theroleofdemandwasstressedinrespectofthe

168TheWealthofIdeasdeterminationofboththepricesofcommoditiesandthegloballevelofproductionandincome.Moreprecisely,Malthusstressedtheriskofinadequatedemand,andhencetheroleinsupportofincomeplayedbytheÔunproductiveconsumptionÕofthelandlords.However,wemuststressthat,unlikeTorrens,ortheJohnStuartMillofSomeunsettledquestions,orMarxandvariousothers,MalthusdidnotderivethepossibilityofinsufÞcientdemandfromthedistinctionbetweensavingsandinvestments,whichmaynotinfactcoincideinamonetaryeconomy.ForMalthus,asforRicardo,investmentsandsavingsautomat-icallycorrespondtooneanother.32MalthusÕsthesisconcerned,rather,thepossibilitythattheincreaseinproductivecapacitygeneratedbyinvest-mentsexceedsthegrowthindemand;infact,intheabsenceofunpro-ductiveconsumptiononthepartofcapitalistsorlandlords,theincreaseinwagesduetotheincreaseinemploymentassociatedwithinvestmentsgeneratesanadditionaldemand,sufÞcienttokeeppacewiththeincreaseinproductivecapacity.HeretheMalthusiantheoryofvaluebasedonsupplyanddemandenteredthescene:33inthesituationwehaveillus-trated,theincreaseinproductionwillfoundanoutlet,butatdecreasingprices,andthuswithadecreaseinproÞtsandintheproÞtrate.34Theresultisasituationofgeneralisedcrisis.Allthis,however,hasnothingtodowithKeynesiantheory,which(asweshallseebelow,chapter14)wasbasedpreciselyonthedistinctionbetweensavingsandinvestmentsinamonetaryproductioneconomy.TheideathatMalthuswasaprecursorofKeynes(ÞrstsuggestedbyKeyneshimself,intheessayonMalthusinhisEssaysinbiography,1933)seems,rather,toÞndsupportinMalthusÕsoppositiontothequantitytheoryofmoney.Inparticular,intheInvestigationofthecauseofthepresenthighpriceofprovisions(1800)Malthusmaintainedthattheincreaseinpricesisthecause,nottheeffect,oftheincreaseinthequantityofmoneyincirculation,whichbanksadjusttodemand.WhileLauerdalewas,especiallyinthelatterpartofhislife,adiehardconservative(whichamongotherthingsexplainshishostilitytowardsSmith)andwhileMalthusmaybeconsideredamoderateconservative,athirdexponentofunder-consumptiontheory,JeanCharlesL«eonard32Cf.Meek1950Ð1;Robbins1958,p.248;Corry1959;Tucker1960,pp.123Ð56.Eltis,instead,proposesareconstructionoftheMalthusiantheoryofeffectivedemandandgrowthbasedonthedistinctionbetweenexanteandexpostinvestments(Eltis1984,pp.140Ð81).33Moreprecisely,wecansaythatMalthusconsideredtwoseparateelements:theÔdifÞcultyofproductionÕ,andthedemandandsupplythatregulatetheamountofproÞtstobeaddedtocostsindeterminingtheprice.34ThispointwasseenanddevelopedbytheanonymousauthorofAnenquiryintothoseprinciplesrespectingthenatureofdemandandthenecessityofconsumption(Anonymous1821a).Onthisworkcf.Ginzburg1976,pp.lxviÐlxxx.

EconomicscienceatthetimeoftheFrenchRevolution169SimondedeSismondi(1773Ð1842),wasundoubtedlyaleftist,criticaltowardscapitalism,upholdingideasofsolidarityandsocialjusticethatinmanyinstancesanticipatedthesescharacteristicofthesocialistmove-ment.35HismainworkwastheNouveauxprincipesdÕ«economiepolitique(1819;2ndedn.,1827).Sismondiwasanadvocateofpublicinterventionintheeconomy:aminimumlimittowages,alimittoworkinghours,publicassistanceforthesick,theoldandtheunemployed.Atthesametime,hewasfavourabletowidespreadprivatepropertyandformsofworkerparticipationintheproÞtsofenterprises,withtheobjectiveofreducinginequalitiesinincomedistributionandfavouringsocialmobility.Hisunder-consumptiontheorywasrelatedtothethesisoftheneedtodefendthepurchasingpowerofconsumers,andtofavouramoreequitabledistributionofincome;inparticular,wageswereseenasasourceofdemand,whilethegrowthofincomerequiredanexpansionofdemandwhichwasnotautomaticallyensuredbyincreasingproduction.36AsthesesummaryremarkssufÞcetoshow,theeconomistsconsid-eredthatthemajorrepresentativesofunder-consumptiontheorieswerenotlackingininterestinginsights,evenwhentheyfailedtodetectoneofthemajorweaknessesoftheclassicaltradition,namelyidentiÞcationbetweensavingsandinvestments.However,theirinsightswerenotincor-poratedinsufÞcientlysolidanalyticalschemes,andwecanunderstandhowrelativelyunconvincingtheirpositionsmusthaveappearedatthepurelyintellectuallevelinthefaceofRicardoÕsarchitecture,althoughweshouldnotunderratehowwelltheyreßectedpre-analyticalviewpointsandpoliticalideaswidespreadatthetime.5.ThedebateonthepoorlawsOneoftheÞeldsinwhichtheMalthusianprincipleofpopulationplayedacentralrole,atleastfromtheÞrstdecadesofthenineteenthcentury,wasthedebateonthepoorlaws,whichinvolvedanumberofotherthemessuchastheroleofthegovernmentintheeconomyandtherisksofpublicinterferencewithindividualresponsibility.Onceagainweareconfrontedwithaproblemthatiscontinuallycroppingup,althoughindifferentforms,intheeconomicandpoliticaldebate.Itis,ingeneral,theissueof35TheÔprogressiveÕcurrentofunder-consumptiontheorieswaslatertocountamongitsmajorexponentssuchheterodoxMarxistsasRosaLuxemburgandHobson(cf.below,9.9).Denis(1965,vol.2,pp.40Ð1)considersSismondiaprecursoroftheMarx-iannotionofsurplus-value,andofthelawsofincreasingpovertyandindustrialconcentration.36Schumpeter1954,p.496,creditsSismondiwithhavingbeenÔtheÞrsttopracticetheparticularmethodofdynamicsthatiscalledperiodanalysisÕ.

170TheWealthofIdeasÔwhatistobedoneÕaboutthepovertyafßictingtheloweststrataofthepopulation.37Obviously,theproblemofpovertytakesondifferentforms.Letussimplify:ontheonehand,wehavetheorphanandthefoundling,theoldandtheinvalid:allthosewho,foronereasonoranother,areunabletoworkanddonothaveafamilytolookafterthemandprovidefortheirsubsistence.Ontheotherhand,wehavethosewhocouldwork,butfailtoÞndajob,orhaveajobyieldinganincomeinsufÞcientforsurvival.Finally,athirdgroupincludesthosewhopreferalifeofprivationandpovertylikethatofbeggars,oralifefraughtwithriskslikethatofbandits,ratherthanwork.Theimportanceattributedtothislattergroupisvariable.Ingeneral,itisattributedgreaterimportancebyconservativeeconomists,hostiletoextendingpublicinterventioninfavourofthepoorfromtheÞrsttothesecondcategory.Ontheotherhand,theprogressiveeconomistsfavourabletopublicinterventionconsiderthethirdgroupnegligible,orincludeitintheÞrsttwogroups.38Theproblemofthepoorisendemic,butittakesonparticularlyacuteformsinperiodscharacterisedbymarkedtechnologicalchange.ThustheradicaltechnologicalchangescharacterisingÞrsttheagriculturalandthentheindustrialrevolutionledtoimpoverishmentformassesofworkers.Inthesixteenthcentury,enclosuresÐdelimitingthelandreservedforstockraisingÐgeneratedpoverty-strickenmasses,uprootedfromlandstheirfamilieshadcultivatedforgenerations.ThomasMore(1516,pp.65Ð7)ironicallyremarkedinthisrespectthatsheep,Ôwhichareusuallysotameandsocheaplyfed,beginnow[…]tobesogreedyandwildthattheydevourhumanbeingsthemselvesanddevastateanddepopulateÞelds,houses,andtownsÕ.InthesecondhalfoftheeighteenthandintheÞrsthalfofthenineteenthcentury,inEnglandasinthemoreadvancedcountriesofcontinentalEurope,manufacturingindustriesarosetosqueezeouttraditionalartisanactivities,givingriseonceagaintomasspauperism.Weshallconsiderbelow(7.7)thedebateonÔcompensationÕ,orinotherwordsthethesisthatjobslostwiththeintroductionofmachineryareÔcompensatedÕforbythecreationofnewjobs,thankstothenewdemandderivingfromtheimprovedstandardsoflivinggeneratedbytechnicalprogress.Inactualfact,however,pauperismwasthereforalltosee:theÔcompensationÕwas,atleast,notimmediate.37Forinstance,towardstheendoftheseventeenthcenturyChildmaintainedthenecessityofdeportingtheable-bodiedpoortothecoloniesorputtingthemtoworkinworkhousesunderpubliccontrol.38ItissufÞcient,forinstance,toconsidersocialdeviancyasapsychiatricillness.

EconomicscienceatthetimeoftheFrenchRevolution171InElizabethanEnglandthepoorlawshadalreadycontemplatednotonlysystematicsupportfortheÞrstcategoryofpoorÐtheorphaned,oldandinvalidÐbutalsomoregenerallyforallthoseunabletosupportthem-selveswiththeirownwork.The1601statutesintroducedonanationwidescaleataxgoingtothesupportofthepoor;however,collectionofthetaxanddistributionoftherevenuewereadministeredlocally,underthesurveillanceofelectedsupervisors,andlocaladministrationswereleftfreetofollowthedirectionofÔoutdoorreliefÕ(distributionoffoodstuff,subsidies,publicworks)orÔindoorreliefÕ(theassistedpoorobligedtoresideÐandworkÐinpublicÔworkhousesÕ),oracombinationofthetwo.Theonusofinterventionthusfellonthewell-to-doclassesofthelocalcommunitieswherethepoorlived.Obviouslythismeantataxburdendifferingfromplacetoplace,accordingtotheproportionofpoorinthelocalpopulation;asaconsequence,thecommunitieswereforeverseek-ingtoencouragetheirpoortoemigratetootherareasofthecountry,andtobarthepoorfromenteringfromotherareas,withrepeatedattemptstoregulateÐandobstructÐthemobilityofthepoor.The1662SettlementLaws,forinstance,imposedconstraintsthatwerenotonlyabsurdlyrigid,butalsoextremelydifÞculttoenforce.Moreover,thetaxprovokedcon-tinualcomplaintsabouttheincentivetoidlenessofferedbyasystemofassistanceconsideredtoogeneroustopeoplewho,althoughable-bodied,didnotwork.39Thistwofoldseriesofproblemseventuallygaverise,intheeighteenthcenturyandinparticularwiththenewPoorLawof1772,toasetofrulesthatinpracticeprohibitedthemigrationofthepoorfromoneparishtoanother,andmadetheprovisionoffood,assmallasitwas,dependentonlivinginaworkhouseÐandtheworkhousethusbecameasortofprisonwithoutbars.40Despitetheseconstraints,assistancetothepoorgrewtoconsiderabledimensions:accordingtosomeestimates,by1803itwasreachingamillionpeople,11percentofthepopulationofEnglandandWales,whilein1830assistancewasabsorbingupto2percentofthenationalincome.41Assistancetothepoorreceivedaboostfrom,amongotherthings,theso-calledÔSpeenhamlandsystemÕ(fromthenameoftheplacewherethemagistratesofBerkshireusedtomeet),whichbegantospreadin1795,providingforsupplementationofthelowestwages39AmongtheadvocatesofthisviewpointintheeighteenthcenturyweÞndDanielDefoeandBernarddeMandeville;itis,however,frequentlymetwithintheliteratureofthetime.40AnimportantcontemporaryreconstructionofthesituationattheendoftheeighteenthcenturyandtheroadthathadledtoitisofferedbyFrederickEden(1766Ð1809),Thestateofthepoor,3vols.,1797.41Williams1981;cf.alsoBoyer1990andOxley1974.

172TheWealthofIdeastoreachaminimumleveldeterminedonthebasisofthenumberofdependantsandindexedtofoodprices.ThiswasthebackgroundforthedebateonthepoorlawsinEnglandintheÞrsthalfofthenineteenthcentury.Aswesawabove,greatuseoftheMalthusianprincipleofpopulationwasmadeheretoarguethataidtotheable-bodiedpoorwasuselessÐathesisupheldbymanyclas-sicaleconomists,includingMalthushimselfandRicardo.Others,likeSenior,invokedtheÔwagefundÕtheorytothesameend:aidtotheable-bodiedpoorreducestheworkincentives,thusweakeningtheworkersÕefÞciencyand,asaconsequence,thescaleofproductionandavailabilityofresourcestopaywages.42Thedebatebetweentheconservativeandprogressivethesesconcernedwhetherdisincentivestoworkarosewithassistancetotheable-bodiedpoornotmadeconditionaluponcompulsorylabourintheworkhouses.Thusthedebaterevolvednotsomuchonthedesirabilityofaidtothepoorinprincipleasonthechoicebetweenoutdoorandindoorrelief.Problemsofbadadministration,oflittleinterestfromthepointofviewoftheoreticaleconomicdebate,weremixedwithissuesincludingincentivesforindividualstotakeanactiveapproach,theroleofpublicinterventionandtheideathatpovertywastheinevitablelotofagreatpartofthepopulation.436.ThedebateonthecoloniesTheMalthusianprincipleofpopulation,namelytheideathatpopulationgrowthexertspressureonthemeansofsubsistence,hadeveryappear-anceofrealisminEnglandatthetimeoftheNapoleonicwars,whenthecontinentalblockadeobstructedimportsfromcontinentalcountriesproducinglow-costagriculturalgoods.Intheyearsimmediatelyfollow-ingthe1815CongressofVienna,recollectionofthewaryearscouldstillaccountforthepersistentandwidespreadacceptanceofatheoryalreadyovertakenbytherealitiesofthetime.OneÞeldwherethepopulationprinciplewasalreadyquiteclearlywearingthinwasthedebateonthe42SeniorÕspreoccupationsconcernedindustriousness,foresight(henceparsimony)andcharity.Moregenerally,SenioridentiÞedtheprogressofsocietywiththegradualdevel-opmentofindividualfreedomandself-determination,whichwasobstructedbythecon-straints(onmobility,forinstance)necessitatedbyadministrationofthepoorlaw.Cf.Bowley1937,pp.288Ð90.43Inthisrespect,acharacteristicexampleoftheconservativeviewisofferedbySenior.Cf.Bowley1937,pp.282Ð334,forampleillustrationofSeniorÕsparticipationinthedebate.Amongtheeconomistswhoacceptedtheprincipleofassistancetotheable-bodiedpoorweÞndanumberofauthorsthatwewillbemeetingagaininchapter8amongtheRicardians:McCulloch,Torrens,JamesandJohnStuartMill.

EconomicscienceatthetimeoftheFrenchRevolution173colonies,nowlargelyignoredbyhistoriansofeconomicthoughtbutaburningissueofthetime.Thisdebate,too,hadbegunwellbeforetheperiodweareconsider-inghere.Ontherelationsbetweencoloniesandfatherland,forinstance,AdamSmithwrotesomeextremelyinterestingpagesintheconclusionofhismagnumopusitself,publishedinthesameyearastheDeclara-tionofIndependenceoftheAmericancolonies.Inthesepages,andinamemorandumofFebruary1778,Smithnotonlyappearedreadytorecognisetherightsofthecolonies,butwentsofarastodelineateaÔcommonwealthÕ,similartothatwhichtookshapeonlymuchlateron,graspingthepotentialitiesofNorthAmericaasfutureleaderoftheworldeconomy.44EvenbeforeSmith,wemayrecallPettyÕsparticipationintheAmericanadventureofhisfriendPennthatledtothefoundationofPennsylvania,45ortheroleplayedbyCantillonand,aboveall,bytheScottishbanker-economistJohnLawintheÞnancialvicissitudesinvolvedinthecolonisationofMississippi.46Butletusreturntothedebateonthecoloniesinthegoldenperiodofclassicalpoliticaleconomy.OneofthemainproblemsforcountriesacrosstheoceansÐboththerecentlyindependentUnitedStatesandthenewcolonialfrontierofAustraliaÐlayintheextremelysparsepopulation.Thelandavailableforcultivationwasvast,thenumberofimmigrantsscant,whichmeantenormousdifÞcultiesforthenewbornmanufacturingÞrmsseekingwageworkers,thwartingthedevelopmentofanintegratedeconomicsystemwithamanufacturingsectorthrivingonthedivisionoflabourbetweenÞrmsandwithineachproductiveprocess.TheseproblemsweredealtwithbyauthorssuchasWakeÞeld,Torrensandothers.WithoutdepartingfromtheframeworkoftheMalthusianprincipleofpopulation,Torrens(weshallhavemoretosayabouthimlater:8.2)wasamongtheÞrstauthorstopresentthecoloniesasoutletsfortheemigrationthatwastoimprovetheconditionsoftheworkersofthekingdom,andinparticularoftheIrish.47Soon,however,TorrensconvertedtoWakeÞeldÕsideasonsystematiccolonisation.44Smith(1776,pp.934Ð47),andaboveall(1977,pp.377Ð85).Onthesequenceofcoun-triesactingasleadersintheworldeconomy,cf.Kindleberger1996.45Cf.Fitzmaurice1895.46Cf.Murphy1986and1997.47Cf.,forinstance,Torrens1817.Otherauthors,however,includingSenior,utilisedtheMalthusiantheoryagainstthecolonisationpolicies,maintainingthattheÔvoidÕleftbyemigrationwouldsoonbereplenishedbyanincreaseinpopulation,thuscancellingoutthepositiveeffectsofemigration.Acenturyandahalfearlier,Petty(1691a,pp.157;1899,pp.551ff.;1927,pp.256,262,265Ð6)hadrepeatedlyadvancedaproposalofanoppositesignconcerningtheIrishÔcolonyÕ:thatÔtransplantationÕ,ormassdeportationoftheIrishpeople,wouldtransformtheislandintoanimmensecattle-raisingpasturewithfewworkers.

174TheWealthofIdeasEdwardGibbonWakeÞeld(1774Ð1854)arguedthatlandinthecoloniesshouldbesoldtothesettlersatapricethatnotallcouldaffordinordertoguaranteetheavailabilityofwagelabour;weretheytotakepossessionoflandtocultivatefreely,thesettlerswouldscatterovervastareasandthedivisionoflabourwouldthusberenderedimpracticable,withenormouslossinproductivityandpovertyloomingforthenewcolonies.48OnceheembracedWakeÞeldÕsideas,Torrensdefendedthemwithhischaracteristicvigour,playinganactiveroleinthecolonisationofSouthAustralia,Þrst(since1831)asafoundingmemberoftheSouthAustralianLandCompany,then(since1835)aschairmanofacommissioncreatedbytheBritishgovernmenttoorganisenewprovincesinSouthAustralia.49Populationtheorythusturnedawayfromtheold,pessimisticviewsonthepossibilityofprogressofhumansocietiestoformthebasisfortheoreticalrationalisationoftheexpansionistforcesleadingtotheformationoftheBritishEmpire.7.BenthamÕsutilitarianismLetusnowturntoanotherimportantstreamofthought,BenthamÕsutil-itarianism,whichtookshapeandroseininßuenceintheperiodbetweenSmithÕsWealthofnations(1776)andJohnStuartMillÕsPrinciples(1848).InsomerespectsÐasweshallseeinchapter10ÐitopensthewaytotheÔmarginalistrevolutionÕ;inotherrespects,itmayhelpusinunderstand-ingthetransitionÐonmanyaccountsabigstepbackwardÐfromtheSmithiannotionofhumanbeingsasmovedbyarichmixtureofpassionsandintereststotheRicardiannotionofeconomicman.TheÔutilitarianrevolutionÕoftheLondon-bornphilosopherJeremyBentham(1748Ð1832)fellwithinadifferentÞeldfrompoliticaleconomy,althoughonmanyaccountstouchinguponit,namelytheÞeldofethics.WithinthisÞeld,acenturies-longdebate(mentionedabove:2.1)sawtheconfrontationoftwoviews:thedeontologicalandtheconsequentialistapproach.Benthamgaveacrucialcontributiontothedevelopmentofthelatter.Inafewwords,thedeontologicalapproachmaintainedthatactionsareÔgoodÕorÔbadÕinthemselves:themoralqualityofanyactionisacharacteristicintrinsictoit.Forinstance,toharmapersonissurely48Cf.WakeÞeld1829and1833.OnWakeÞeldÕsdominantroleinthisdebate,cf.Winch1965.49Cf.Torrens1835.OnTorrensÕscontributiontothedebateoncolonies,cf.Robbins1958,pp.144Ð81.Alarge(5,700sqkm)lakeinSouthAustraliabearsthenameofTorrens.

EconomicscienceatthetimeoftheFrenchRevolution175ÔbadÕ.TheconsequentialistapproachmaintainedinsteadthatanyactionistobejudgedwithinthespeciÞccontextinwhichittakesplace,thatis,bylookingatitsconsequences.EventoharmapersonmaybeÔgoodÕ,forinstanceifoneiscompelledtodosoinordertopreventthepersonfromkillingsomebodyelse.50Deontologicaltheoriesinethicswerecommonlybasedontheprincipleofauthority;theyweretraditionallyassociatedwithreligiouscommand-ments,andweretypicalofsocietiesorientedtowardsrespectfortradi-tions.Consequentialisttheoriesofethics,ontheotherhand,cametotheforewiththenewrationalisticorientationoftheEnlightenmentage.Indifferentways,manyphilosophersandsocialreformers(suchasBeccariaandVerriinMilan:cf.above,4.8)contributedtothesuccessofthisapproach;amongthem,Benthamundoubtedlyplayedacrucialrole.BenthamsummedupconsequentialistethicsinthephraseÔthegreat-esthappinessprincipleÕ,orÔtheprincipleofutilityÕ,whichconstitutedhisfundamentalaxiomfromhisÞrstimportantwork,theFragmentongovernment.AccordingtothisBenthamÕsmaxim,Ôitisthegreatesthap-pinessofthegreatestnumberthatisthemeasureofrightandwrongÕ(Bentham1776,p.393).ThisprinciplederivedfromFrancisHutchesonandÐthroughBeccariaÐfromHelvetius.51Literallytaken,itimpliedtwoelements(ÔgreatesthappinessÕandÔgreatestnumberÕ)tobesimul-taneouslymaximised.ThisisacrucialelementtokeepinmindwheninterpretingHutchesonorBeccaria;however,BenthamÕsÔfeliciÞccalcu-lusÕseemstoimplyjustonemaximand:totalsocialhappiness.ThefeliciÞccalculus,whichBenthamproposedasanessentialcom-ponentofhisconsequentialistethics,consistedinquantitativeevalua-tionandalgebraicsummationofpleasuresandpainsstemmingfromanyactionorsetofactions(wherepleasuresobviouslyhaveapositivesign,painsanegativesign).Goodiswhatevergivesasitsresultanalgebraically50Naturally,suchaclear-cutdichotomybetweendeontologicalandconsequentialistapproachesissimplistic,andhidesmanyaproblem.AsshownbySen1991,deon-tologicaltheoriesingeneralareopentorecognising,atleastindirectly,theimportanceoftheconsequencesofactions,whiletheconsequentialistapproachescommonlyretainsomeelementsofapriorijudgements.Onthewhole,however,thedistinctionremainsamostusefulinterpretativekey.Muchthesamemaybesaidofadichotomywhichdis-playsanumberofanalogieswiththeonediscussedabove,butwhichdiffersfromitinsomesubstantiverespects,namelythedichotomybetweentranscendentalethicsandthehedonisticapproach.Inshort,transcendentalethicsmaintainedthattheultimateendofactions,whichdeterminestheirmoralworth,doesnotbelongtothisearth;thehedo-nisticapproachmaintainedthattheultimateendisindividualwelfare.Togetherwithconsequentialism,thislatterviewcharacterisedtheso-calledÔphilosophicalradicalismÕ.51Cf.Hal«evy1900,pp.13and21.Schumpeter1954,p.130,recalledthatHelvetius(inDelÕesprit,1758)Ôcomparedtheroleoftheprincipleofself-interestinthesocialworldtotheroleofthelawofgravitationinthephysicalworldÕ.

176TheWealthofIdeaspositivefeliciÞcmagnitude,andhenceincreasestheÔamountofhappi-nessÕwithinhumansocieties;badiswhatevergivesasitsresultanegativefeliciÞcmagnitude,andasaconsequencedecreasestheamountofsocialhappiness.52TheÔfeliciÞccalculusÕwasthusdirectedtoevaluatethesocialimpactofbothindividualactionsandpublicpolicychoices;Bentham,however,concentratedattentiononthelatter.Letusponderthispoint.Theprivateandthesocialimpactofindi-vidualactionscoincideifindividuals,whilepursuingtheirownpersonalinterests,donothaveanimpactontheinterestsofothers;insuchacaseselÞshbehaviourautomaticallyalsorealisesthecommongoodandtheso-calledÔthesisofthenaturalidentityofinterestsÕholds.Thiswasthethesisonwhichthemostextremeideasoflaissezfairerelied,holdingthatoptimalsocialconditionsarerealisedwhenindividualspursuetheirownpersonalpreferences.Thisthesis,letusstress,wasdifferentfromthepositionmaintained,forinstance,byAdamSmith,discussedabovein5.3and5.8,accordingtowhichindividualbehaviouristobeguidedbyanadequatesetoflegalandmoralnormsupheldbypublicbodiesÐthepoliceandtheadministrationofjustice.SmithÕslaissez-faireapproachlay,rather,intheconvictionthatinanimperfectworldweshouldaban-donthedreamoftheÔenlightenedprinceÕ,sinceeachcitizencanlookafterhisorherowninterestsbetterthanheorshecananybodyelseÕs.Bentham,ontheotherhand,waveredbetweentheideaoftheÔenlight-enedprinceÕandextremelaissez-faireviews(implicit,forinstance,inhisdefenceofusuryagainstSmithÕsproposaltosetaceilingoninterestrates,Bentham1787);indeedhisfaithinbenevolentReason,typicaloftheFrenchEnlightenment,ledhimmainlyintheformerdirection,withacentralroleattributedtotheÔLegislatorÕ.BenthamÕsguidingaimwithhisresearcheswasinfacttheconstructionofalegalcodesuchastoachievethesupremacyofReasonwithinhumansocieties,thefeliciÞccalculusbeingtheLegislatorÕsmaintool.WithittheLegislatorcouldtakeaccountofthebehaviourofindividualsmoti-vatedbytheirownself-interest,andintervenewithlawssettingrewards52AmongtheprecursorsofutilitarianismÐbutnotoffeliciÞccalculusÐwemayrecalltheEnglishphilosopherJohnLocke(onwhomcf.above,4.2).InhisEssayconcerninghumanunderstanding,vol.IIch.20,Locke1689,p.229,infactsaid:ÔThingsthenareGoodorEvil,onlyinreferencetoPleasureorPainÕ;butthisstatementwasthenfollowedbyananalysisofthedifferentpassions(ibid.,pp.229Ð33),whichshowsthatpleasureandpainwerenotconsideredasone-dimensionalmagnitudes.JohnStuartMillÕscritiquetoBentham,whichrevolvesaroundthispointandwillbediscussedbelow(8.9),thushaddeeproots:wemightsaythatBenthamÕsfeliciÞccalculusandtheconnectedone-dimensionalviewofmanconstitutedadeviationfromtheEnglish-languagephilosophicaltradition,andrathershowedsignsoftheinßuenceofFrenchsensism.

EconomicscienceatthetimeoftheFrenchRevolution177andpunishmentssoastomodifyindividualbehaviourinthedirectionoftheoptimalsituationcorrespondingtothegreatesthappinessprinci-ple.Ofcourse,thegreaterorlesserquantitiesofhappinessstemmingfromdifferentcoursesofactionswerecomputedforsocietyasawhole,andassessedbytheLegislatorhimself.(ItwasnotevennecessaryforindividualbehaviourtobestrictlyguidedbyindividualfeliciÞccalculus:individualscouldbeguidedbytheirhabitsmorethanbycontinuousrationalcomputationoftheeffectsofeachaction;whatmatteredwasthattheLegislator,ifhewantedtomodifyindividualchoices,coulddosobymeansofanadequatesetofincentivesanddisincentives.)Inotherwords,theLegislatorÕstaskconsistedinproducingharmonybetweenpri-vateandpublicinterests.TheLegislatorÕsuseoffeliciÞccalculusimpliedtwoprerequisites.First,thedifferentpleasuresandpainsofeachindividualwereassumedtobereducibletoquantitativemeasurementalongaone-dimensionalscale.Second,itwasassumedthatfeliciÞcmagnitudesreferringtodifferentindividualscouldbealgebraicallyaddedup.SpeciÞcally,allindividualswereassumedtobeidenticalintheirabilitytoexperiencepleasuresandpains.BenthamwasinmanyrespectsatruebelieverinthepowersofRea-sonandintheapplicabilityofthefeliciÞccalculustoahomogeneous,one-dimensionalhumannature.However,inpracticeinhisimpressiveoutputofmanuscriptsnoexampleistobefound,atleasttomyknowl-edge,offactualcomputationsofthiskind,withnumericalestimationsofpleasuresandpains.Benthamsystematicallylimitedhimselftoillustrat-ingtheelementswhichinßuencedtheÔquantityÕofpleasuresandpains(suchasÔintensity,duration,certainty,propinquity,fecundity,purityandextentÕ).ThiswassufÞcientforhispurposeswhendealingwithspeciÞcissues,forinstancetoestablishwhichcriteriathelaws(especiallythoserelatingtopunishments,asinthedebateonthedeathpenalty)shouldfollow.WemayaddthattheideaofclearlyspeciÞed,completeindividualpreferencemapsservingasabasisforfactualquantitativeevaluationofutilitiesanddisutilitieswasfarfromBenthamÕsmindwhenconsideringthebehaviourofeconomicagents.Aswesawabove,assessingsocialandindividualpreferenceswastheLegislatorÕstask;thefeliciÞccalculus,wemaystressonceagain,wasintroducedbyBenthaminthiscontext(andmoregenerallyinthecontextofthedebateonethics),notinthecontextofananalysisofconsumersÕbehaviour.Furthermore,thoughBenthamseemstoinclinetowardsasubjectivetheoryofvalue(which,aswesaw,hadalreadyacenturies-longtradition),betweenhisutilitarianismandthelatermarginalisteconomicsthereisadifferenceinperspective.Benthamevaluatedtheoutcomesofdifferent

178TheWealthofIdeascoursesofactions(andespeciallydifferentlegalrules:thedistinction,typ-icalofcontemporaryutilitarianism,betweenÔruleutilitarianismÕandÔactutilitarianismÕ53isirrelevanthere)byanalysingtheirconsequences,whilemarginalisteconomicsaimsatevaluatingcommoditiesthroughthecon-nectionbetweenexchangevalueandusevalue.Thenotionofmarginalutility,uponwhichthisconnectionisbasedÐasweshallseeinchap-ter10Ðrequiresthattheconsumptionofeachsuccessivedoseofeachcommoditybeconsideredasadifferentaction.This(andinparticularthepostulateofdecreasingmarginalutility)wasunnecessaryfromtheperspectiveofBenthamÕsLegislator;indeed,itislikelythatBenthamÐandevenmoresosomeofthebest-knownamonghisfollowers,inpar-ticularJohnStuartMillÐwouldhaveconsideredthislineofargumentasstretchingapplicationofthefeliciÞccalculustoofar.Infact,Benthamdidnotprovideasystematicanalysisofthenotionsofvalueandprice.InhiswritingsweÞndanumberofemphaticenun-ciationstotheeffectthatÔallvalueisfoundedonutilityÕ,butthissimplymeansthatÔwherethereisnouse,therecannotbeanyvalueÕ:thatis,exactlyasinSmithorinRicardo,utilitywasconsideredaprerequisiteforexchangevalue.54However,thisdidnotnecessarilyimplyattributingtoutilityaquantitativelymeasurabledimension,letalonerelyingonitforthedeterminationofexchangevalues.True,asforsomanyotherauthorsbeforehim,Benthamindicatedplentyorscarcityasfactorsaccountingforprices,speciÞcallywhiledealingwiththewaterÐdiamondparadox;butitremainsaverylongstrideaheadfromthistothemarginalisttheoryofprices,requiringclearlyspeciÞedassumptions,includingcloselydeÞneddemandandsupplyfunctions,withoutwhichitwasimpossibletoutilisethetoolsofdifferentialcalculus.53Cf.SenandWilliams1982,inparticularJohnHarsanyiÕsessay,ÔMoralityandthetheoryofrationalbehaviourÕ,pp.39Ð62.54Bentham1801,p.83.Hutchison1956,p.290,afterquotingthispassage,showshowBenthamdifferedfromSmithinincliningtowardsasubjectivetheoryofvaluebasedoncomparisonbetweenscarcityanddemand,butwithoutgoingfurtherthanthis,orthanwhatwasalreadypresentinÔthetraditionofGaliani,PufendorfandtheSchoolmenÕ(ibid.,p.291).

7DavidRicardo1.LifeandworksDavidRicardowasborninLondonin1772.Hewasthethirdofatleastseventeenchildrenofawell-to-dostockbroker,aSephardicJew.Fol-lowingthefamilytraditions,fromeleventothirteenyearsofageDavidstudiedinAmsterdam,animportantÞnancialcentrethathadrecentlylostitssupremacytoLondon,andfromwheretheRicardofamilycame(althoughitseemsthatitsoriginalrootswereinPortugal).BackinLondonattheageoffourteen,Davidbeganworkinthestockexchangewithhisfather.Soon,however,hewastobecometheprotagonistofaromanticstory:fallinginlovewithayoungQuakergirl,onreachingtheageoftwenty-onehemarriedheragainsthisfamilyÕswishes,andwasdisowned.Thuscompelledtolaunchoutonhisown,thankstohisabil-ityandtheconnectionsacquiredwhileworkingforhisfatherhesoonsucceededinreachinganimportantpositioninthebusinesscommunity.Itwaspreciselyhisworkatthestockexchangethatpromptedhimtosystematicconsiderationoftheeconomicvicissitudesofthecountry.1Animportantstimulus,forinstance,camewiththesuspensionofgoldconvertibilitybytheBankofEnglandinFebruary1797.WhileonholidayatBath,in1799,RicardohappenedtoreadSmithÕsWealthofnations,abookthentwenty-threeyearsoldbutestablishedasthemainreferenceworkintheÞeldofeconomicscience.Ricardowasnotascholarlytype,buthehadalogicalmindandsharpintelligence.Hisanalyticpenchantthusgerminatedaroundthreeelements:theimmediateeconomiceventsofhistime,debaterevolvingaroundthem,andSmithÕsbook.1AccordingtoananecdotecirculatinginCambridge,Sraffa,editorofthemonumentalcrit-icaleditionofRicardoÕsworks(Ricardo,1951Ð5),summeduphispersonalityinasinglesentence:ÔRicardowasthesonofastockbroker.ÕInalettertoGramsciÕssister-in-law,Tatiana,dated21June1932,Sraffawrote:ÔIngeneral[Ricardo]neverpursuesahistoricalpointofviewandashasbeensaid[byMarx]heconsidersasnaturalandimmutablelawsthelawsofthesocietyinwhichhelives.Ricardowas,andalwaysremained,astockbrokerwithamediocrecultureÕ(Sraffa1991,p.74).179

180TheWealthofIdeasHisÞrsteconomicwritings(in1809,Thepriceofgold,threearticlesintheMorningChronicle;in1810,ashortessayonThehighpriceofbullion,aproofofthedepreciationofbanknotes,whichreachedfoureditionswithinthefollowingyear)enteredupontheÞeldofthemonetarycontroversiesofthetime.However,hisworklefthimlittletimeforsuchendeavours.Hismaincontributionstopoliticaleconomycameafterhiswithdrawalfromthestockexchangein1815,whenhewasonlyforty-threeyearsoldbutalreadyawealthyperson,thanksinparticulartosuccessfulspeculationsontheplacingofpublicdebt.LikeRothschild,RicardohadbetonEnglishvictoryoverNapoleonand,afterthebattleofWaterloo(18June1815),hehadafortuneestimatedatmorethan£600,000ofthetimebehindhim.Ricardomovedtothecountryside,atGatcomb,andthereledthetran-quillifeofarichgentleman.Alongwiththishealsogotinvolvedinpolitics,andfrom1819wasaMemberofParliamentrepresentingPortarlington,aboroughinIrelandwithonlytwelveelectorswho,aswasusualatthetime,soldtheirvotetothehighestbidder.Ofcoursehealsojoinedintheeconomicdebatesoftheperiod,butmorethroughcorrespondencewithfriendsandparliamentaryspeechesthanwithpublications.Amongthelatter,however,hisEssayontheinßuenceofalowpriceofcornontheproÞtsofstock,publishedin1815,metwithapositiveresponse.HismainworkisOntheprinciplesofpoliticaleconomy,andtaxation,abookpublishedin1817;ithadfairifnotexceptionalsuccessintermsofreadership(withtwoneweditionsÐin1819and1821ÐintheauthorÕslifetime),buthelpedtoestablishhisstandingasaleadingÞgureinthepolitico-cultural«eliteofthatperiod.InhispublishingandparliamentaryactivityRicardodealtwithmone-tary,Þscalandpublicdebtissues.2In1816hepublishedtheshortessayProposalsforaneconomicalandsecurecurrency,inwhichhecriticisedtheBankofEngland,thenaprivateconcern,andproposedtoreintroducetheconvertibilityofthebanknotesiningotsratherthanincoins,soastofavourcirculationbasedonbanknotes,withsomesavingoncir-culationcosts.InanarticleontheÔFundingsystemÕ,writtenin1819(butpublishedin1820)forasupplementaryvolumetotheEncyclopaediaBritannica,Ricardoproposedrecoursetowealthtaxesinordertopaybackoverafour-to-Þve-yeartimespanthepublicdebtthathadpiledup2SchumpeterÕs(1954,p.473)well-knowncriticism,concerningtheÔRicardianViceÕseenasÔthehabitofapplyingresultsofthischaracter[i.e.basedonsimplifyingassumptionssuchastheinvarianceoftechnology]tothesolutionofpracticalproblemsÕ,didnotrefertotheseaspectsofRicardoÕsthought,buttohistheoryofproÞts.SchumpeterÕsobservationhas,however,widerapplication;consider,forinstance,RicardoÕsacceptanceofastrongversionofSayÕslaw(cf.above,6.3).

DavidRicardo181duringtheperiodoftheNapoleonicwars.In1823hereturnedtomone-taryissues,withashortessay(publishedposthumouslyinthefollowingyear)onaPlanfortheestablishmentofanationalbank,inwhichhepro-posedthattheissueofbanknotesbeentrustedtoaNationalBank,andthattheBankofEnglandbelimitedtotheactivityofacommercialbank(letusrecallthatonlyin1844,afterlongcontroversies,wastheBankofEnglandcompelledtoacceptinternalseparationbetweenanissuingdepartmentandabankingdepartment).Ricardodiedafterashortillness,in1823.Heleftalargeestatetohiswifeandhissurvivingchildren,withbequeststohisfriendsMalthusandJamesMill.AlthoughhewasacclaimedastheleadingÞgureofclassicalpoliticaleconomy,intheyearsimmediatelyfollowinghisdeathhisscientiÞcher-itagewasalreadygraduallybeingdissipated,withincreasingdistortionofhisoriginalthought.Withtheriseofthemarginalistapproach,after1870,theideagainedgroundofRicardoasagenius,butnotworthreading;indeed,itwasevensuggestedthatwithhisextraordinaryintelligencehehadsetpoliticaleconomyonawrongtrack.3Itwasonlywiththeten-volumeeditionofhisworksandcorrespondenceeditedbySraffabetween1951and1955(plusaÞnaleleventhvolumewiththeindexespublishedin1973)Ðaneditionthatconstitutesatruemaster-workofphilolog-icalrigourÐthatRicardoandhisscientiÞccontributionwerebroughtbacktotheattentionofeconomists,freeingtheÞeldfromanaccretionofmisinterpretationsandawakeningnew,thought-provokinginterpretativediscussionsrelatingdirectlytothecontemporarytheoreticaldebateonbasicthemesinthetheoryofvalueanddistribution.2.RicardoÕsdynamicvisionRicardosubstantiallytookoverfromSmithhisÔvisionÕoftheeconomicsystem,anduponitbuiltananalyticalconstructionadmirableinitssys-tematicandlogicallyconsistentcharacter,aimedatsupportingpoliciesconducivetocapitalisticdevelopment.LikeSmith,Ricardotookintocon-siderationasocietybasedonthedivisionoflabour,withtwobroadsec-tors,agricultureandmanufacturing,andthreesocialclassesÐworkers,capitalistsandlandownersÐwiththreecorrespondingincomecategories:wages,proÞtsandrents.AccordingtoRicardo,wagescorrespondbyandlargetothesubsistenceconsumptionoftheworkersemployedinthepro-ductiveprocess,andthereforeconstitutepartofthenecessaryexpenses3LetusrecallJevonsÕs1871,p.72,resolutestatement:Ôthatablebutwrong-headedman,DavidRicardo,shuntedthecarofeconomicscienceontoawronglineÕ.

182TheWealthofIdeasofproduction;rentsandproÞtscorrespondtothesurplus,namelytothatpartoftheproductthatremainsatdisposaloncetheinitialinventoriesofmeansofproductionandmeansofsubsistencefortheworkersemployedinproductionhavebeenreconstituted.Whilethelandlordsallottheirrentstoluxuryconsumptions,thecapitalistsareinducedbycompetitiontoinvestpracticallythewholeoftheirproÞts.Thereforeeconomicdevel-opmentstemsfromaccumulation,realisedbycapitalistsonthebasisoftheirproÞts.RicardodoesdepartfromAdamSmith,however,inthebroadlinesofanalyticalconstruction.Inhisgrandpictureoftheelementsdeterminingthewealthofnations,Smithhadtriedtokeepaccountofthemultifar-iousaspectsofeconomicreality.ThemoreanalyticalcomponentswereenclosedinaframeworkthatwemaydeÞneashistoricalanalysis:withinit,theeconomistbringstolightthemostimportantfactorsinplay,butwithcontinualreferencetotheotherelementsleftinthebackground.Ricardohadananalyticalmind,withaninnateneedforlogicalrigourandprecision,whichledhimtoconstructananalyticalbuildingsquaredwithanaxe,evenatthecostofexcludingfromanalysisanythingconsid-erednotdirectlyrelevanttotheproblemathand.Furthermore,RicardofocusedattentiononarelativelylessgeneralÞeld.Smithhadillustratedtheevolutionoftheeconomicsystemasawhole,connectedtodevelopmentsinthedivisionoflabour,andexploredthedifferentaspectsoftheissue.Ricardo,forhispart,broughtthemainfocusonthedistributionofthesurplusbetweenrentsandproÞts.Thiswasindeedacentralissue,sinceinRicardoÕsviewtheshareofincomegoingtoproÞtsconstitutesthecrucialfactorindeterminingtherhythmofcapitalaccumulationintheeconomy.Moreover,withhisanalyticalschemeitbecamepossibletolocatetheimpactonproÞtsofconstraintsoninternationaltrade,andinparticularofdutiesoncornimportsÐaburningissuebothintheperiodofthecontinentalblockadeduringtheNapoleonicwarsandintheperiodimmediatelyafter.44Asamatteroffact,theproblemofanincreaseinthepriceofcornÐwhichinRicardoÕsanalysisappearedtobeofalong-runnatureÐwasthere,andwellperceived,intheyearsofthecontinentalblockade;inthelongrun,beforeandaftertheÔhumpÕthatcharacterisedthebeginningofthenineteenthcentury,thankstotechnologicalchangeinagriculturethepriceofcerealsturnsouttohavebeenrelativelystable,asSmithhadmaintained,orevendecliningrelativelytothegeneralpricelevel(cf.SylosLabini1984,pp.31Ð6).PossiblyitwasRicardoÕspoorhistoricalcultureandhispointofviewasastockbrokerthatmadehimsensitivetothecircumstancesprevailinginaspeciÞcperiodoftimeandlesssensitivethanSmithtothelongperiodtendencies,notwithstandinghiswell-known(andcriticised)tendencytoleaveasideshortperiodphenomenainhisanalysis.Anotherexampleoftheinßuenceplayedbythecircumstancesofthetimecanbeseeninthechangeinemphasisinhismonetarytheory(cf.below,5):fromaninitialstagewherethestress

DavidRicardo183AtthebasisofRicardoÕsanalysisthereisthusthedistributionofthesurplusanditsutilisationforaccumulation.ThesizeofthesurplusÐinasense,themainobjectofanalysisforSmithÐchangesovertimeasaconsequenceoftheprocessofaccumulation.5Thismeanstakingtechnology(thusleavingasidetheproblemoftheevolutionofthedivisionoflabour),levelsofproductionandwagerateasgiven.Letusnowfocusontheselattertwoelements.Firstofall,weneedtoclarifyinwhatsenseRicardomaybeattributedwiththeassumptionofgivenlevelsofproduction.Withintheframeworkofadynamicconceptionsuchastheonewearedescribing,wecertainlycannotassumethatlevelsofproductionremainunchangedovertime.IntermsofRicardoÕsanalyticstructure,however,thisassumptionstemsfromhisacceptanceofÔSayÕslawÕ(cf.above,6.3)initsstrongversion,implyingtheimpossibilityofgeneralover-productioncrises,withthecon-sequencethatproducersmeetnodifÞcultiesinsellingthecommoditiestheyhavedecidedtoproduce.Thus,forRicardothelevelofproductionisgivenatanymomentintime,thequantitythatcanbeproducedgiventheavailableproductioncapacitybeingdeterminedbytheprocessofcapitalaccumulation.6Asfortheassumptionofagivenwagerate,RicardofollowedMalthusÕstheoryofpopulation(cf.above,6.2),andassumedthewagetobeatsubsistencelevel.RicardowasreadytoacceptTorrensÕscriticalremarksstressingtheneedtointerpretthenotionofsubsistencewagenotinapurelybiologicalsensebutasahistorical-socialminimumstandardofwasmainlyonthemechanismsofthequantitytheory,whileEnglandadoptedaregimeofinconvertiblepapermoney,toastage(withthePrinciples)inwhichthelabourtheoryofvaluecameintoplaytoexplainthevalueofgold,whilethereturntoconvertibilityofpapermoneyintogoldwasunderdiscussion.5ItwasthroughconnectionwiththeintroductionofnewmachinerythattechnologicalchangemadeitsappearanceinRicardoÕsanalyticalsystem,albeitinarelativelysecondarypositionreßectingtheunder-valuationoftechnicalprogressofwhichRicardowasaccusedinrelationtohispessimismaboutlongperiodeconomictrendsduetothecentralroleattributedto(statical)decreasingreturnsinagriculture.6Notethatthisdoesnotimplytheassumptionoffullemployment.Intraditionalmarginal-isttheory(cf.below,11.4and17.5),fullemploymentstemsfromamechanismensur-ingtheautomaticadjustmentofdemandforlabouronthepartofentrepreneurs:i.e.theßexibilityinthecapitalÐlabourratio.Thedecreaseofwagesthattakesplace(undercompetition)inthepresenceofunemploymentleadsentrepreneurstoadopttechniquesthatmakeagreateruseoflabour,andthisrendersthecapitalendowmentavailableintheeconomyinagivenmomentoftimecompatiblewithfullemployment.ThisthesisisbasedonanotionofcapitalasÔfactorofproductionÕthatnotonlyiserroneous(cf.below,16.8),butthataboveallistotallyalientoRicardoÕswayofthinking.Forhim,asforthegeneralityofclassicaleconomists,thecapitalendowmentoftheeconomyatagivenmomentintimedependsontheaccumulationthathadtakenplaceinthepast,andimpliesspeciÞctechnologies:thoseembodiedintheavailablemachinery.Inanycase,theverynotionoffullemploymentisabsentfromtheanalysisoftheclassicaleconomists.

184TheWealthofIdeaslivingacceptablefortheworkers;anyhow,heviewedwagesascorre-spondingtothenecessaryconsumptionoftheworkers,andwasthere-foreabletoconsiderthemasagivendatumfromthepointofviewofhisownproblem.7ThusthesurplusturnsouttobedividedbetweenrentsÐmainlyutilisedinluxuryconsumptionsÐandproÞts,mainlyearmarkedforinvestments.Theproblemofrentisthensolvedwiththedifferentialrenttheory:atheoryoftenattributedtoRicardo(oftenwereadofaÔRicardiantheoryofrentÕ),butinfactproposed,duringashortbutlivelydebateonthedutiesoncornin1815,byMalthusand(possibly)WestbeforeRicardo,whohoweverwasreadytounderstandanduseit.8Accordingtothistheory,rentonthemostfertilelandscorrespondstothereductioninthecostsperunitofoutput,ascomparedtocostscomputedonthelessfertilelands.Moreprecisely,foranyplotoflandtherentisequaltothedifferencebetweenunitcostsofproductiononthelessfertileamonglandsincultivation,andunitcostsonthelandbeingconsidered,multipliedbythequantityofproductobtainableonit.Rentonthelessfertileamonglandsincultivationisnilandthusdoesnotenterintothecostofproduction.9ProÞtsthusturnouttobearesidualmagnitude,namelythatpartofthesurpluswhichisnotabsorbedbyrents.7Accordingtoadifferentinterpretation,knownintheliteratureastheÔnewviewÕ(cf.Casarosa1974and1978;CaravaleandTosato1980;HicksandHollander1977),thenaturalwageequaltosubsistencelevelonlyprevailsintheverylongrun,whenthetendencytoastationarystatehasreacheditsconclusion.Themarketwagewouldinsteadbedeterminedbyamechanismsimilartotheneo-classicalonebasedonsupplyof,anddemandfor,labour.Moreprecisely,accordingtoRicardoÐifwefollowtheÔnewviewÕÐthemarketwagewouldbedeterminedbycomparisonbetweenrateofincreaseofpopu-lation,namelyoflaboursupply,whichisanincreasingfunctionofthewagerate,andrateofcapitalaccumulation,onwhichdemandforlabourdependsandwhichinturnisanincreasingfunctionoftheproÞtrateandhence,giventheinverserelationbetweenproÞtrateandwage,aninversefunctionofthewage.Incomedistributionthusprovestobedeterminedbyamovingequilibriumcorrespondingtoequalitybetweenlabourdemandandsupply.Thisisaninterpretationclearlygroundedontheneo-classicaltheoreticalapproach,attributionofwhichtoRicardoimpliesathoroughlydistortedreadingofhiswritings.ForcriticismoftheÔnewviewÕ,cf.Roncaglia1982;Rosselli1985;Peach1993,pp.103Ð31.8Cf.below,8.2.Thetheoryofdifferentialrentalsohasitsprecursors:Schumpeter1954,pp.259Ð66,recalledamongothersJamesAnderson(1739Ð1808),JamesSteuartÕsPrinciples(1767)andTurgot1766.9Thisaspectgaverisetowidedebateinthefollowingdecades,untilmarginalisttheoryprevailed.Accordingtothislattertheory,asiswellknown,rententersintocostofpro-ductionsinceitcorrespondstopaymentfortheserviceoftheproductivefactorland.Thustheauthorswhomaintainedaroundthemid-nineteenthcenturythatrentshouldbeincludedinthecostofproductionmaybeconsidered,onthisaccount,precursorsofmarginalisttheory.

DavidRicardo185Wehaveseenthateconomicgrowthstemsfromaccumulation,andhencefromproÞts;therefore,whateverreducesproÞtsconstitutesahin-drancetoaccumulation.Ifweassumethesizeofthesurplusasgiven,thenproÞtsfallwhenrentsonlandincrease.AccordingtoRicardo,ceterisparibusthishappensautomaticallyduetoeconomicdevelopmentitself:thegrowthoftheeconomyisaccompaniedbypopulationgrowth,whichmeansanincreaseinfoodconsumption,andhenceindemandforagri-culturalproducts.Thisinturnleadstoexpansionincultivation.Letusassumethatthelandsbroughtundercultivationaremorefertilethantheonesleftuncultivated.10Asnewlandsarebroughtundercultivation,thelessfertileamongthecultivatedlands,namelytheso-calledÔmarginallandÕfortheuseofwhichnorentispaid,proveeverlessfertile.There-fore,proÞtsearnedonthemarginallanddecrease,duetotheincreaseincostsperunitofoutput.Therentsincreaseonalreadycultivatedlands,andasaconsequencetheproÞtsofthefarmersdecrease.SuchadecreaseinproÞtsistransmittedfromagriculturetomanufacturing,throughtheincreaseinthepriceofagriculturalproducts,andhenceinwages.Allthishindersaccumulation.Thepolicyimplicationisobvious.Importsofforeigncornarethebestwaytocopewithincreaseddemandforfoodduetotheriseinpopulation.Indeed,importsmakeitpossibletoavoidbringingundercultivationnew,lessfertile,landswiththeconsequentincreaseinrent,decreaseinproÞtsandinthepaceofaccumulation.ItisthusopportunetoeliminateallobstaclesÐsuchascustomsdutiesÐtotheimportationofagriculturalproducts.Thetheoryofcomparativeadvantages,whichRicardodevelopedinthePrinciplesandwhichweshallconsiderbelow(6),reinforcesthepolicyconclusion,thatobstaclestointernationaltrade,andcustomsdutiesinparticular,arebestremoved.Withthistheory,indeed,Ricardoshowedthattheadvantagesofinternationaltradestemfromimprovementinproductivetechnologywhenallthecountriesinvolvedintradeandhenceintheinternationaldivisionoflabourareconsideredasawhole.Thereisthereforeageneralimprovementforeverycountry,notanadvantageforsomeattheexpenseofsomeoneelse,eveniftheproblemremainedopenastohowthefruitsoftheseimprovementscometobedistributed10Thisassumptionwascriticised,ascontrarytoreality,byAmericanwritersofthetimesuchasHenryCharlesCarey(1793Ð1879);theircriticismsarejustiÞedattheempir-icallevelforthenewcolonies,butdonotgraspthemainpointinRicardoÕsanalyti-calreasoning.InhisPrinciplesofpoliticaleconomy(1840),CareyalsocriticisedRicardoatthepoliticallevel:ÔMrRicardoÕssystemisoneofdiscords[…]itswholetendstotheproductionofhostilityamongclassesandnationsÕ(quotedinBharadwaj1978,p.25).

186TheWealthofIdeasamongthedifferentcountries.11RicardoÕsanalyticalconstructionaimedmainlyatshowingthattheabolitionofdutiesoncornhadpositiveeffectsontherateofaccumulationandhenceontheÔwealthofnationsÕ.Ricardothusexpressedattheanalyticalleveltheclashofinterestsbetweenthelandlords,politicallydominantinhistimes,andtheinfantmanufacturingbourgeoisie:aclashofintereststhatfoundinthepolit-icalcontentionovertheexpediencyofdutiesoncornimportsoneofitscentralepisodes.12TheconstructionofasoundanalyticalstructureforclassicalpoliticaleconomyconstitutesRicardoÕsmaincontributionbothtotheprogressofeconomicscienceandtothegradual,difÞcultandpartialvictoryofthepoliticalpositionhesupported.3.FromthecornmodeltothelabourtheoryofvalueWesawintheprevioussectionhowRicardowasabletoconsiderasagivendatuminhisanalysisthesizeofthesurplusand,withinit,theshareofrents.ProÞtsthusappearasaresidualmagnitude:whatisleftoncewesubtractfromtheproductboththerentsandwhatwasnecessarytoobtainit,namelythemeansofproductionandsubsistencefortheworkersemployed.However,ratherthantheaggregateamountofproÞts,itistherateofproÞtsthatisatthecentreoftheanalyticalediÞceofclassicalpoliticaleconomybuiltbyRicardo.Thisisdueessentiallytotworeasons.First,inacapitalisticsocietydrivenbycompetition,inwhichcapitalistsarefreetomovetheircapitalsfromoneinvestmenttoanother,thereturnonthefundsinvestedinthedifferentsectorsÐtherateofproÞtsÐmustbemoreorlessequal.Hence,therateofproÞtsregulatestheeffortthatsocietyputsintotheproductionofthedifferentcommodities,anditisthiscompetitivemechanismbasedonthetendencytoauniformrateofproÞtswhichensuresthatthequantitiesofdifferentcommoditiesproducedmoreorlesscorrespondtothequantitiessoldintheeconomy.11JohnStuartMillsomeyearslaterfocusedattentiononthispoint,showinghowtherelativedimensionsofdemandcomingfromthetwocountriesacquireimportanceinthisrespect.Itwasalongthisrelativelysecondaryroadthatdemandmadeitsappearanceasafactordeterminingrelativepricesintheanalysisofclassicaleconomists;asweshallsee,itwaspreciselybyestablishingalinkbetweenÔpuretheoryofforeigntradeÕandÔpuretheoryofdomesticpricesÕthatMarshallstarteddevelopmentofhistheoreticalconstructionaimingatasynthesisbetweentheclassicalandmarginalistapproaches(cf.below,13.2).12AbolitionofdutiesoncornimportsinEnglandoccurredonlymanyyearslater,in1846,afterÞercepoliticalbattlesinwhichtheAnti-CornLawLeague,foundedinManchesterin1838byCobden,playedacentralrole.HencethetermÔManchesterismÕ,designating,asfromthisperiod,freetradeideology.

DavidRicardo187Second,therateofproÞtsisalsoÐundertheassumptionsadoptedbyRicardoÐanindicatorofthepotentialpaceofgrowthoftheeconomy.Infact,itisbydeÞnitionequaltotheratiobetweenproÞtsandcapitaladvanced;assumingthatproÞtsarewhollyallottedtoinvestments,theratioprovesequaltotheratiobetweeninvestmentsandcapitaladvanced,orinotherwordstotherateofaccumulation.Furthermore,ifweleaveasidetechnicalchange(inclusiveofnon-constantreturnstoscale)andifweassumeavailableproductivecapacitytobefullyutilised,weÞndthattherateofproÞtsisequaltotherateofgrowthofnationalincome.13Tobesure,Ricardodidnotexplicitlyillustratetheserelations,buttheydoexpressinanalyticalformthesubstanceofhisthinking(inparticular,PasinettiÕs1960ÔRicardianmodelÕ,followedbyalargeliterature,wasbasedonthem).Furthermore,itisclearthatforRicardotoexplainifandwhytherateofproÞtstendstodecreaseinthecourseoftheprocessofdevelopment,andtolocatethefactorsthatmaycounterthistendency,meantexplainingthepaceofdevelopmentoftheeconomy.ForthesetworeasonsÐitsroleinregulatingthecompetitivework-ingofthecapitalisticeconomyanditsroleintheprocessofeconomicdevelopmentÐdeterminationoftherateofproÞtsconstitutesacentralaspectinRicardoÕsanalyticalediÞceandmoregenerallyinthewholeclassicaltradition.InthisÞeld,Ricardogavecrucialanalyticalcontribu-tions,goingmuchfurtherthanthevagueSmithianideaofanormalrateofproÞtsdeterminedbythepressureofcompetitionbetweenthecapitalsavailableforinvestment,athesisthatRicardostaunchlyopposed.AccordingtotheinterpretationsetoutbySraffaintheintroductiontohiseditionofRicardoÕsWorksandcorrespondence(Sraffa1951),wecandistinguishtwosuccessivestagesinthedevelopmentofRicardoÕsthought.TheÞrst,Sraffaconjectured,probablystartedin1814,withanoteontheÔproÞtsofcapitalÕsincelost,andendedwiththe1815Essay;14thesecondstagebeganwithMalthusÕscriticismofRicardoÕsÔcornmodelÕ,toconcludewiththe1817Principles(althoughRicardocontinuedtoponderoverthedifferentaspectsoftheproblemtotheverylastdaysofhislife).Letustakeacloserlookatthisissue.13LetusdenotewithYincome,withPproÞts,withIinvestments,withKinvestedcapital,withrtherateofproÞtsandwithgtherateofaccumulation(which,ifthecapitalÐincomeratioisconstant,correspondstotherateofincreaseoftheeconomy).BydeÞnition,r=P/Kandg=I/K.IfweassumethatinvestmentscorrespondtoproÞts,namelythatP=I,wehaver=g.14SraffaÕsinterpretation,whichhaditthatinthisÞrststageRicardodeterminedtherateofproÞtsasaratioofphysicalquantitiesofoneandthesamecommodity,corn,wasques-tionedbyHollander1973.Thisledtoacloseconsiderationofthepoint(cf.Bharadwaj1983;Eatwell1975a;Garegnani1982;Hollander1975and1979,pp.123Ð90;Peach1993,pp.39Ð86,whosebibliographyoffersfurtherreferences);fromthisdebate,how-ever,noatleastequallyconvincingalternativeinterpretationemerged.

188TheWealthofIdeasTherateofproÞts,wesaid,isequaltotheratiobetweenproÞtsandcapitaladvanced.Obviously,inordertocomputesucharatioitisneces-saryforproÞtsandcapitaladvancedtobeexpressedintermsofhomo-geneousmagnitudes.IntheÞrststageofhisresearch,RicardoattainedthisconditionbyinterpretingproÞtsandcapitaladvancedintheagricul-turalsectorasdifferentquantitiesofthesamecommodity,ÔcornÕ.15Aswesaw,theeconomywassubdividedintotwosectors,agricultureandmanufactures.Ricardoassumedthatintheformersectoronlyonecom-moditywasproduced,ÔcornÕ.Thiscommodityisalsothesolemeansofproductioninagriculture,asseed,andthesolemeansofsubsistencefortheworkersemployedincultivatingtheland.Wesawthat,accordingtotheÔRicardianÕtheoryoftherent,onthemarginalland(thelessfertileamongthelandsundercultivation)rentisnil,andallthesurplusgoestoproÞts.Letusassume,forinstance,thatonthemarginalland100tonsofcornareproduced,utilising30tonsasseedand50tonsassubsistencefortheworkers;thesurplus,thatgoesentirelytoproÞts,isequalto20tonsofcorn(100−30−50=20),andtherateofproÞtsisequalto25percent(20/80=0.25).Inthiswaywecancircumventtheproblemofvalue:thatis,theneedtodeterminetherelativepricesofthegoodsthatenterintothecapitaladvancedandsurplussoastobeabletocomputethevalueofproÞtsandofcapitaladvanced,andhencetherateofproÞts.Obviously,sinceundercompetitiontherateofproÞtsmustbethesameinthedifferentemploymentsofcapital,arateofproÞtequaltothatcomputedonthemarginallandwillhavetoprevailnotonlyinthewholeagriculturalsector,butalsoinallmanufacturingactivities.Inthislattersector,ÔcornÕandmanufacturedgoodsareemployedasmeansofproductionandmeansofsubsistenceinordertoobtainmanufacturedgoods,whoserelativepricesadjustinsuchawayastoensuretheuniformityoftherateofproÞtsinallsectorsoftheeconomy.Inaletterof5August1814,MalthushadobjectedtoRicardothatÔinnocaseofproduction,[thereforenotevenintheagriculturalsector]istheproduceexactlyofthesamenatureasthecapitaladvancedÕ.16Inotherwords,Ricardocouldnotsoblithelycircumventtheproblemofvalue15AccordingtoPeachÕs(1993,pp.39Ð86)interpretation,onthecontrary,Ricardomea-suredcostsincornwhileassumingasgiventheratioofexchangebetweencornandothermeansofproduction.PeachÕsreconstructionimpliesarathermoreshakyRicardoatthetheoreticallevel,lesssystematicandlessconsistentthaningeneralhiscontemporariesconsideredhimtobe,whileMalthusgainsstature.PeachÕscriticismsoftheÔSrafÞanÕinterpretationofRicardo,however,whileconcerningimportantaspects,implynosub-stantivechangetothedescriptionabove(in2)ofthecoreofRicardoÕspictureofthefunctioningoftheeconomy.16Ricardo1951Ð5,vol.6,p.117.

DavidRicardo189bydeterminingtherateofproÞtsasaratiobetweendifferentphysicalquantitiesofthesamecommodity,sinceinanyproductiveprocessmeansofproductionareusedthatareheterogeneousamongthemselvesandwithrespecttotheproduct.Afterponderingatlengthoverthesecriticisms,thevalidityofwhichhewasreadytorecognise,RicardocameupwithanewsolutioninthePrinciples,adoptingthelabourembodiedtheoryofvaluetoexplainrel-ativeprices.Accordingtothistheory,theexchangeratiobetweentwocommoditiescorrespondstotheratiobetweenthequantitiesoflabourdirectlyandindirectlyrequiredtoproduceeachofthem.Ricardocon-sideredthisnewsolutionastepforwardfromthepreviousone,althoughhedidnotseeitasperfectsinceitwasbasedondrasticallysimplifyingassumptionsÐasmanyofhisfriends(inparticularTorrensand,ofcourse,Malthus,asusual,butnotJamesMill,toouncriticalinhisfriendship)immediatelyremindedhim.17However,fromthepointofviewofhispoliticalobjectivesÐattackonrentsÐRicardothoughtthathisreasoningwassufÞcientlyvalid,andthatthedifÞculties(theÔcomplicationsÕthathavetobeintroducedinordertodealwiththeproblemofvalue)couldbeovercome.Smithhadalreadyproposedthistheory,alsopresentintheScholastictradition,asholdingintheÔearlyandrudestateÕthatprecededsepara-tionbetweenlabourandtheownershipofcapitalandland,andhenceseparationintothedifferentsocialclassesofcapitalists,landlordsandworkers.Ricardoextendsapplicationofthetheorytocovercapitalisticeconomiestoo,assumingthatforeachcommoditytheamountofproÞtsandrentsthathavetobeaddedtothecostoflabourinordertoarriveatthepriceisroughlyproportionaltotheamountoflabouremployedintheproductiveprocess.Onceagain,thisisclearlyanunrealisticassumption,asRicardohimselfrecognised,discussingitinsectionsivandvoftheÞrstchapterofthePrinciples,butthisdidnotworryhimtoomuch.Hismainobjectivewas,infact,toworkoutnotsomuchatheoryofrelativepricesasatheoryabouthowthesurplusisdistributedamongthesocialclassesandusedforconsumptionoraccumulationpurposes,whichthus17Cf.Torrens1818,RicardoÕscorrespondencewithhisfriendsandcolleagues(Ricardo1951Ð5,vols.7Ð9;cf.forinstanceMalthusÕslettersinvol.7,pp.176,214Ð15,andinvol.8,pp.64Ð5),andMalthusÕsPrinciplespublishedin1820(inRicardo1951Ð5,vol.2,pp.55Ð79).JamesMillgaveadecisivecontributiontopublicationofRicardoÕsPrinciples,ÞrstofallbypushingandsupportinghisfriendinthedifÞcultenterpriseofproducingabook(especiallydifÞcultforRicardo,becauseofhisculturalbackground),andsecondlywithadviceonspeciÞcpointsofexpositionandpossiblywithcompilationoftheindex(cf.Sraffa1951,pp.xixÐxxx).Allthis,however,doesnotimplyanyinßuenceofMillonthesubstantivecontentofthePrinciples;anexception,assuggestedbyThweatt1976,mightbethetheoryofcomparativecosts.

190TheWealthofIdeasdoesnotconcerntheindividualproductiveprocessesbuttheeconomicactivitiesofacountryasawhole.Indeed,thankstothelabourtheoryofvalueRicardowasabletomea-sureboththeproductandthemeansofproductionandsubsistenceinhomogeneousterms,asthequantitiesoflabourbestowedontheirpro-duction.Moreprecisely,thevalueoftheyearlyproduceofaneconomicsystemisequaltothequantityoflabourspentasawholeinthesameperiodoftime(measuredforinstanceinman-yearsandthusequaltothenumberofproductiveworkersemployedinthesystem).18Computedasthedifferencebetweenthevalueoftheproductandthevalueofthemeansofproduction,thevalueofthesurplusalsoemergesexpressedasacertainquantityoflabour.Oncetheproblemofrentissettledanddonewith,proÞtstooturnouttobedeterminedasacer-tainquantityoflabour.TheratiobetweenproÞtsandcapitaladvanced,bothexpressedasquantitiesoflabour,isthusonceagainexpressedasaratiobetweendifferentphysicalquantitiesofonemagnitude(labourtime).19Thus,withhislabourtheoryofvalue,Ricardoonceagainsucceededincircumventingtheproblemofvalue,butonceagainatthecostofdrasticandunrealisticsimpliÞcations,sothesolutionheproposedcannotbeseenasÞnal.Ricardowaswellawareofthisand,asweshallseeinthenextsection,continuedtodwellonthesubjectofvaluetothelast,butwithoutgettingappreciablyfurther.Nonetheless,thestructureofhisanalyticediÞce,basedonthenotionofthesurplusandcentredontherelationshipbetweenaccumulationandincomedistribution,remainsa18LetusrecallhereRicardoÕsdistinctionbetweenÔvalueÕandÔrichesÕ(inchapter20ofthePrinciples,1817:Ricardo1951Ð5,vol.1,pp.273ff.):wheneverthereisanimprovementintechnologyandthequantityproducedincreasesforagivenamountoflabourbestowedinproduction,thevalueofthenationalproduct(intermsofthelabourtheoryofvalue)bydeÞnitionremainsunchanged;whatwehaveisanincreaseinÔrichesÕ,whichRicardodeÞnesascorrespondingtoSmithÕsnotionoftheÔwealthofnationsÕ,namelyÔthedegreeinwhich[aman]canaffordtoenjoythenecessaries,conveniences,andamusementsofhumanlifeÕ(Smith1776,p.47).19LetusdenotewithLthenumberofemployedworkers(andhencetheamountoflabour,expressedinman-years,expendedinayear).Lthuscorrespondstothevalue,inlabourterms,oftheyearlyproduceoftheeconomy.LetusalsoindicatewithLwthevalue,againintermsoflabour,ofthecommoditiesrequiredforthesubsistenceofemployedworkers,whichbyassumptioncorrespondstothewagespaidtothem,andwithLcthevalueofmeansofproductionutilisedoverallwithintheyear(undertheassumptionthatonlycirculatingcapitalisused).Letusdisregardrentsforthesakeofsimplicity.Letusassumethatallproductiveprocesseslastoneyear,andthatwagesandcirculatingcapitalareadvancedbycapitalistsatthebeginningoftheyear.ThevalueofcapitaladvancedonthewholeisthenequaltoLw/Lc,whilethevalueofproÞtsPisequaltothedifferencebetweenproductandcostsofproduction,namelyP=L−Lw−Lc.TheproÞtraterisequaltotheratiobetweenproÞtsandcapitaladvanced,namelyr=(L−Lw−Lc)/(Lw+Lc).

DavidRicardo191landmarkbothforthedebatesofhistimesandforourunderstandingoftheÔclassicalparadigmÕofpoliticaleconomy.4.Absolutevalueandexchangeablevalue:theinvariablestandardofvalueAswesawintheprevioussection,inthePrinciplesthevalueissueappearssettledinawayRicardoconsideredacceptableforhisownpurposes,butrelyingondrastic,unrealisticsimpliÞcations.Overandabovethecriti-cismsofhiscontemporaries,fromMalthustoTorrens,thisconstitutedachallengeforoneofRicardoÕsrigorousmentality.TothischallengehedevotedpartofhistimeÐsidebysidewithhisactivityasaMemberofParliamentandasprotagonistinthecurrenteconomicdebatesÐthrough-outaperiodspanningfromthepublicationoftheÞrsteditionofthePrin-ciplestoanessayonAbsolutevalueandexchangeablevaluewrittenin1823,inthelastfewweeksofhislife.AsearlyastheÞrsteditionofthePrinciples,aswehaveseen,Ricardohadpointedoutthelimitsofthelabourtheoryofvalueasanexplanationoftherelativepricesofthedifferentcommodities;inthesubsequenteditions(1819and1821)theseaspectsarespeciÞed,alsotakingintoaccountacriticalblowbyTorrens(1818),thoughwithoutsubstantialchangesintheoriginalposition.20AccordingtoRicardo,therelativepricesdeterminedastheratiobetweenthequantitiesoflabourdirectlyandindirectlyrequiredtopro-ducethedifferentcommoditiesviolatetheconditionofauniformrateofproÞtsinthedifferentsectorsoftheeconomyforthreereasons:differentdurabilityofproductiveprocesses;changingratiobetweenÞxedandcir-culatingcapital;anddifferentdurabilityofÞxedcapitalinthedifferentsectors.Moreprecisely,ifforanycommoditywechooseasstandardofmeasurethequantityofitthatrequiresanhouroflabourforitsproduc-tion,inordertoensureuniformityoftherateofproÞtsinallthedifferentsectors,proÞtperunitofoutputwillhavetobegreaterinsectorscharac-terisedbyhigherdurabilityofproductiveprocess,orhigherratiobetweenÞxedandcirculatingcapital,orhigherdurabilityofÞxedcapital.20ThethesisofaprogressivemoveawayfromthelabourtheoryofvalueonthepartofRicardointhesuccessiveeditionsofthePrincipleswasmaintainedbyJacobHollander1904andbyCannan1929,butwasdemolishedbySraffa1951.Peach1993,pp.189Ð240,maintainedinsteadthethesisofaRicardoincreasinglytakenwithdefenceofthelabourtheoryofvalue,eventuallyattributing(inthethirdeditionofthePrinciples,andespeciallyintheessayonAbsolutevalueandexchangeablevalue)tothelabourbestowedonproductionasigniÞcanceofabsolutevalue,whichbecomesthenecessarystartingpointtoexplainexchangevalue.

192TheWealthofIdeasThelabourtheoryofvaluemaythereforebeconsideredasatmostanapproximatetheoryofrelativeprices.ForRicardo,however,theproblemwasnotsomuchthatofestablishinghowwidethemarginofapproxima-tionmightbe(anaspectthatgaverisetodebatebetweencommentators,someattributingRicardowiththeideaofa93percentapproximationandthushavingnodifÞcultyindemonstratingthattheerrormayinfactbemuchlarger).21Rather,theproblemrevolveduponthepossibilityofÞnd-ingrigorousanchorage,anÔinvariablestandardÕ,forexchangevalues.22Inthesearchforsuchanchorage,Ricardofoundhimselfclingingtoatraditionaltermofreference,namelythelabourtimerequiredtoobtainacertainquantityofproduct.Inthiscontext,theuseofthetermÔabsolutevalueÕimpliesacertainambiguitybetween,ontheonehand,thechoicetorelyforhistheoryofnaturalpricesontherelativedifÞcultiesofproductionofdifferentcommoditiesand,ontheotherhand,thevaguelymetaphysicalelementsimplicitinthetraditionalideathatthevalueofacommoditystemsfromthesacriÞcerequiredoftheworkerinordertoobtainit.TheuseoflabourasastandardÐthatis,thechoicetouseasstandardacommodityproducedbyagivenandunchangeablequantityoflabourÐhastheadvantagethatitprovidespreciseanswerswhenconfrontedwithchangesintechnology.Inthisrespect,italsosatisÞesthedialecticalneedtocontrastatheoryofexchangevaluesbasedonthedifÞcultyofproduc-tionwiththenotion,everpresentineconomicdebate,ofamechanismbasedondemandandsupply.InRicardoÕsthought,asalreadyinSmithÕs(cf.above,5.6),theinterrelationshipbetweensupplyanddemandonly21Cf.Stigler1958;Barkai1967and1970;Konus1970.Thereferencestotheempiri-calrobustnessofthelabourtheoryofvalueasanapproximationtoanexacttheoryofexchangevalueswereinsertedbyRicardointhethirdeditionofthePrinciples,butareclearlyincidentaltothemainlineofreasoning.TheinterpretationofRicardoasasup-porterofanÔempiricalÕlabourtheoryofvalueappearsforcedandreductiveatthesametime.Forcriticismindepthofthisinterpretation,cf.Peach1993,pp.25Ð6and215Ð17.22ThesearchforastandardofvalueinRicardoÕsanalysiswasconnected,amongotherthings,withthethemeofmoney.Cf.below,5;andMarcuzzoandRosselli1994.Aboveall,wemustbearinmindtheimportance,inthatperiod,ofattemptstounifyphysicalmeasureswithineachcountry,andthetheoreticaldebatesthataccompaniedtheseattempts.Inthecaseofthemetre,introducedinpost-RevolutionaryFrancein1793withadecisionoftheNationalAssembly,thenaturalfoundationforthedeÞnitionofthestandardwasfoundinthelengthofameridianarchatagivenlatitude.Todaythesemeasuresaretakenforgranted,anditisraretopondertheimportanceofastandardofmeasurecommontoallandthedifÞcultiesofitsobjectiveidentiÞcation,butinthelongphaseoftransitionthequestionwaswelltothefore,bothinintellectualdebateandinthepracticeofdailylife:cf.Kula1970forahistoryoftheproblem.Wemaywellunderstandhow,atacrucialmomentinthattransition,theideaofanaturalstandardofvalueshouldhaveappearedparalleltotheideaofanaturalstandardforphysicalmagnitudes.Weshould,however,addthatmanyeconomistswereawareoftheerrorindrawingparallelsbetweenphysicalmeasuresandvaluemeasures:cf.forinstanceBailey1825,p.96(quotedbyPeach1993,p.227n.).

DavidRicardo193concernstheadjustmentofmarketpricestonaturalprices,notthedeter-minationofthelatter:Itisthecostofproductionwhichmustultimatelyregulatethepriceofcom-modities,andnot,ashasbeenoftensaid,theproportionbetweenthesupplyanddemand:theproportionbetweensupplyanddemandmay,indeed,foratime,affectthemarketvalueofacommodity,untilitissuppliedingreaterorlessabundance,accordingasthedemandmayhaveincreasedordiminished;butthiseffectwillbeonlyoftemporaryduration.Ricardothenwentontohighlightthecontrastbetweenhispositionandthatofhisfriend-adversaryMalthus,whohaditthatnotonlymarketbutalsonaturalpricesaredeterminedbydemandandsupply.Theissueisconsideredcrucial:Theopinionthatthepriceofcommoditiesdependssolelyontheproportionofsupplytodemand,ordemandtosupply,hasbecomealmostanaxiominpoliticaleconomy,andhasbeenthesourceofmucherrorinthatscience.23ThusRicardo,intheÞrsteditionofthePrinciples,adoptedasÔinvariablestandardÕacommodityproducedbyayearoflabourwithoutthehelpofcapitalgoods.Inthiswaywehaveaclearcriteriontodeterminetheoriginofchangesinexchangevalues.Forinstance,letusconsidertheexchangevalueoftwocommodities,AandB,intermsofthisinvariablestandard,andletusassumethatthetechniqueforproducingoneofthesetwocommodities,A,changes,whilethetechniqueforproducingBremainsunchanged.WecanthenunequivocallyestablishthatthevariationinexchangevaluebetweenAandBoriginatesincommodityA,whichhaschangedinvalueintermsofthechoseninvariablestandard,whilethevalueofcommodityBisseentobeconstant.However,thestandardchosenbyRicardoprovesinadequatewhenconfrontedwithchangesinthedistributionofincomebetweenwagesandproÞts.Indeed,whentwocommoditiesproducedbythesamequantityoflabourareobtainedoverdifferentperiodsofproductionorwithadifferentproportionbetween23Ricardo1951Ð5,vol.1,p.382.Cf.alsothelettertoMalthusof30January1818(inRicardo1951Ð5,vol.7,pp.250Ð1)quotedbyPeach1993,pp.258Ð9.AlsointerestingistheargumentwithwhichRicardocriticisedtheexplanationofexchangevaluesug-gestedbyMalthus,basedontherelativeestimateofcommoditiesonthepartofbuyers.AccordingtoRicardo(1951Ð5,vol.2,pp.24Ð5;quotedbyPeach1993,pp.247Ð8),ÔThiswouldbetrueifmenfromvariouscountriesweretomeetinafair,withavarietyofproductions,andeachwithaseparatecommodity,undisturbedbythecompetitionofanyotherseller.Commodities,undersuchcircumstances,wouldbeboughtandsoldaccordingtotherelativewantsofthoseattendingthefairÕ;however,Ricardowenton,thisnolongerholdswhenwehavecompetitionbetweendifferentproducersforeachcommodity,sincethepricesarethengovernedbycostsofproduction.MalthusÕsviewwasclearlyexpressedinvariouspassagesofhisPrinciples(1820),inparticularinsectionsiandiiiofchapter2(reproducedinRicardo1951Ð5,vol.2,pp.36Ð54).

194TheWealthofIdeasÞxedandcirculatingcapital,theirrelativevaluechangeswhendistributionchanges,andourinvariablestandardcangivenoindicationoftheoriginofthisvariationinexchangevalue.Initially,RicardoappliedhisreßectionsonthestandardofvalueincriticisingathesisheattributedtoSmith.Thiswastheideathat,ifthewageortherateofproÞtsincreases,asaconsequencethenaturalpricesofcommoditiesshouldalsoincrease.Thisthesisconnectstotheinter-pretationofSmithÕstheoryofpricesasanÔaddingupofcomponentstheoryÕ.Accordingtothistheory,thecostofproductionofacommoditycanbedecomposedintolabourdirectlynecessarytoitsproduction,landandothermeansofproduction;withanalogousbreakdownoftheproductioncostofthemeansofproductionwecanproceedbackwards,untiltheresiduumofmeansofproductiondisappearsorbecomesnegligible,andallcostsarereducedtolabourandlandinvestedforspeciÞedperiodsoftime,andthustowages,proÞtsandrentscomputedattheirnaturalrates.Giventhetechnologyinuse(andthereforegiventhequantitiesoflabourandlanddirectlyorindirectlynecessarytoproduceacommodity,andgiventhelengthofthetimeintervalsforwhichlabourandlandremaininvested),knowingthenaturalwagerate,rentandnaturalrateofproÞts,itiseasytocomputethenaturalpriceoftheproduct.Theßawinthistheoryliesintheassumptionthatwagerate,rentandrateofproÞtsareindependentofeachother:onlyinthiscase,infact,canthepricebecomputedbyaddingupthethreecomponents.Fur-thermore,insuchacaseanincreaseinoneofthethreedistributivevariablesautomaticallytranslatesintoacorrespondingincreaseinthenaturalpriceoftheproduct.ThisispreciselythepointthatRicardodidnotaccept,inlinewithhisbasicthesisoftheoppositionbetweenrentsandproÞts.Preciselyinordertoshowthattheincreaseinoneofthedistributivevariablesisnotnecessarilyfollowedbyanincreaseinallprices,RicardochoseasstandardthecommodityproducedbyayearÕslabour,withnocapitaladvancesandnoland.Ifthewagerateincreases,thepricesofallothercommoditiesdecreaseincomparisonwiththecommoditychosenasstandardofmeasure,sinceforthemtheratiobetweenindirectanddirectlabour,andhencetheweightofproÞts(whichdecreasewhenwagesincrease),ishigher.OnceagainitwasMalthuswhocriticisedtheexcessivesimplicityofRicardoÕsassumption.Ricardoacceptedthecriticisms,whilemaintainingthattheydidnotaffectthesubstanceofhisposition.24Anumberof24SeeMalthusÕsletterof10September1819,inRicardo1951Ð5,vol.8,pp.64Ð6,andRicardoÕsanswer(afteranexchangeofclariÞcationsinotherletters)of9November1819,inRicardo1951Ð5,vol.8,pp.128Ð31.

DavidRicardo195commodities,Malthussaid,mayhaveaperiodofproductionshorterthanayear,andasaconsequenceaweightofproÞtslessthanthatofthecommodityproducedbyayearÕsunassistedlabour.TheextremecaseisthatofacommodityproducedbyadayÕsunassistedlabour.Clearly,thereasoningRicardofollowedincriticisingSmithappliestothiscase.MalthusÕscriticismsledRicardotopursueadifferentlineofresearch.Thus,inthethirdeditionofthePrinciplesandespeciallyinhislastwork,Absolutevalueandexchangeablevalue,RicardoreferredtoanÔaveragecom-modityÕ(ananalyticaltoolthat,asweshallseein9.7,wouldbetakenupbyMarxinasimilarcontext),holdinganintermediatepositionbetweenthecommoditieswhosepricesriseandthosewhosepricesdecreasewhenthewagerateincreases.Ifwetakesuchacommodityasourstandard,thevariationsinthepricesofothercommodities,someincreasingandothersdecreasing,balanceout.Wethushavetheadvantagethatthenationalproductdoesnotvaryinsizewhenincomedistributionchanges,whichbringsoutthefactthatincreaseinoneofthedistributiveshares(forinstance,thatofrents)hastobeoffsetbydecreaseinanother(forinstance,thatofproÞts).However,itisclearthatsuchachoicedoesnoteliminatetheÔcomplicationsÕconnectedtothetheoryofvalue:inordertoverifywhetherincreasesanddecreasesinthepricesofdifferentcommoditiesexactlycancelout(apointRicardodoesnotworryabout)weneedtoformulateanadequatetheoryofexchangeratios,keepingaccountoftheconditionofuniformityoftherateofproÞtsinthedifferentsectors.OncethesedifÞcultiesarefacedupto,thepathRicardotookinhissearchforanÔinvariablestandardofvalueÕappearsadeadend.Letustrytoseewhy.LikesomanyeconomistssincePetty,RicardoadoptedatheoryofexchangevaluesbasedontherelativedifÞcultyofproductionofthevariouscommodities.Theproblemofvaluewouldthenbesolved,takingthisapproach,wereitpossibletoÞndanexactmeasureofthedifÞcultyofproduction.InordertofulÞlthistask,theinvariablestandardofvalueRicardowaslookingforshouldhaveatwofoldcharacteristic,namelyinvariancebothwithrespecttochangesintechnologyandwithrespecttochangesinthedistributionofincome.LabourrequiredforproductionfulÞlstheÞrstrequisite,butasfarasthesecondrequisiteisconcerned,itcontradictstheassumptionÐacrucialoneforthewholeofclassicalpoliticaleconomyÐofauniformrateofproÞtsinthepresenceofcompetition.Ricardorealisedthathiseffortsinthisdirectionweregettingnowhere,butheremainedconvincedÐatapre-analyticallevel,wemightsayÐthatlabourtimemusthavesomethingtodowithsuchaninvariablestan-dardofvalue.ThismeansthattherewasinRicardo(astherewouldbe,instillmoreacuteform,inMarx)ametaphysicalresiduum:thepurely

196TheWealthofIdeasanalyticalproblemofaprecisemeasureofvalue(andofthepossibilityorimpossibilityofÞndingit)wasmixedupwiththepurelymetaphysicalproblemofÞndingthefoundation,theultimateorigin(or,asMarxsaid,theÔsubstanceÕ)ofvalue:andsuchanultimateorigincannotbefoundbutinlabour.TheconfusionbetweenthetwoproblemswouldonlybesortedoutbySraffa,withhisanalysisofthestandardcommodity.25TheideathatitshouldbepossibletoÞndanÔabsoluteÕmeasureofthedifÞcultyofproductioncorresponds,inasense,tothedesiretoisolateaÔnaturalÕaspect,sidebysidewiththeinstitutionalone,ininterpret-ingthefunctioningofasocietybasedonthedivisionoflabour.Inthissense,forinstance,wemayinterpretSmithÕs1776,p.65,referencetotheÔearlyandrudestateofsocietyÕthatprecedesseparationintotheclassesofworkers,capitalistsandlandlordsandinwhichthelabourtheoryofvalueholds.However,anysuchattemptisvitiatedbyabasicßaw:thedivisionoflabourisonlypossibleinthepresenceofawebofexchangeslinkingthedifferentsectorsoftheeconomyandthedifferenteconomicagents;themechanismsofexchangethenexpressnotonlytherelativedifÞcultiesofproductionofthevariouscommodities,butalsotheinsti-tutions,customsandsocialstructureofthesocietyunderconsideration,sincealltheseelementsconcurindeterminingthewayeconomicrelation-shipsareestablishedandguaranteethesoundfunctioningofthewebofexchanges.Nosocietyexistsdevoidofsocialinstitutions,andtheideaofanabsolutevalue,groundedonexclusivelynaturalfoundations,isthere-foreachimera.Itisinexchangevaluesthattherelationsbetweeneco-nomicagentsÞndexpression,inasocietybasedonthedivisionoflabour.Indeed,inallhistoricallyrecordedhumansocietiestheinstitutionalandsocialelementsthatgovernthewebofexchangesdeterminetherulesofthegame;exchangeratios,asexpressionofthoserules,mustobviouslyreßectavarietyofelements,bothtechnicalandinstitutional.Inthecaseofacapitalisticeconomy,alongsidetechnology(difÞcultyofproduction,inRicardoÕsterminology)itisessentialtotakeintoaccountalsosuchelementsastheassumptionofauniformrateofproÞts,expressingattheanalyticallevelanessentialcharacteristicofacapitalisticsociety,namelytheÔcompetitionofcapitalsÕ.5.MoneyandtaxationTheclassicaleconomists,andsoofcoursealsoRicardo,aregenerallyattributedwiththequantitytheoryofmoney.AccordingtothistheoryvariationsinthequantityofmoneyincirculationÐthatareconsideredas25Onthispoint,cf.Roncaglia1975,pp.67Ð86.

DavidRicardo197exogenous,thatis,independentoftheothereconomicvariablesÐdeter-minevariationsinthegeneralpricelevelwithoutinßuencingeitherthelevelofproduction(which,aswesawabovein2,dependsonavailableproductioncapacity,andhenceontheaccumulationofcapitalrealisedovertime)orthevelocityofcirculationofmoney,whichdependsoninstitutionalandcustomaryfactorssuchasfrequencyinthepaymentsofwages,rentsandtaxes.VariouselementsofthistheoryalreadyhadalongtraditioninRicardoÕstimes.Forinstance,thenotionofvelocityofcirculationofmoneydatesbackasearlyasauthorssuchasPettyorLocke(cf.above,3.3and4.2),whoalsoconsideredittoberelativelystable,connectingittoaweightedaverageofthefrequencyofthedifferentkindsofpayments.Theideathatthequantityofmoneyincirculationinßuencespriceswascommonamongstwritersofthesixteenthandseventeenthcenturies,confrontedwiththeinßationaryphenomenastemmingfromthediscoveryofnewgoldandsilverminesintheNewWorld(cf.above,2.7).Intheeigh-teenthcenturyDavidHumeconsideredthequantitytheoryofmoney(namelythehypothesisthatpricesmoveinaccordancewithchangesinthequantityofmoneyincirculation)asawell-establishedfactinhisexpla-nationoftheautomaticadjustmentmechanismsofthetradebalance(theso-calledßow-speciemechanism:cf.above,4.9).ThedifferentelementsthatcomposethequantitytheoryofmoneyÐfromÔSayÕslawÕtotheideaofarelativelystablevelocityofcirculationofmoneyÐareallpresentinRicardo.However,itisdifÞculttoattributehimwiththistheorysicetsimpliciter.ThedifÞcultyisthatalongsidetheseanalyticalelements,inthemselvessufÞcienttodeterminetherelationshipbetweenmoneyandprices,thereareotherelements,againconcerningthisrelationship,whichcontributetocomplicatethepicture.First,thereistheideathatgold,ormoregenerallypreciousmetals,areproducedcommodities,sothatitispossibletoincreasetheirquantitybearingcertaincostsofproduction.Thereforethepriceofgoldrelativetoothercommoditiesis,accordingtothelabourtheoryofvalue,deter-minedbytheratiobetweenthequantitiesoflabourdirectlyandindirectlynecessarytoproducegoldandtheothercommodities.Second,thereistheproblemoftherelationshipbetweengoldandthenotesissuedbythebanks.ThisisthecruxofRicardoÕstheoryofmoney.Infact,ÔtheroleofgoldinRicardoÕstheoryisnotasmoney,butasthestandardofmoney,i.e.themeanstomeasurethevalueofmoneyÕ.26ByÔmoneyÕRicardomeantthesetofstandardisedÞnancial26MarcuzzoandRosselli1994,p.1253.TheinterpretationofRicardoÕsmonetarytheoryadoptedinthissectionisdrawnfromthiswork.

198TheWealthofIdeasactivitiescommonlyusedasmeansofpayment,suchasthenotesissuedbythemainbanks.ItwastothisnotionofmoneythatRicardoappliedthecentraltenetofthequantitytheory:itsvaluechangesininverserelationtotheirquantity.SuchvalueÔismeasuredbythepurchasingpowerofmoneyovergold,whichisthestandardofmoneyÕ.27Inotherwords,thepurchasingpowerofmoney(banknotes)relativetocommoditiesingeneralmustbedecomposedintotwodistinctrelations:theexchangeratiobetweenmoneyandgold,i.e.thevalueofmoney,andtheexchangeratiobetweengoldandothercommodities.Asalreadynotedabove,thislatterrelationshipisbutaparticularcaseofthegeneraltheoryofexchangevalueforproducedandreproduciblecommodities,whiletheformerrelationshipisdealtwithbyrecoursetothequantitytheory.Ricardo(likeothersamonghiscontemporaries,andunlikethemodernfollowersofthequantitytheory)didnotconsidertheproblemofhowtodeducethelevelofpricesfromthequantityofmoney.Thiswouldhaveimpliednotonlysimultaneousconsiderationofthetwodistinctrelation-shipsmentionedabove,butalsocontinuousinformationonthequan-tityofmoneyincirculation.Now,suchaquantityisquitedifÞculttoobserve,andabovealltheconditionsofsupplyanddemandthatshoulddeterminetheÔnaturalÕquantityofmoneycorrespondingtoanequilib-rium(i.e.stable)levelofpricesareextremelyvariable.Thus,inRicardoÕsanalysisthecrucialvariableformonetarypolicywasnotthepricelevelofthecommoditiesbutthevalueofmoney,thatisitsratioofexchangewithgold:whenthisratioisstable,thenthequantityofmoney,whichremainsunknown,isatitsnaturallevel.28Furthermore,throughtheuseofgoldasthestandardofmoneyitispossibletodetermine,wheneverthemoneypriceofacommoditychanges,whetherthishappensforÔrealÕreasons,whichcanbetracedtotechnologyandincomedistribution,orforÔmonetaryÕreasons,whichcanbetracedtochangesinthequantityofmoney:intheÞrstcase,itistheratioofexchangebetweencommodityandgoldthatvaries,whileinthesecondcaseitisthevalueofmoneythatvariesintermsofitsstandard,namelygold.ItwaswiththisanalyticstructurethatRicardotackledthemonetarydebatesofhistimes,andinparticularthebullionistcontroversy,which27Ibid.Inotherterms,ariseofthemarketpriceofbullionaboveitsnaturalvalueindicatesover-issueofcurrency.28Asacorollaryofthisview,RicardodisplayedconÞdenceintheautomaticequilibratingmechanismsofthegoldstandard,andinanycaseapreferenceforÞxedrulesineconomicpolicyratherthandiscretionaryinterventions,incontrasttothosewho(likeThornton)insistedonthepossibilityofcrisesofconÞdenceandontheexpediency,insuchcases,ofactiveinterventionsonthepartofthecentralbank.MarcuzzoandRosselli(1994,p.1261),recallingthiscontroversy,notedthattheBankCharterActof1844drewmoreonRicardoÕsideasthanonThorntonÕs.

DavidRicardo199hadseenhimplayingaleadingrolesincehis1809contributions,andwhichmoreoversawallthemajoreconomistsofthetimeinvolved.29ThemaincontributiontothedebatewastheEnquiryintothenatureandeffectsofthepapercreditofGreatBritain(1802)byHenryThornton(1760Ð1815),bankerandMemberofParliament.30PrecedingRicardointhis,Thorntonconsideredthelinkbetweenpricesandquantityofmoneyindirectandhencenotautomatic;inhiscase,however,theintermediaryelementwasrepresentedbythediscountrate.Also,precedingWicksell(cf.below,11.5),Thorntonanalysedtheprocessofcreditexpansion,connectingittothedivergencebetweenthebankrateofinterestandtherateofproÞts.Inthiscontext,Thorntonattributedanactiveroletothemonetarypolicychoicesofthecentralbank.ThedebateonmonetaryproblemstookonnewlifeacoupleofdecadeslaterwithconfrontationbetweentheCurrencySchoolandtheBankingSchooloverthewaybanksfunctionandtheruleswhichtheissueofnotesshouldbesubjected(ornotsubjected)to.CulminatingintheadoptionofPeelÕsBankCharterActin1844,thedebatewasfuelledbyprotago-nistsoftheCurrencySchoollikeRobertTorrens(cf.below,8.2),LordOverstone(1796Ð1883)andMountifortLongÞeld(cf.below,8.7),whileontheoppositeside,withtheBankingSchool,weÞndThomasTooke,31JohnFullarton(1780?Ð1849)andJohnStuartMill(cf.below,8.9).ThedistinctionbetweentheCurrencySchoolandtheBankingSchoolistraditionallybasedontheactiveorpassiveroleattributedto29Thecontroversyconcerned,amongotherthings,theresponsibilityoftheBankofEnglandfortheinßationrecordedintheimmediatelyprecedingyears,followingsus-pensionÐin1797Ðoftheobligationtoreimburseitsnotesingold.Thiswasobviouslyacontroversywithanimportantpoliticalcomponent.CriticsoftheBankofEngland(amongwhomwemaynumberRicardo,thoughhewasnotamemberofthecommit-tee)prevailedintheparliamentarycommitteewhichpreparedthefamousBullionreportof1810,andwerenamedÔbullionistsÕ;theiropponentswerenamedÔanti-bullionistsÕ.Theselatteracceptedtheso-calledÔrealbillsdoctrineÕ,accordingtowhichnotesissuedbythebankscorrespondedtocreditgrantedbydiscountingsoundcommercialbills,sothatnoteissuescorrespondedtotheneedsoftrade;however,thisÔdoctrineÕleftasidenotesissuedforÞnancinggovernmentdebtorbanksÕlosses.Thecontroversyendedwiththereturntogoldconvertibilityatthepre-warparity,decidedwithPeelÕsResumptionActof1819,whichamongotherthingsincorporatedsomeofRicardoÕssuggestions(suchastheconvertibilityofnotesintoingots,ratherthancoins)aimingatfavouringtheuseofnotesascirculatingmedium.30ThorntonwasaleadingmemberoftheBullionCommittee,andaco-authoroftheBullionreport.HisEnquirywasrepublishedin1939,intheseriesoftheLibraryofEconomicsoftheLondonSchoolofEconomics,withanextensiveintroductionbyHayek.OnThorntoncf.alsoBeaugrand1981.31ThomasTooke(1774Ð1858)isknownfortheextensiveHistoryofprices,1793Ð1856,insixvolumes(Tooke,1838Ð57)andfortheInquiryintothecurrencyprinciple(1844).AfriendofRicardo,MalthusandJamesMill,hewasamongthefoundersofthePoliticalEconomyClub(cf.below,8.1).Onhiscontributionstothedebatesofthetimeandonhislife,cf.Arnon1991.

200TheWealthofIdeasbanksintheprocessofcreationofthecirculatingmedium(or,inotherterms,ontheexogenousorendogenousnatureÐinresponsetovariationsindemandÐofthemoneysupply).Inreality,however,thedifferentposi-tionsweremorevaried,andthedifferencesbetweenauthorstraditionallyclassiÞedasbelongingtothetwogroupsÐwhichcannotbeconsideredasÔschoolsÕinthestrictmeaningofthetermÐwerefarlessclear-cutthaninthecaseofthebullionistsandanti-bullionists,totheextentthatsomeprotagonistsofthedebateseemedtoshiftfromonesideoftheÞeldtotheother.32Aswithmonetaryissues,soitwaswithtaxation:Ricardotookonprac-ticalissuesoftheday,andappliedtothemhisanalyticalframework,withresultsthat,thankstotheirsolidtheoreticalbackground,hadfar-reachingimpactonthecurrentpolicydebate.Letusbrießytouchontwoissues:directandindirecttaxes,publicdebtandtheso-calledÔRicardianequivalencetheoremÕ.Taxes,howeverlevied,ultimatelyfellonthesurplus:thus,sinceRicardoassumednaturalwagestobeatsubsistencelevel,taxesultimatelyfellonproÞtsandrents.SinceproÞtsconstitutedthesourceofcapitalaccumu-lation,andthusofeconomicdevelopment,whilerentswerecommonlydestinedtoluxuryconsumption,taxesonrentsconstitutedatheoreticallyoptimalsolution.However,forpolicyreasonsRicardofavouredawidertaxbase,embracingtogetherwithrentsalsowages(andso,indirectly,proÞts),andinterestongovernmentsecurities.Thisviewrancountertotheprevailingopinionamongtheclassicaleconomists,mostlyfavourabletoindirecttaxesinviewofpracticalconsiderations.33RicardoalsonotedthattaxesonspeciÞccommodities,butalsoauniformtaxonproÞts(whichisboundtohavedifferentialeffectsonthevarioussectorsfortheveryreasonsthatcausedeviationsofnaturalpricesfromlabourvalues),giverisetocostlyreadjustmentsthroughcapitalßowsawayfromthetradeshitbythetaxesandconsequentchangesinrelativeprices.32Thedebatesbetweenbullionistsandanti-bullionists,andbetweentheBankingSchoolandCurrencySchool,areillustratedinSchumpeter1954,pp.688ff.;cf.alsoOÕBrien1975,ch.6andRotelli1982.Schumpeter1954,p.727,stressedthatboththeBankingSchoolandtheCurrencySchoolÔwereequallyaversetomonetarymanagementoranythoroughgoingcontrolofbankingandcreditÕandwereÔstaunchsupportersofthegoldstandardÕ;however,whileaccordingtotheBankingSchoolÔconvertibilityofnoteswasenoughtosecureallthemonetarystabilityofwhichacapitalistsystemiscapableÕ,accordingtotheCurrencyprincipleÔconvertibilityofnotescannotbeassuredwithoutspecialrestrictionsupontheirissueÕ.33InEngland,Ôtheincometax[…]introducedin1799,abandonedin1816,andthenreintroducedin1842[…was]characterisedbywidespreadfraudandevasion[…].CommoditytaxeswereseenasthemajorsourceofrevenueÕ(OÕBrien2003,p.125;cf.alsoOÕBrien1975,ch.9).McCullochalsothoughtthatadequatelystructuredindirecttaxescouldhinderconsumption,especiallyluxuryconsumption,andstimulatesavings,andhenceaccumulation.

DavidRicardo201Asforthepublicdebt,whichhadgrownconsiderablyduringtheNapoleonicwars,Ricardowasinfavourofreimbursement,settingoutvariousproposalstothisend.Attheanalyticallevel,inchapter17ofthePrincipleshemaintainedthattaxationshouldbepreferredtopublicdebtforÞnancingwarexpenditurebecauseofthenegativeimpactthelatterhadonsavings,andhenceonprivateinvestments.Thus,hedidnotbelieveinwhatwaslaterdubbedtheÔRicardianequivalencetheoremÕ,namelytheequivalencebetweentaxesanddebtaswaysofÞnancingpublicexpenditure.346.InternationaltradeandthetheoryofcomparativecostsInternationaltradewasamongthemostkeenlydebatedissuesoftheseventeenthcentury.However,thenumeroustractsontrade,whichwereferredtoabove,in2.6,constituteasomewhatprimitivestageinworkontheproblem;onlywithAntonioSerraandThomasMun,forinstance,dowehaveasufÞcientlyprecisenotionofthebalanceoftradeandthevariousitemscomposingit.Overall,therewastheideathatininterna-tionaltrademerchantsofonecountryearnbyimportingatlowpricesandexportingathighprices,attheexpenseofproducersofothercoun-tries.Recallingthatpreciousmetalsconstitutethebasisforthemonetarysystemsofallcountries,wearrivedirectlyatatheoryofÔabsoluteadvan-tagesÕ,accordingtowhicheachcountryexportsthosecommoditiesthatitsucceedsinproducingatalowercostthanothercountries.InthisrespectRicardotookadecisivestepforwardwithhistheoryofÔcomparativecostsÕ.35Accordingtothistheory,eachcountryspecialisesintheproductionofthosecommoditiesforwhichitenjoysarelativeadvantageinthecostofproduction.Thismeansthattherecanbeinter-nationaltradebetweentwocountriesevenif,intermsofdifÞcultyofproduction(expressedintermsofthehoursoflabournecessaryfortheirproduction),allcommoditieshaveahighercostinonecountrythanintheother.Forinstance,ifittakestenhoursoflabourtoobtainonemea-sureofclothandonehourforalitreofwineinPortugal,whileinEnglandthesameclothandwinetaketwentyandÞvehoursrespectively,Englandwillthereforeexportclothandimportwine.Infact,internationaltrade34Theequivalencetheorem(Barro1974)requiresnotonlyperfectforesight(rationalexpectations),butalsotheidentiÞcationoftheinterestratewiththeeconomicagentsÕrateoftimepreferenceÐanotionwhichiswhollyalientoRicardo.35TherehasbeenadebateontheextenttowhichTorrens1815maybecreditedwithÞrstpublicationofthistheory(cf.below,8.2);asindicatedabove(note17),anattributionofthetheorytoJamesMill(whilehelpingRicardowiththewritingofthePrinciples)hasalsobeensuggested.

202TheWealthofIdeasisadvantageouswhenitallowsacountrytoobtainacommodityfromaforeigncountryatacostÐintermsofcommoditiesexportedÐlowerthanthatnecessarytoproduceitinternally.Letusassumethat,intheabsenceofforeigntrade,ineachofthetwocountriesrelativepricesaredetermined,inaccordancewiththelabourtheoryofvalue,bytheratiobetweenthequantitiesoflabourrequiredtoproducethedifferentcom-modities.Insuchasituation,whenconsideringtheexpediencyofforeigntrade,weseethatanEnglishmerchantcanacquiretenlitresofwineinPortugalinexchangeforonemeasureofcloth,whichcostshimtwentyhoursoflabour;thustheEnglishmerchantpaystwohoursoflabourforeachlitreofwine,whileproducingitinEnglandwouldtakeÞvehours,thatis,twoandahalftimesasmuch.Obviously,exchangeratioswillnotingeneralbesofavourabletotheEnglishmerchants;inanycase,foranyexchangeratiointermedi-atebetweenthatprevailinginEnglandandthatprevailinginPortugalintheabsenceofinternationaltrade,36bothcountrieswillbeneÞtfromtrade,sincetheywillobtainimportedgoodsinexchangefortheproductofanumberofhourslowerthanthatrequiredinthecaseofinternalproduction.Bothcountriesbecomericherthankstoforeigntrade.ThisisthemostimportantpointinRicardoÕstheory.RicardoÕstheoryofcomparativecostswasbasedontheexistenceofdif-ferencesbetweenthetechnologicalstructuresofthedifferentcountries.Nothingwassaidontheoriginofsuchdifferences(equallyattributableforinstancetoclimate,localisation,endowmentofnaturalresources,workersÕskills,technologicalknowledge,pastcapitalaccumulation).Itwouldbeuptomarginalisttheory,withtheso-calledHeckscherÐOhlinÐSamuelson(HOS)theorem,toconnectsuchdifferenceswiththedifferentendowmentsoftheÔfactorsofproductionÕ:capital,landandlabour.37Itwas,however,onacritiqueoftheassumptionofgiventechnolo-giesinthetwocountriesthatthedefenceofprotectionismwasbased,pointingoutthedifÞcultiesfacedbycountrieslaggingbehindintheindustrialisationprocess.Thisthesis,knownastheÔinfantindustryargu-mentÕ,wasalreadybeingarguedaroundthemid-nineteenthcenturyby36TheexchangevaluesofthedifferentcommoditiesÐdeterminedonthebasisofthelabourtheoryofvalueÐwithineachofthetwocountriesconstitutetheextremesbetweenwhichweÞndtherelativepricesatwhichinternationalexchangestakeplace.Thenearertherelativepriceofacommodityinforeigntradeistoitsinternalexchangevalue,determinedonthebasisofthelabourtheoryofvalue,thesmalleristheadvantagethecountryinquestionderivesfromforeigntrade.Onthesubjectofthedeterminationofrelativepricesinforeigntrade,whichRicardodidnottakeintoconsideration,thereweresubsequentlyimportantcontributionsbyJohnStuartMill(cf.below,8.10)andAlfredMarshall(cf.below,13.2).37Cf.Samuelson1948b;foracritiqueoftheHOStheorem,cf.below,16.9.

DavidRicardo203GermanandAmericaneconomists;wemaymentioninparticularFriedrichList(1789Ð1846),andhisDasnationaleSystemderpolitischenOekonomie(1841).38Other,morerecent,criticismsstressedthepos-sibilitythatinternationaltradeinßuencesthetechnologicaldifferencesbetweenthedifferentcountries,compoundingthemandrenderingthempermanent.Thesecriticismsconcernthepresenceofincreasingreturnstoscale,suchthattheinternationaldivisionoflabouritselfbecomesthecauseofanincreasinggapbetweenthetechnologicalstructuresofcountriesinvolvedinforeigntrade(Krugman1990).WhileconstitutingimportantqualiÞcationstothefreetradepolicies,however,thesecrit-icismsdidnotinvalidateRicardoÕsthesisontheimmediateadvantagethatopeningtoforeigntradeimpliesforthecountriesconcernedÐanadvantageequivalenttoanimprovementinthetechnologyinuse.7.Onmachinery:technologicalchangeandemploymentWehavealreadydiscussedÔSayÕslawÕanditsvariants.InthevariantadoptedbyRicardo,ÔSayÕslawÕstatesthatsupplyanddemandareequalforanylevelofincome,henceforanylevelofemployment.Theback-groundtothisstatementwas,however,differentfromthatoftodayÕsindustrialisedcountries.Aswehavealreadynoted,foralongperiodintheinitialstageofcapitalisticaccumulationthecapitalisticcoreoftheeconomycoexistedwithalargetraditionalsectorinagricultureandarti-sanactivities;theproblemofthepoor,alreadyimportantinthesixteenthandseventeenthcenturies,primarilyconcernedworkersdrivenfromtheland,especiallyinthestageoftheÞrstagriculturalrevolution,charac-terisedbyenclosures,andsubsequentlyalsoworkerssqueezedoutfromtheirtraditionalartisanactivities.Insubstance,wemayinterpretÔSayÕslawÕnotasastatementontheabsenceofinvoluntaryunemployment(whichisthevariantcriticisedbyKeynes),butasstatingtheabsenceofdemanddifÞcultieshinderingthegrowthofthecapitalisticcoreoftheeconomy.AdamSmith,aswesawabove,maybeconsideredaprecursorofÔSayÕslawÕ,interpretedasastatementonthepossibilityofeconomicgrowthinresponsetotheincreasingdivisionoflabourandtheincreaseinthepro-ductivityoflabourstemmingfromit.ToSmithwemaythusattributetheideathattechnicalprogressisnotasourceofoccupationaldifÞculties,inthesensethatincreaseinpercapitaproductivitywasseentotranslateintoanincreaseinproduction,absorbedbyagreaterdemand(corresponding38ListreceivedattentionforhissupporttotheZollverein,thecustomsunionthatconstituted(Schumpeter1954,p.504)ÔtheembryoofGermannationalunityÕ.

204TheWealthofIdeastoanimprovedstandardofliving),andnotintoadecreaseinemployedworkers,productionremainingunchanged.SmithÕsviewgraduallybecameacornerstoneoftheclassicalschoolinitsgoldenage.Infact,wemayderivefromitthemorespeciÞcÔtheoryofcompensationÕ.Accordingtothistheory,technologicalprogress,whenintroducedinagivensector,generatesunemploymentnotonlyinthesectoritself,butalso,inaÞrststage,intheeconomyasawhole.However,inasubsequentstagethejobslostintheÞrstsectoraremadeupforbynewjobsinothersectors,andthegeneralstandardoflivingimproves.Thisisduetothefactthattechnicalprogressimpliesareductionincostsinthesectorwhereitisintroduced,andhenceadecreaseinthepriceoftheproduct;thisbringsoutageneralisedincreaseinrealincomesallovertheeconomy,whichthengeneratesanincreaseindemand.Inturn,thisinducesanincreaseinproductionandhenceinemployment,sinceintheothersectorsthetechnologyisbyassumptionunchanged.Inotherwords,thedecreaseinemploymentinthesectorinwhichtechnicalprogresstakesplaceisÔcompensatedÕforbyanincreaseinemploymentinothersectors.ThetheoryofcompensationwasacceptedbyRicardo,too;inalonglettertoMcCullochdated29March1820,39Ricardoreproachedhimforhavingsupportedacontrastingthesis,developedbyJohnBartoninashortpamphlet,Ontheconditionsofthelabouringclasses,publishedin1817.InthedepressedconditionsfollowingtheconclusionoftheNapoleonicwars,BartonÕsargumentÐmoreatthelevelofappliedeconomicsthanofatheoreticalnatureÐhadappearedsensibletomany,notwithstandingtheideologicalreprimandoftheextremistsofclassicalpoliticaleconomy.RicardoÕsauthorityinthoseyearshelpedinnosmallmeasuretoassertthecompensationtheoryasanintegralpartofthebodyofclassicalpoliticaleconomy.However,ontheoccasionofthethirdeditionofthePrinciples(1821),acoupdeth«eöatretookplace:Ricardoabandonedthetheoryofcompensation,andanalyticallydevelopedthethesisthatintroductionofmachineryinasectormayimplyreductionofemploymentintheeconomyasawhole.Thecrucialpointthatwehavetotakeintoaccountisthat,whileSmithconsideredtechnologicalprogressingeneral,BartonandRicardofocusedattentiononaspeciÞcformoftechnicalprogress,thatconnectedwiththeintroductionofnewmachinery:aspeciÞcformbut,inthecontextofcapitalisticaccumulation,suchanimportantspeciesastobeidentiÞablewiththegenusasawhole.39Ricardo1951Ð5,vol.8,pp.168Ð73.

DavidRicardo205Thus,inachapterÔOnmachineryÕaddedtothethirdeditionofthePrinciples,Ricardoshowed,withreasoningsupportedbyarith-meticalexamples,40thattheintroductionofmachinerymaygenerateunemployment.RicardoÕsreasoningmaybesummarisedthus.ThecapitalistintroducesnewmachinerywithaviewtogeneratinganincreaseinproÞts.SincethenetproductoftheeconomywasidentiÞedbyRicardowithproÞtsandrents,theincreaseinproÞtsforanentrepreneur(orforagroupofentrepreneurs)thatdoesnotstemfromadecreaseintheproÞtsofsomeotherentrepreneurorfromareductioninrentscorrespondstoanincreaseinsocietyÕsnetincome.However,theinvestmentinmachineryimpliesthedecisiontoemployacertainnumberofworkersintheproductionofmachinery.Ifsuchworkerswerepreviouslyemployedinproducingsubsistencegoods,theproductionofnewmachineryisaccompaniedbycorrespondinglylowerproductionofsubsistencegoodsandhenceÐinRicardoÕstermsÐbyareductioningrossincome(correspondingtonetincome,thatis,tothesurplusÐproÞtsandrentsÐplusÔnecessarycon-sumptionÕ,thatis,wages).Asaconsequence,thenumberoflabourersthattheeconomycanmaintainnecessarilydecreases.Thusemploymentdecreases,andthisdecrease,althoughdestinedtobereabsorbedbythehigherrhythmofaccumulationallowedforbythegrowthinnetincome,maybefarfromnegligibleintheimmediateaftermathandmaypersistforasufÞcientlylongspanoftimeastobehardtodismissasatemporaryevent.TheprovocativestancetakenbyRicardo,atypicalmanifestationofhisintellectualhonestyandpassionforlogicalrigour,whichleftpolit-icalimplicationsatasecondarylevel,stirredupheateddebate.Thetheoryofcompensationhadassumedacentralrolewithinthesubstan-tiallyoptimisticviewofeconomicdevelopmentsupportedbytheclassicalschoolwithinwhathadinfactbecomeacanonicalview.Thus,apartfromtheimmediateresponse(suchasMcCullochÕs),RicardoÕsargumentwassimplyignored,whilethemajorprotagonistsoftheeconomicdebateinthedecadesimmediatelyfollowinghisdeathrestatedintheirmostwidelyreadwritingsasubstantiallyunchangedtheoryofcompensation.4140HickscommittedagrossmistakeinthisrespectintheÞrsteditionofhisAnessayoneconomichistory,whenhemaintained(Hicks1969,p.168)thatRicardoÕsnewchapteronmachinerydoesnotcontainnumericalexamples:amistakethatwasimmediatelycorrected,andthatwerecallherebecauseitconstitutesastrikingexamplebothoftheexistenceofobjectivecriteriaofevaluationofthedifferenttheses,alsowithintheÞeldofthehistoryofeconomicthought,andoftheneedtoconstantlycheckintheoriginalsourcesinformationgivenbysecondarysources.41Berg1980providesanaccountofthedebateonmechanisationinthecontextoftheeconomicsituationofthetime.

206TheWealthofIdeasInanycase,aninterestingaspectofthisepisodeworthstressingisadifÞcultythatbrillianteconomistsevidentlyexperiencedintheireffortsatanalyticalconstruction,thatis,theireffortstoadheresystematicallytoacanonicalviewwhichlater,simpliÞedreconstructionsidentify,sicetsimpliciter,withtheirthoughts.4242Somethingsimilar,asweshallseeonvariousoccasionsbelow,alsohappensfortheÔharmonicviewofsocietyÕ,traditionallyassociatedwiththemarginalistapproach,whileatleastsomeofitsmajorrepresentativesÐforinstanceWalrasorWicksellÐsupportedthesesthatarefarfromconservative.

8TheÔRicardiansÕandthedeclineofRicardianism1.TheforcesintheÞeldStilladmiredforitsclear,logicalstructure,RicardoÕstheoreticalcon-structionconstitutedessentialreferenceforanyonetacklingeconomicissuesafterthepublicationofthePrinciples.However,thisdoesnotmeanthatapaxricardianathenemerged,althoughanumberofcommentatorsseeitpreciselyintheseterms.EvenRicardoÕsfollowers,inthecourseofthecontroversies,oftenabandonedthisorthataspectofhisanalysis,orintroducedmoreorlessimportantchangesintheconceptsutilisedintheanalysis,thusopeningthewaytoatruechangeofparadigmwiththeso-calledÔmarginalistrevolutionÕ.Moreover,amongtheeconomistsofthetimeweÞndmanyexponentsofanapproachradicallydifferentfromRicardoÕs,whichlookedtosupplyanddemand,scarcityandutility,ratherthantherelativedifÞcultyofproduction,todetermineexchangevalues.RicardoÕsauthoritywasundoubtedlyverystrong.HispoliticalgoalÐtheabolitionofcustomsdutiesÐandhisdynamicvision,includingtheproÞtsÐaccumulationlink,constitutedacanonicalmodelformorethanÞftyyearsafterthepublicationofthePrinciples.Hisfriendsandfollowers,importantastheywereintheirownright,andindeedintellectuallyautonomous,consideredhisanalysisthelightshiningontheirpath,andeventhecriticsofpoliticaleconomy(theÔdismalscienceÕdeprecatedbyCarlyle:cf.above,6.2)identiÞeditwiththeÔRicardianÕschool.However,thedebatewaxedlivelyevenwithinthewallsofthatquintessentiallyÔRicardianÕinstitution,thePoliticalEconomyClub(althoughitsfoundation,in1821,andproceedingsalsosawthepar-ticipationofMalthus,amongothers).OnlyafewyearsafterRicardoÕsdeathaquestionraisedfordebateatoneofthemeetingswasjusthowmuchlifewastherestillleftinhistheories.1Eventhemostimportant1Cf.PoliticalEconomyClub1921;thisvolume,publishedontheoccasionofthecente-naryofthePoliticalEconomyClub,collectsthemostinterestingmaterialgatheredfromthevolumespublishedinthe1880sandtodaysomewhatrare,towhichwereferinthefollowingnotes.207

208TheWealthofIdeasofhisdirectfollowers,likeJohnStuartMill(authorofthetextÐin1848ÐwhichRicardianismhadtothankforitslastinginßuenceinthesecondhalfofthenineteenthcentury),modiÞedcertaincrucialpointsinRicardoÕstheoreticalconstruction.Ofcourse,economicdebateintersectedwithpoliticaldebate,ascomparisonbetweenthemajorculturaljournalsofthetimeclearlydemonstrates:theEdinburghReview,foundedin1802,showedaWhigleaning,favourabletoreformsandsupportingRicardoÕsideas,theQuar-terlyReview,foundedin1809,aToryorientation,whiletheWestminsterReview,foundedin1824andclosetoBenthamÕsutilitarianismandthephilosophicalradicalismofhisfollowers,wasalsofavourabletoRicardoÕsideasintheeconomicsphere.2InthefollowingsectionswewillsummarisethedebateasitprogressedintheÞftyyearsseparatingRicardofromJevons.TheÞeldsawmanypro-tagonistsinvolvedinacomplexplayofinterrelationsandconfrontationsofissuesandtheoriescentring,naturally,onRicardoÕsthought.Linedupbyhissidewerehismostfaithfulfriends:JamesMillandMcCulloch.Ontherightwing,afterhisfriendandrival,Malthus,cameBaileyand,aboveall,Senior,Lloyd,Scropeandvariousothers.Ontheleftwing,theÔRicardiansocialistsÕcanbeseparatedintotwocurrents:therela-tivelymoderatesupportersofcooperativismandtherathermoreresoluteadvocatesofethicalinterpretationsofthetheoryoflabourvalue.OntheinsiderightwecanplaceTorrens,andpossiblyasweeperlikeDeQuincey;thecorrespondingroleontheotherside,theinsideleft,shouldgotoJohnStuartMill(althoughpreciselythisfactshowsjusthowschematicandreductivethislinearrepresentationofthepositionsintheÞeldreallyis).Aswesee,thedebatetookplacelargelyinEngland:atleastasfaraspoliticaleconomywasconcerned,thecentreofEuropeanandworldcultureinthecentraldecadesofthenineteenthcenturywasLondon,notParis.3Therearevariousreasonsforthis,buttheycannotbereduced2Articlespublishedinthesejournalsarecommonlyanonymous;fortheirattribution,andmoregenerallytoreconstructtheroleofthesejournalsintheeconomicdebatesofthetime,cf.Fetter1953,1958,1962a,1965.3AmongtheeconomistsactiveinFranceintheÞrsthalfofthenineteenthcentury,togetherwithJean-BaptisteSayandSimondedeSismondi,alreadyconsideredabove(6.3and6.4),andAntoine-AugustinCournotwhowillbediscussedlater(10.2),wemaymentionhereafewnames,referringthereaderforfulleranalysistoBretonandLutfalla1991.ClaudeFr«ed«ericBastiat(1801Ð50)isknownasapropagandistofliberalismandasasupporterofthethesisofÔeconomicharmoniesÕ(whichisalsothetitleofhisbest-knownwork:Bastiat1850),namelyanoptimisticviewthatliquidatedsocialconßictsinthegeneraltendencytoeconomicprogress;Schumpeter1954,p.500,consideredhimÔthemostbrillianteconomicjournalistwhoeverlivedÕ;Spiegel1971,p.362,stressedhisverve,recallingtheironicPetitionofthecandlemakers,inwhichthecandlemakersaskthegovernmenttoprohibitwindowslesttheiractivitybedamagedbyunfaircompetition

TheÔRicardiansÕandthedeclineofRicardianism209(althoughSchumpeterseemstohavesuspectedit)totheAnglo-centrismoftodayÕshistoriansofeconomicthought.Inpartitwastheeconomicconditions(namelytheroleofEnglandastheleadingcountryintheprocessofindustrialisation),inpartthepresenceofsomeexceptionalpersonalities,likeRicardohimself,andthedirectinßuencethatsuchpersonalitiesexertedinthedevelopmentofacultureßourishingondirectcontacts(forinstancethroughthePoliticalEconomyClub)ÐthevariouselementsconcurringtomakeEnglishthelanguageofpoliticaleconomy,inameasureunknownuptothen.42.RobertTorrens5AmongtheÞrstcriticsoftheRicardiantheoryoflabourvalue,RobertTorrens(1780Ð1864),aheroicofÞceroftheRoyalMarinesandforsomeyearsaMemberofParliament,meritsafront-lineposition,bothfromthelightofthesun.AdolpheBlanqui(1798Ð1854),aneconomichistorianandhistorianofeconomicthought,brothertoLouisBlanquiknownforhisparticipationinthe1848uprising,wasteacherofpoliticaleconomyattheConservatoiredesArtsanddesM«etiersofParis,holdingthechairthathadbeenSayÕs.MichelChevalier(1806Ð79)heldformanyyearsachairattheColl`egedeFrance.AlsoCharlesGanilh(1758Ð1836)andJosephGarnier(1813Ð81)weremainlyhistoriansofeconomicthoughtanddivulgers,authorsoftextbookswithnosubstantialtheoreticalnovelty.SeparateconsiderationmustbegiventoPellegrinoRossi(1787Ð1848),anItalian(borninCarrara,diedinRome)butprofessorinParis(afterSayandbeforeBlanqui)andauthorofatractandvariouseconomicwritingsinFrench.OntheItalianeconomistsofthetime(amongwhomwemayatleastmentionMelchiorreGioja,1767Ð1829,FrancescoFuoco,1774Ð1841,andCarloCattaneo,1801Ð69),seeFaucci2000,pp.127Ð83.Cattaneoinparticularwoulddeserveattention,bothforhispersonality,hisideasandtheinßuencehehadonEuropeanculture.LikeSmith,heconsideredeconomicandpoliticallibertyasstronglyconnected;hewasanactivespokesmanforeconomicreformsinagriculture,constructionofinfrastructures(railways)andtheabolitionofallfeudalremnants,includingspeciallegislationonJews;politicallyheupheldrepublicanfederalism,withprojectsfortheUnitedStatesofEurope,inoppositiontoallformsofcentralisedgovernment,includingthatconnectedtosocialistpublicownership,andinoppositiontonationalisticattitudes,thustoprotectionism.Hisnotionoftheeconomicagentisconnectedtotheideaofthegoodcitizen;economic,culturalandcivicprogressappearinhiswritingsasoneandthesamething.4Mentionshouldalsobemadehereofthedivulgersofpoliticaleconomy,whowroteforageneralreadership,ÞrstplacegoingtoJaneMarcet(1769Ð1858),whofollowedasuccessfulvolumeofConversationsonchemistry(1806)withtheConversationsinpoliticaleconomy(1816),whichwentthroughmanyreprints:thislively,up-to-datetext(ittookintoaccountthedebateontheCornLawsof1815)expressedthemainstreamopinionofthetimeandhadconsiderableinßuence.ThestoriesbyHarrietMartineau(1802Ð76)alsobelongtothesamekindofliterature;herIllustrationsofpoliticaleconomy(1832Ð4)werebasedonJamesMillÕsRicardiantext,theElementsofpoliticaleconomyof1821.5PartofthematerialinthissectionisdrawnfromRoncaglia1972.OnTorrensÕslife,cf.Meenai1956andFetter1962b;onhisworkasaneconomist,Robbins1958,whoinameticulousappendix(ibid.,pp.259Ð348)listsallthewritingsremainingtous,sum-marisingtheircontent.Cf.alsotherecenteditionofTorrensÕsworks,ineightvolumes(Torrens2000),andDeVivoÕseruditeandinsightfuleditorialintroductions.

210TheWealthofIdeaschronologicallyandbecausealongwithhiscriticismsofRicardoweÞndproposalofadifferenttheory.Nevertheless,histheoryremainedwithintheconceptualframeworkoftheRicardiansystem,ofwhichTorrenssharedboththetheoryofaccumulationandvariousspeciÞcaspectsthatweshallnotdwelluponhere,focusingratheronhiscontributionstothetheoryofdifferentialrentandthetheoryofinternationaltrade.InordertoevaluateTorrensÕsroleamongtheclassicaleconomistsletusrecallthatin1821,afewmonthsbeforepublicationofhismainwork,theEssayontheproductionofwealth,hewasamongthefoundersofthePoliticalEconomyClubandchaireditsÞrstmeeting,inthepresenceofRicardo,Malthus,JamesMill,Tookeandvariousothermoreorlesswell-knownpersonalitiesofthetime.6ConceivedasacoreofpoliticalpressurefortheabolitionoftheCornLaws,7thePoliticalEconomyClubwasavitalcentreofdebateonthemainthemesofpoliticaleconomy,strengtheningthosepersonalconnectionsthatalreadyexistedamongthevariousprotagonists.Torrensparticipatedinpracticallyallthemeetings,oftenproposingtopicsfordebate;forinstance,hiswasthethemediscussedon7April1823ÐÔWhatarethecircumstancesthatdeterminetheexchangeablevalueofcommodities?Õ8Ðwhich,togetherwithpublicationofMalthusÕsMeasureofvalue(1823),waspossiblytheimmediateoriginofRicardoÕslastwritingonAbsolutevalueandexchangeablevalue.TorrensÞrstenteredtheÞeldin1808,interveningÐwithTheeconomistsrefutedÐinthedebateontheeconomiceffectsofthecontinentalblockadeimposedbyNapoleon.InthepreviousyearSpencehadmaintainedthattheblockade,whichhittheEnglishforeigntrade,couldnothavedamagedthenation,whosewealthsprangsolelyfromitsagriculture.9SpenceÕsthe-seswerebutarigorouscorollaryofphysiocratictheory;inordertocriticisethem,Torrenswasledtoattackthephysiocraticstronghold.ReturningtoSmithÕscriticisms,Torrenspointedoutamongotherthingsthatthemanufacturingsector,too,andnotonlytheagriculturalone,producesasurplus,addingthatproductsoftheformersectorentersidebysidewithproductsofthelatteramongthemeansofsubsistence,andthatbothgroupsofproductsarenecessarytoproductiveactivity.Finally,comingtoanaspectmoredirectlyrelevanttothedebateonthecontinentalblock-ade,hestressedtheadvantagesoftradeinfavouringthedivisionoflabour,formulatingthefortunateexpressionÔterritorialdivisionoflabourÕ.All6OnTorrensÕsparticipationinthefoundationofthePoliticalEconomyClub,cf.PoliticalEconomyClub1882,inparticularpp.35Ð54.7AtleastthisiswhattheofÞcialaccountsoftheClubsay(ibid.,pp.11Ð22).8Cf.PoliticalEconomyClub1882,p.59.9WilliamSpence(1783Ð1860),Britainindependentofcommerce(1807).BeforeTorrensÕspamphlet,thisworkprovokedareactionfromJamesMill,anditwasinthiscontextthatthelatterproposedhisversionofÔSayÕslawÕ(cf.above,6.3).

TheÔRicardiansÕandthedeclineofRicardianism211suchargumentswerereproposedatlengthintheEssayontheproductionofwealth.Torrensreturnedtotheadvantagesoftheterritorialdivisionoflabourin1815,withAnessayontheexternalcorntrade,whichrepresentedhiscontributiontothedebateontheCornLaws.AfewdaysbeforeTorrensÕsessaycameout,twopamphletsbyMalthusandonebyWestwerepub-lished(respectivelyon3,10and13February),andonthesamedayasTorrensÕs(24February),RicardoÕsEssayonproÞts.Thenear-simultaneityofthesedifferentpublicationsgaverisetotwoproblemsofattributionforhistoriansofeconomicthought,theÞrstconcerningthetheoryofrent,thesecondthetheoryofcomparativecosts.Asfarasrentisconcerned,theissuewasÞnallysettledbySraffa,10attributingpriorityofpublicationtoMalthus;West,andpossiblyTor-rens(whoquotedthesecondofMalthusÕspamphletsinhisessay),werecreditedwithindependentformulation,whileRicardoforhispartexplic-itlydeclaredhisdebttoMalthus.Unliketheotherpamphlets,TorrensÕsonlyconsideredthecultivationofeverlessfertilelands,andnottheuseofadditionaldosesofcapitalonlandsalreadyfarmed,showingadegreeofcautionthatwastobesharedbyRicardoinhisPrinciples,andwhichmighthavebeentakenasasignofremarkabletheoreticalrigourÐasSraffaobservedin1925ÐhadTorrensnotabandoneditinhisEssayontheproductionofwealth.Thesecondofthetwoproblemsofattribution,concerningthetheoryofcomparativecosts,wastheobjectoflivelydebateatthebeginningofthetwentiethcentury.Ontheonehand,Seligman(1903)maintainedTorrensÕspriority,amongotherthingsrecallingafewpassagesfromTheeconomistsrefuted,whileontheotherhand,JacobHollander(1910),muchmoreconvincingly,vindicatedtheoriginalityoftheRicardianformula-tion.IndeedTorrens,whilerelyingontheadvantagesoftheterritorialdivisionoflabourinhistheoryofinternationaltrade,developedhisanal-ysisintermsofdifferencesbetweenthecostsofproducingthesamecom-modityinthedifferentcountries,andnotintermsofdifferencesbetweencountriesinthecoststructurefordifferentcommodities.1110P.Sraffa,NoteonÔEssayonProÞtsÕ,inRicardo1951Ð5,vol.4,pp.3Ð8.11Inotherwords,wemaysaythatTorrenslookedtotheeffects(theadvantageousnessofpurchasingagivencommodityinanothercountry,andnotwithinthenationalbound-aries)ratherthanthecauses(thecomparisonbetweentherelativedifÞcultyofproductionofagivencommodityinthevariouscountries).AlsobasedontheterritorialdivisionoflabourÐHollander1910remarksÐwasthechapteronÔMercantileindustryÕintheEssayontheproductionofwealth,whichcameoutfouryearsafterthepublicationofRicardoÕsPrinciples.Sraffa1930bsharedHollanderÕsopinion;Viner1937,pp.346Ð9,andafterhimRobbins1958,pp.21Ð5,tookupSeligmanÕsopinionmoreorlessexplicitly,butbroughtnothingnewtothedebate.

212TheWealthofIdeasThefollowingyearssawTorrensengaginginthedebateonthetheoryoflabourvalue.InOctober1818,inareviewofRicardoÕsPrinciples,Torrens(1818)interpretedthetheoryoflabourvaluesetoutinitasarigidstate-mentofproportionalitybetweenrelativeprices(orexchangevalues)andthequantitiesoflabourcontainedinthevariouscommodities.AgainstthisÔlawÕTorrensremarkedtheimportanceofexceptions,duetodif-ferentorganiccompositionofcapitalindifferentindustriesanddifferentlengthsofactivelifeofÞxedcapitalgoods.(InapersonalnotetoRicardo,Torrensalsoraisedathirdcriticalpointconcerningdifferentvelocitiesofrotationofcirculatingcapitalindifferentproductiveprocesses.)12Conse-quentlythetheoryoflabourvaluewastoberejected,andsubstitutedwithatheoryendowedwithgeneralvalidity:ÔWhencapitalistsandlabourersbecomedistinct,itisalwaystheamountofcapital,andnevertheamountoflabour,expendedonproduction,whichdeterminestheexchangeablevalueofcommodities.Õ13TorrensreturnedtothisstatementintheclosingpagesoftheÞrstchapterofhisEssayontheproductionofwealth.Hissolutionlayinthethesisthatproductsofequalcapitalshaveequalexchangevalue.Thesearegenericexpressions,repeatedagainandagain,withrespecttowhichthechargeofcircularreasoningadvancedbyRicardoappearsjustiÞed:ÔIwouldaskwhatmeansyouhaveofascertainingtheequalvalueofcapitals?[…]Thesecapitalsarenotthesameinkind[…]andiftheythemselvesareproducedinunequaltimestheyaresubjecttothesameßuctuationsasothercommodities.TillyouhaveÞxedthecriterionbywhichwearetoascertainvalue,youcansaynothingofequalcapitals.Õ14Inotherwords,ifwedeterminetherelativepricesofcommoditiesonthebasisofthevaluesofcapitalsemployedinproducingthem,howcanwethenexplainthevalueofcapital,madeupofheterogeneousmeansofproduction?However,asweshallsee,thearithmeticalexampleswhichTorrensusedtoillustratehisanalysiscontainedpreciouspointerstogoonbeyondRicardoÕscriticismsanddevelopaSrafÞantheoryofpricesofproduction.TheÞrstexamplesintheEssayseemtoconÞrmRicardoÕsstrictures:thecommoditiesproducedaredifferentfromthecommoditiesutilisedasmeansofproduction,thepricesofthelatterandtherateofproÞtbeingassignedinawhollyarbitraryway.Aswegoon,however,the12Thenotehasnotbeenfound,butitsexistenceandcontentswerereconstructedbySraffa(inRicardo1951Ð5,vol.4,pp.305Ð6).13Torrens1818,p.337.14LetterbyRicardotoMcCulloch,21August1823(inRicardo1951Ð5,vol.9,pp.359Ð60),quotedbySraffa1951,p.xlix.Cf.alsotheessayonAbsolutevalueandexchangeablevalue,inRicardo1951Ð5,vol.4,pp.393Ð6.

TheÔRicardiansÕandthedeclineofRicardianism213examplesbecomebetterÞttedtotheissue:inthechapteronagricultureamodelwithonebasiccommoditywasgenerallyutilised(cornproducedbymeansofcornandlabour,andcornwasalsothemeansofsubsis-tence)untilÞnally,discussingtheeffectsofatechnologicalimprovementinthemanufacturingsectoronthelevelsofproductionintheagricul-turalsector,Torrenswascompelledtoutiliseamodelwithtwobasiccommodities.Thecommoditiestakenintoconsiderationweretheproduceoftheagriculturalsectorandtheproductofthemanufacturingsector.TheworkersÕsubsistence,accordingtoaprocedurecommonamongclassi-caleconomistsandconstantlyadoptedbyTorrens,isdirectlyincludedamongthemeansofproduction.Giventhewagerateinphysicalterms,thereremaintobedeterminedtherateofproÞtsandtherelativepriceofoneofthecommoditiesintermsoftheother.InTorrensÕsexample,immediatedeterminationoftheunknownswasonlypossiblethankstosomepeculiaritiesoftheexample:therateofprof-itsmaybedeterminedasaphysicalratiobetweenthecapitalsemployedintheirproductiononlybecausethesecapitalshaveequalproportionalcommoditycompositioninthetwosectors.15ItisunderstandableenoughthatTorrenschosetogivethisformtohisexamplepreciselyforthesakeofthesimplecomputationsitimplies,althoughtranslationintermsofasystemofequationsraisesnogreatdifÞcultiesfortodayÕsreaders.Thuswesee16thatTorrensÕsexampledisplayssubstantiveanalogywiththeÞrstexampleofproductionwithasurpluswhichSraffapresentsinhisbook(wheatandironproducedbymeansofwheatandiron:Sraffa1960,p.7),andwemayindeedwonderwhetherthetheoryofpricesofproduc-tionformulatedbySraffamightbetakenasfull,rigorousexpressionofTorrensÕsvagueintuitions.ThusTorrenscircumventedtheobstacleofdifferentorganiccompo-sitionsofcapitalinthevarioussectorsbyincludingwagegoodsamongcapitalgoodsandsettingoutatheoryofpricesbasedondifÞcultyofproductionexpressedinphysicalterms,namelyasquantitiesofthedif-ferentmeansofproductionutilisedtoobtainagivenoutput,ratherthanonthequantityoflabourdirectlyandindirectlyrequiredforproduction.Twootherproblemsremained,whichTorrenshimselfhadrecalledinhiscriticismofthetheoryoflabourvalue:namely,thedifferentvelocitiesofrotationofcirculatingcapital,andtheexistenceofÞxedcapitalgoods.15AsfarastheÞrstaspectisconcerned,TorrensforeshadowedSraffaÕsÔstandardcommod-ityÕ(1960,ch.4),whilethesecondaspectbringsusbacktoaone-commodityworld,sincethetwogoodsareindistinguishableintheonlyrelevantaspecthere,thetechniqueofproduction.16Cf.Roncaglia1972,pp.xxÐxxi.

214TheWealthofIdeasTorrensmadeonlypassingreferencetotheissueofthevelocityofrota-tionofcirculatingcapital:whenforagivenquantityofcapitalemployedinproductionthisvelocityincreases,therearisesanadvantageforsoci-etybutÐheaddedÐthedetailsarerathercomplex.MoreinterestingisthewayTorrensaddressedtheissueoftheexistenceofÞxedcapitalgoods,ÞrstraisedbyRicardoinhisPrinciples.TorrensÕsmethodcon-sistedinconsideringÞxedcapitalasaspeciÞckindofjointproduct;machinesusedinproductionappearamongtheoutputsofthesamepro-ductionprocess,sidebysidewithoutputsproper,andreappearamongthemeansofproductioninthefollowingperiod.17ThismethodwasthenadoptedbyRicardo,MalthusandMarx;morerecently,itreappearedinvonNeumannÕsmodel(1945),whileitistoSraffa(1960,ch.10),onceagain,thatweowearigorousanalysisoftheproblem.VariousotherinterestingtheoreticalpointersmaybefoundinTorrensÕspages,suchasasuggestiononhowtotakeaccountofcommercialinter-mediationwithinaÔclassicalÕmodelofpricedetermination,orsomeref-erencestopricedeterminationundernon-competitiveconditions,basedonashrewddistinctionbetweenwhatSraffa(1960)waslatertocallbasicandnon-basiccommodities.Inthe1830sTorrensfocusedmainlyoncolonialpolicyissues(cf.above,6.6)andinternationaltrade.Inparticular,elaboratingonsomeideasalreadypresentintheEssayontheproductionofwealthanddevelopingthemtotheirextremeconclusions,Torrenscriticisedtheadvocatesofcompletefreedomininternationaltrade.18Hemaintained,infact,thatbyimposingcustomsdutiesacountryisabletomodifyexchangeratiostoitsownadvantage,andasaconsequencecriticisedtheunilateralabolitionofcustomsduties,proposedinEnglandbymanyfreetraderswithparticularreferencetotheCornLaws.Rather,hefavouredapolicyofreciprocity,withcustomsabolished(orlowered)onlytowardscountriesadoptingasimilarpolicy.Moreover,sincesuchreciprocityismoreeasilyobtainedwiththecolonies,whoselocalgovernmentswereemanationsofthecentralgovernmentoftheUnitedKingdom,thecom-bativecoloneloftheRoyalMarinesadvocatedthecreationofanimperialfreetradearea.17Cf.Torrens1818,p.337:ÔWhencapitalsequalinamount,butofdifferentdegreesofdurability,areemployed,thearticlesproduced,togetherwiththeresidueofcapital,inoneoccupation,willbeequaltothethingsproduced,andtheresidueofcapitalinanotheroccupation.ÕThepassagequotedandthenumericalexamplethatprecededitweretakenupagainintheEssayontheproductionofwealth(Torrens1821,ch.1).18Insofarasthetheoryofinternationaltradeisconcerned,thus,insomerespectsTorrensprecededJohnStuartMill.

TheÔRicardiansÕandthedeclineofRicardianism215Inthe1840sTorrensspenthisenergiesaboveallonmonetarythe-oryandpolicy.Thesubjecthadattractedhimsince1812,whenhehadpublishedalonganti-bullionisttreatisearguingthatmaintenanceofamonetaryregimebasedonmetalalonecouldgeneratedangerousdeßationarypressures,andshowingpreferenceforaregimeofpaperÐeveninconvertibleÐmoney.19However,inthe1840sweÞndTorrensholdingjusttheoppositeviewsasleadingexponent,togetherwithLordOverstone,20oftheCurrencySchool.OpposingTookeÕsandFullartonÕsBankingSchool(cf.above,7.5),TorrensandhisfriendsmaintainedthatconvertibilityofpapermoneyintogoldwasanecessarybutnotasufÞcientconditiontoensurethestabilityofthesystem.Therefore,theyadvocatedrigorouslimitationstoissuesofpapermoney,bymeansofwhichÔthecurrencywouldalwaysbemaintainedinthesamestate,withrespectbothtoamountandtovalue,inwhichitwouldexistwerethecirculationcomposedexclusivelyofthepreciousmetalsÕ.21Inparticular,divisionoftheBankofEnglandintoanissuedepartmentandabankingdepartmentwasadvocated;subsequentlythiswasaccomplishedwiththePeelActof1844.22TorrensÕsradicalchangeofopinionconstitutesaninterestingsubjectfordebateamonghistoriansofeconomicthought;itis,however,unde-niablethatinbothpositions(andparticularlyinthemorematureone)Torrensplayedaleadingrole.3.SamuelBailey23TorrensÕscriticismsofRicardoÕstheoryofvaluewereinoneimportantrespectsimilarto,andinanotherdifferentfrom,thecriticismsadvancedbyaquietprovincialgentleman,SamuelBailey(1791Ð1870),whowasborn,livedanddiedinShefÞeld,joiningintheeconomicdebateofthetimewithsomeoriginalideasbutremainingonthefringeofthecircleassociatedwiththePoliticalEconomyClub.Inaworkdated1825,A19Torrens1812;cf.Robbins1958,pp.97ff.and265Ð6.20SamuelJonesLloyd,LordOverstone(1796Ð1883)playedacentralroleinthecontro-versiesleadingtotheBankCharterActof1844andforthefollowingthreedecades.Thethree-volumeeditionofhiscorrespondence,withsomerelatedpapers(Overstone1971)withtheintroductionandtherichcriticalapparatusprovidedbytheeditor,OÕBrien,whodiscoveredtheOverstonepapersin1964,providesawealthofmaterialnotonlyonthemonetaryandÞnancialissuesofthecentraldecadesofthenineteenthcentury,butalsolivelyinsightsintoEnglishhigh-classlifethroughoutthecentury.21Torrens1837,pp.21Ð2.22Torrensthenreturnedtothesubjectrepeatedly,inwritingsof1844andsubsequently,alwaysdefendingthePeelAct.Cf.Robbins1958,pp.101ff.andpp.324ff.23OnBailey,cf.Rauner1961.

216TheWealthofIdeascriticaldissertationonthenature,measureandcausesofvalue,24BaileyÐlikeTorrensÐreactedagainstthemetaphysicalintimationsofabsolutevaluelurkingbehindRicardoÕsrecoursetolabourcontainedinaccountingforexchangevalues.Ofcourse,neitherTorrensnorBaileyhadbeenabletoreadtheessayonAbsolutevalueandexchangeablevaluethatRicardohadwritteninthelastweeksofhislife,sinceitremainedunpublisheduntilSraffaÕseditionofhiswritings.However,itisclearthatbotheconomistsÐaswellasmanyotherprotagonistsofthedebatesofthetimeÐperceivedbehindthechoiceoflabourcontained,asidefromtheanalyticalobsta-clesitinvolves,amisrepresentationoftheissueofexchangevalue,whichintheiropinionwaspurelyamatterofrelationsbetweendifferentcom-moditiesinthemarket,andhadnothingtodowiththepresenceofaÔsubstanceofvalueÕwithineachcommodity.Fortheproblemofexchangevalueitself,however,BaileyproposedasolutionÐalbeitbarelysketchedoutÐdrasticallydifferentfromthatofTorrens.Thelatterauthor,aswesawabove,referredtothecostsofproduction,withatheorythatmaybeconsideredawayofreintroduc-ingthoseÔphysicalcostsÕthat,withintheclassicaltraditionfromPettyonwards,expressedtherelativedifÞcultyofproductionofdifferentcom-modities.Bailey,however,referredtoasubjectivetheoryofvalue,main-tainingthatingeneralexchangevaluedependedontheevaluationoftheeconomicagentstakingpartintheactofexchange;theverydeÞnitionofvaluewasÔtheesteeminwhichanyobjectisheldÕ(Bailey1825,p.1).Thecausesofvalueconcerntheattitudeofthehumanmindtowardsanobject,andcannotbestudiedbyconsideringsuchanobjectinisolation(ibid.,p.16);moreover,thisevaluationisrelative,inthatitconcernsrela-tionshipsbetweendifferentobjects(ibid.,p.15),sothatwecanspeakofmoney-values,corn-values,etc.,accordingtothecommoditywithwhichthecomparisonismade(ibid.,pp.38Ð9).Thismeansthatitisimpossi-bletocomparecommoditiesbelongingtodifferentmomentsintime;wemaycompareonlythevaluerelations(exchangeratios)betweenpairsofcommoditiestakenatdifferentmomentsintime(ibid.,pp.71Ð2).Baileythendistinguished(ibid.,p.185)threeclassesofgoods:thosethataretheobjectofamonopoly,thosewhosesupplycanbeincreased,butonly24ThereprintpublishedbyFrankCass&Co.Ltd(London1967)alsocontainsareviewofthebookpublishedinJanuary1826intheWestminsterReviewandattributedtoJamesMill(fortheattribution,cf.Rauner1961,appendixII,pp.149Ð57),andthreeotherwritings,onlyoneofwhich(ananswertotheabove-mentionedreview)isinfactattributabletoBailey.Theattributionoftheothertwoworks,bothpublishedin1821ÐtheObservationsoncertainverbaldisputesinpoliticaleconomy,particularlyrelatingtovalue,andtodemandandsupply(Anonymous1821b),andAninquiryintothoseprinciplesrespectingthenatureofdemandandthenecessityofconsumption,latelyadvocatedbyMr.Malthus(Anonymous1821a)Ðisuncertain.

TheÔRicardiansÕandthedeclineofRicardianism217withanincreaseincosts,andÞnallythosewhosesupplycanbeincreasedatwill,costsremainingconstant.ThushemaintainedthatRicardoÕsthe-ory(purgedofreferencestoabsolutevalue,withthequaliÞcationsthatRicardohimselfintroducedfortheprincipleoflabourvalue,alltoooftenforgottenbyhisfollowers,andwithagreatmanyfurthernotesofcautioninviewoftheheterogeneityoflabour)25onlyheldforthethirdcategory,whichwasfarmorelimitedthanRicardoÕsfollowersappearedtobelieve,whileintherealworldthesecondcategorywasthemostimportant.WhatmatteredinthisthirdcategorywastherelationbetweenthebuyersÕevalu-ationandthe(relative)scarcityofsupply.HereweÞndBaileyanticipatingacurrentofthoughtthatwastobetakenupbyJohnStuartMillbeforeeventuallyÞndingitswayintotheMarshalliantripartitionofconstant,increasinganddecreasingcosts(cf.below,13.2and13.3).HereBaileydepartedfromthelinefollowedbyanumberofauthors(suchasSenior,Whately,Lloyd,LongÞeld,seebelow,7)whotookacertaindistancefromRicardo,stressingthedifÞcultieshehadcomeupagainstindevelopinghisviewoftheeconomy,andreturningtotheviewpointofscarcityandutilityÐavisionofsocietythatsurvivedfromthetimesofthemedievalfairs,whoseessentialcharacteristicsitmirrored,tomodernmarginalisttheory.Baileyfollowedhisownpath,invirtueofwhichwemayclassifyhim,albeitwithsomesimpliÞcation,amongtheprogenitorsofthesubjectivetheoryofvalue,26butwhichaboveallopenedthewaytotheÔMarshalliancompromiseÕ.Atthetime,however,theimportanceofhiscontributionwasperceivedaslyinginhisradicaloppositiontothemetaphysicalelementthatmanyeconomists,andnotonlytheÔRicardiansÕ,includedinthenotionofvalue.BaileywentsofarastocriticiseevenMalthusonthispoint(whilelesssubjecttocriticisminthisrespectwereÔRicardiansÕlikeDeQuinceyorMcCulloch),althoughitwaseventuallytotriumphinMarxÕstheoryofvalue.ItispreciselyinthisconnectionthatweÞndanimportantelementwhich,Ifeel,hasnotreceivedalltheattentionitdeserves,namelyBaileyÕscriticismofeconomistswhoÔattempttoomuchÕwhenÔtheywishtoresolveallthecausesofvalueintoone,andthusreducethesciencetoasimplicity25Itispreciselytheheterogeneityoflabourthatmakesitlesssuitedthanothercommoditiestoactasastandardfortheevaluationofothercommodities.AccordingtoBailey,theheterogeneityoflabourshouldbeplacedonthesameplaneastheheterogeneityofland,whichconstitutedthebasisoftheRicardiantheoryofdifferentialrent.AnextensionofthenotionofrenttothecaseofsuperiorpersonalqualiÞcationswasproposedafewyearslaterbySeniorandJohnStuartMill,whothusadvancedonaroadthatwastoleadtoMarshall.26Thisis,afterall,thesamekindofstretchingthepointneededtoincludetherecalcitrantMarshallinthecurrentofthesubjectivetheoryofvaluethattooktheleadwiththeÔmarginalistrevolutionÕ:cf.below,ch.13.

218TheWealthofIdeasofwhichitwillnotadmitÕ(Bailey1825,pp.231Ð2):inotherwords,awarningagainstthepretenceofreductioadunuminvolvedinmetaphysicalnotionsofvalue.4.ThomasDeQuinceyWhileTorrensandBaileywereconsideredasmoreorlessradicalcriticsofRicardoÕstheories,otherfront-lineprotagonistsoftheeconomicdebateintheÞrsthalfofthenineteenthcenturywereconsideredÔRicardiansÕÐfollowersanddefendersoftheideasofthemasteroftheschool(althoughitwouldbeincorrecttospeakofaRicardianschoolinthestrictsenseoftheterm,i.e.withaculturalidentitylikethatofthephysiocratsduringtheirshort-livedsplendour).Amongthem,sidebysidewithRicardoÕsfriendandmentor,JamesMill,andbeforehissonJohnStuartMill,onwhomwehavemoretosaybelow,weÞndanotherScottisheconomisttransplantedinLondon,JohnRamseyMcCulloch(1789Ð1864),andamanofletters,ThomasDeQuincey(1785Ð1859),bestknownforhisConfessionsofanEnglishopiumeater(1821Ð2).Inthisautobiographicalnoveltheauthortellshowhewasstirredfromhisdrug-inducedtorporthankstotheintellectualstimulusofreadingRicardoÕsPrinciples.Studyofthisworkinspiredhimtopublish(intheMarch,AprilandMay1824issuesoftheLondonMagazineÐjustafewmonthsafterthedeathofthegreateconomist)abrilliantillustrationanddefenceofRicardoÕstheoryoflabourvalue,theDialoguesofthreetemplarsonpoliticaleconomy.DeQuincey(1824)insistedinparticularonthefactthatthelabourcon-tainedinacommodityisameasureofitsÔrealvalueÕ,notofÔwealthÕ;thelatter,interpretedastheamountofcommoditiesavailable,canincreasewithoutanincreaseintheirrealvaluewhentheproductivityoflabourincreases.ThedistinctionwasalreadypresentinRicardoÕsPrinciples,27butDeQuinceybroughtthemattertolifewithavivacitylackinginthemasteroftheschool,andaccompanieditwithadefenceoflabourcon-tainedasÔrealvalueÕ,allthemoreremarkableforanauthorwhocouldnothavereadRicardoÕsessayonAbsolutevalueandexchangeablevalue.InsomerespectsDeQuinceyhereanticipatedMcCullochÕsdefence,pre-sentedthefollowingyear,whichwewilldiscussinthenextsection.DeQuinceywastheidealrepresentativeofastageoftransitionfromthemoreintransigentRicardianismtoitsgradualcorruptionandaban-donment.28Indeed,hismostimportantworkintheeconomicÞeld,The27Ricardo1951Ð5,vol.1,pp.273Ð8.28Concise,accuratereconstructionofthisprocessoftransitionisofferedbyBharadwaj1978.

TheÔRicardiansÕandthedeclineofRicardianism219logicofpoliticaleconomy(1844),inmanyrespectsconstitutedastep,evenmoredecisivethanthattakenbyJohnStuartMillinfollowingyears,inthedirectionofatheoryofpricesbasedondemandandsupplyandasubjectivetheoryofvalue.Twoelementsaboveallneedstressinginthisrespect.Firstly,wehavetheemphasisÐachievedwithaseriesofbrilliant,livelyexamplesthatwererepeatedlyreturnedtoinsubsequentlitera-ture,inparticularbyMillÐplacedontheroleofutilityindeterminingthevalueofscarceandnon-reproduciblecommodities.29Secondly,butperhapsevenmoreimportantly,therewastheinterpretationofmarketpricesnolongerasempiricalvariablesÔexplainedÕatthetheoreticallevelbynaturalprices,butastheoreticalvariablesinthemselves,whosetheoret-icalprocessofgravitationtowards/aroundnaturalpricesbasedonsupplyanddemandmechanismscouldandshouldbestudied.30Thisview,latertakenupbyJohnStuartMillinhisPrinciples,togetherwithBaileyÕsideasdiscussedabove(3),openedthewaytotheMarshalliannotion(8.3)ofdifferentlevelsofanalysis(veryshort,short,longperiod),characterisedbythesimultaneouspresenceofdemandandsupply,utilityandcostsinthedeterminationofprices,withtheÞrstelementdecreasinginimpor-tanceandthesecondelementincreasingwhenthelengthoftheperiodoftimeallowedforadjustmentincreases.DeQuinceymaynothavehadagreatinßuenceontheeconomicdebateofthetime(althoughJohnStuartMillÕsreferencestohisworksweresigniÞcant),buthiscapacityforabstractreasoningrankshimhighamongparticipantsinthedebateofthecalibreofJamesMillandMcCulloch,whilehislivelystyleappealstoreaderswellbeyondthenarrowworldoftheeconomists.5.JohnRamseyMcCullochAproliÞcwriter,theScotsmanJohnRamseyMcCulloch(1789Ð1864)31isknownasoneofthekeenestadvocatesofRicardoÕsideas,whomhemetafterwritinganappreciativereviewofthePrinciplesnotlongbefore29Cf.DeQuincey1844,pp.129ff.Edgeworth1894sawthelimittothisexposition,fromthepointofviewofthedevelopmentofneoclassicaltheory,inthelackofaclear-cutdistinctionbetweentotalandmarginalutility.30Cf.DeQuincey1844,pp.206Ð7.Sidebysidewithnaturalandmarketprices,DeQuinceyintroducedthecategoryofÔactualpricesÕ,andcriticisedRicardoforhavingleftitout,whilecreditingSmithforitsintroduction(ibid.,pp.203Ð7).ÔActualpricesÕweretheactualexchangeratiosobservedinthemarket;withtheexplicitintroductionofthiscategory,DeQuinceyimplicitlystressedthenatureoftheoreticalvariablesattributedtomarketprices.ItgoeswithoutsayingthatthedistinctionbetweenactualandmarketpriceswasabsentinSmith:cf.above,5.6.31AmonographwasdevotedtoMcCullochbyOÕBrien1970.

220TheWealthofIdeastheauthorÕsdeath.EditorofTheScotsmanfrom1817to1821,journalist,professorofpoliticaleconomyatLondonUniversityfrom1828to1837,ComptrolleroftheStationeryOfÞcefrom1838to1864,McCullochheldthememoriallectureinhonourofRicardoin1824andin1825publishedTheprinciplesofpoliticaleconomythatenjoyedgreatsuccess,notablyintheUnitedStates,whereÐtogetherwithSayÕstextÐitprovedthemostwidelyread.AswasthecasewithDeQuincey,hissubsequentwritings(andsub-sequenteditions,1830and1838,ofthePrinciples)showedÐaccordingtovariouscommentators(intheforefront,OÕBrien,1970,butalreadyMarx,1905Ð10,vol.3,pp.168Ð76)ÐacorruptionofRicardianideasandtransitiontowardsanotionofÔrealcostÕmuchlikethatofJohnStuartMill,whichopenedthewaytoMarshall.However,theÞrsteditionofthePrinciplesisnotableforadefenceofthelabour-containedtheoryofvaluesoextremeastoappearaverbaltrick,expoundingtheideathatÔaccumulatedlabourÕincludedaÔwageÕthatremuneratedforthetimeduringwhichthelabourremainedlockedup,betweenthemomentitwasperformedandthemomentwhentheproductcouldbesoldonthemarket.32Thus,McCullochbelieved,hecouldrenderthelabourtheoryofvalue(namelytheexplanationofexchangevaluebasedonthequantitiesoflabourdirectlyorindirectlyrequiredtoproducethedifferentcommodi-ties)compatiblewiththeÔcomplicationsÕalreadynotedbyRicardo,aris-ingoverdifferentperiodsofproduction,differentratiosbetweenÞxedandcirculatingcapitalanddifferentdurabilityofÞxedcapital.Itwas,however,apurelyverbalsolution:anartiÞcialredeÞnitionofthenotionoflabourcontained,whichdepriveditofdirectcorrespondencewiththequantityoflabouractuallyspentandtransformeditintosomethinglikeaÔrealcostÕ,givenbywagespaidplusproÞtsaccruedonwageadvances.ItwaspreciselythiselementofÔrealcostÕthatgraduallyacquiredimpor-tance,tothepointoftransformingtheRicardiantheoryofvalue,relatedtothedifÞcultyofproduction,intoatheoryofthecostofproduction.McCullochÐaswehaveseenÐexertedanimportantinßuenceontheeconomicdebateofthetime,notsomuchthankstohisprestige,certainlynothinglikeRicardoÕs,as,perhaps,totheeloquenceofhisexposition.Thussomeaspectsofhisparticipationintheeconomicdebatesofthe32Schumpeter(1954,p.658)proposedamorebenevolentinterpretation,whenhesug-gestedreadingÔproductiveserviceÕwhereMcCullochspokeofÔlabourÕ,andÔpriceofproductiveserviceÕwherehespokeofÔwagesÕ;however,thisinterpretationimpliestoogreatadeparturebyMcCullochfromRicardoÕsconceptualandanalyticalsystem,wheretheidea(whichwouldbetypicalofthemarginalistapproach)ofplacingtheÔproductivefactorsÕÐlabour,landandcapitalÐonthesameplanecouldÞndnoplace.

TheÔRicardiansÕandthedeclineofRicardianism221timedeservetobementioned,suchashissupportforapolicyofhighwagesandoppositiontotheCombinationLaws,whichwereagainsttheworkersÕorganisations,andhispleainfavourofreligioustoleranceandeducation.Besides,McCullochwasamongtheÞrstprofessionalscholarsofthehistoryofeconomicthought,publishingvariousreprintsofraretexts33andanimportantannotatedbibliography,theLiteratureofpoliticaleconomy(1845).6.TheRicardiansocialistsandcooperativismIntheeconomicdebatearisinginEnglandonpublicationofRicardoÕsPrinciples,agroupofauthorssubsequentlylabelledÔRicardiansocialistsÕacquiredsomeimportance:34thegroupincludedWilliamThompson,ThomasHodgskin,JohnGrayandJohnBray.SomeoftheseauthorsÐHodgskin,inparticularÐarecommonlyremembered(oratleasthavebeensinceMarx)35forhavingutilisedtheRicardiantheoryoflabourvalueinsupportofthethesisthattheequitableincomeforworkerscorrespondstotheentirevalueoftheproduct.Moreprecisely,ifcommoditiesderivetheirvaluefromthelabourdirectlyorindirectlynecessaryfortheirpro-duction,workershaveaÔnaturalÕrighttothewholeproductoftheirwork,withoutdeductionsforproÞtsorrentsgoingtosocialcategorieswhoseincomesderivefrominstitutionstypicalofamarketeconomybasedonprivatepropertyoflandandmeansofproduction.However,thispictureoftheRicardiansocialistsisover-simplistic,mak-ingtoodirectaconnectionbetweenRicardoandMarx,betweenthelabourtheoryofvalueandsocialistideas.36Asamatteroffact,the33ThesixvolumeseditedbyMcCullochbetween1856and1859collectrarepamphletsoftheseventeenth,eighteenthandearlynineteenthcenturies;theyhaverecentlybeentheobjectofaÞnefacsimilereprint,editedandwithanintroductionbyOÕBrien(McCulloch1995).34ThetermÔRicardiansocialistsÕwasproposedbyFoxwell(1899,p.lxxxiii),intheprefacetotheEnglishtranslationofanessay(Menger1886)onthehistoryofsocialistthoughtbyAntonMenger(1841Ð1906),juristandbrothertothebetterknowneconomistCarl,founderoftheAustrianschool.Foxwell(1899,pp.xxviÐxxvii)maintainedthatMengerÕsworkÔconclusivelyprovesthatallthefundamentalideasofmodernrevolutionarysocial-ism,andespeciallyoftheMarxiansocialism,canbedeÞnitelytracedtoEnglishsourcesÕ.(Actually,MengeronlyheldÐibid.,p.cxvÐthatÔMarxandRodbertusborrowedtheirmostimportanttheorieswithoutanyacknowledgementfromEnglishandFrenchthe-oristsÕ.)MengerÕsand,evenmore,FoxwellÕsstatementsaretoocategorical:theinßu-enceofEnglisheconomistscannotbedenied,andwasrecognisedbyMarxhimself,butHegelÕsinßuencewasalsoverystrong,aswasthatoftheÔyoungHegeliansÕ,anditremainsabsurdtodenytheexistenceoforiginalelementsinthethoughtofthefounderofscientiÞcsocialism,whichwillbetheobjectofthenextchapter.35Marx1905Ð10,vol.3,pp.263Ð325.36AninterpretationoftheseauthorsquitedifferentfromthoseofferedbyMarxandMengerisadvancedbyCole(1953,pp.102ff.),whoprefersthelabelofÔanti-capitalist

222TheWealthofIdeasso-calledRicardiansocialistswerepartofacurrentofsocialistliterature(inthepre-MarxiansenseofthetermÔsocialismÕ)whichwasnotlim-itedtoEngland,andwhichwascharacterisedbyradicalcriticismoftheinstitutionalorganisationofmarketeconomies.Themaincriticismwasthatsuchinstitutionsguaranteedanincometotheidleclassesofland-lordsandcapitalistsinvirtuenotoftheircontributiontotheproductiveprocessbutoftheirsocialstanding.Theprivilegedtenetofthissocialistliteraturewas,atleastinEngland,cooperativism,propoundedvariouslyonthelocalandnationalscale,inmoreorlessutopianorrealisticforms,oftenassociatedwithadriveforthemoralregenerationofsociallife.TheleadingÞgurefromthisviewpointÐandassuchrecognisedbyhiscontemporariesÐwasRobertOwen(1771Ð1858),asuccessfultextilemanufacturerandsupporterofcooperativisminpracticeandtheoryalike.Hismajorwritings(Anewviewofsociety,1813,andtheReporttothecountyofLanark,1820)tookhistextilefactoryatNewLanarkasanexampletoadvocateapolicyofactiveinvolvementofworkersinplantmanagementand,moregenerally,cooperativeorganisationofthesocialaggregationthathadtheproductiveplantasitscore.ThefollowingyearsalsosawgreatattentionpaidtoasocialexperimentthatOwenhimselfdescribedinhisautobiography(Owen1857Ð8),withtheformationofthecommunityofNewHarmonyinIndiana,wherehehadinthemeantimemoved.Ricardo,amongmanyothers,hadalreadyhadoccasiontoconsiderhisproposals,37andOwenitecooperativism,despiteaseriesoffailures,representedapointofreferenceuptothemid-nineteenthcenturyandbeyond.ItisthisaspectÐthecentralityofthecooperativistview,bothattheleveloftheproductiveunitandatthelevelofsocietyasawholeÐthatwerisklosingsightofifwefocusattentiononlabourvaluesandtheÔnaturalrightÕoftheworkertothewholeproduceofhislabour.38BothaspectsÐcooperativismandÔnaturallawÕuseofthetheoryoflabourvalueÐwerepresentinthewritingsofWilliamThompsoneconomicsÕ(ibid.,p.103).AccordingtoCole,forinstance,ÔHodgskinwasnotaSocialist.HewasmuchnearertowhatweshouldcallnowadaysanAnarchistÕ(ibid.,p.111);Thompson,whoseworkisconsideredÔanamalgamationofUtilitarianismandtheOwen-itedoctrineÕ,ÔforeshadowstheutilitarianstructureofJevoniantheoryÕ(ibid.,p.114).37In1819RicardowasmemberofacommitteechairedbytheDukeofKent,chargedwiththetaskofevaluatingOwenÕsplan,andcontributedtotheproceedingsaspeech(Ricardo1951Ð5,vol.5,pp.30Ð5,467Ð8);RicardoreturnedtoOwenÕsideasinhiscorrespondence(forinstance,cf.Ricardo1951Ð5,vol.8,pp.45Ð6).AlthoughsomewhatscepticalaboutOwenÕsproposals,Ricardoalsoshowedarealinterestinexaminingthemclosely,andevidentsympathyfortheirauthor.38Moreover,asFoxwell1899,p.lxxxvi,pointedout,ÔRicardiansocialismgrewundertheshelteroftheOwenitemovement.ÕOwenÕsinßuencedeclinedonlyafterthefailureoftheLabourExchanges(acooperativistexperimentofÔlabourbanksÕ)inthe1830s.

TheÔRicardiansÕandthedeclineofRicardianism223(1775Ð1833),anIrishlandowner.Thompsonpropounded,notablyinhisbookInquiryintotheprinciplesofthedistributionofwealth(1824),anotionofproÞtsandrentsasdeductionsfromthevalueoftheproductoflabourwithintheframeworkofanextensivediscussionoftheinstitu-tionalformsinwhichdistributionofthesocialproductmaytakeplace,cooperativismemergingasasolutiontopotentialconßictbetweenpro-ductiveefÞciencyanddistributivejustice(inthesenseofsocialequality).HereitisworthnotingthattheideaofproÞtsandrentsasdeductionscanbetracedbacktoSmithÕsinßuenceevenbefore(andpossiblyratherthan)RicardoÕs.Thompsonenjoyedgreatprestigeatthetime,theinßu-enceofhiscooperativistviewsbeingfeltbyJohnStuartMill,amongothers.AsfortheproductiveefÞciencyofcooperativism(interpretedinamacroeconomicratherthanmicroeconomicsense,althoughOwengreatlyinsistedonthelatteraspect),wemaymentionaÔsocialistpoliticalarithmeticÕcurrent,whichtriedtoevaluatethelabourtimenecessarytosocietynetofthewastecorrespondingtosubsistenceofotioseclassesor,moregenerally,derivingfromasocialsystembasedonthedistinc-tionbetweenworkers,capitalistsandlandlords.Amongtheseauthors,wemayrecallCharlesHall(c.1740Ðc.1820)andPatrickColquhoun(1745Ð1820),whoseTreatiseonthewealth,powerandresourcesoftheBritishEmpire(1814)proposedanoften-citedstatisticaltablemeanttoillustratethedis-tributionofincomeamongthedifferentsocialclasses.ItwasColquhounÕsstatisticalanalysisthatpromptedanearlytextbyJohnGray(1799Ð1883),theLectureonhumanhappiness(1825),main-tainingthattheÔproductiveÕworkersreceiveonlyone-Þfthofthesocialproduct.Afteraninitialcooperativistphase,inthesecondpartofhislonglifeGraywentontoupholdthesesclosertotheMarxisttenetsofcentralplanningforproduction.InthesameyearthatGrayÕsLecturewaspublished,theÞrstimpor-tanttextappearedbyanotherrepresentativeofthiscurrentofliterature,Labourdefendedagainsttheclaimsofcapital(1825)byThomasHodgskin(1787Ð1869),whosetheoriesfoundinitialairinginalonglettertoPlaceinMay1820(Hodgskin1820).HodgskinwasamongotherthingstheauthorofamanualentitledPopularpoliticaleconomy(1827)ÐandindeedpopularitprovedÐaswellasplayingaleadingroleinthemovementforeducationinpoliticaleconomyfortheworkingclasses,centredontheMechanicalInstitutes.39HodgskinrejectedtheRicardiantheoryofrent,andproposedadistinctionbetweenÔnaturalpriceÕandÔsocialpriceÕ,the39ForanoutlineoftheMechanicalInstitutesmovementandHodgskinÕsroleinit,cf.Ginzburg1976,p.xxiv,andtheliteraturequotedthere.

224TheWealthofIdeasformercorrespondingtowhatthecapitalistspaidtheworkers(includ-ingthecostforaccumulatedlabourembodiedinmeansofproduc-tion),thelattertowhatthecapitalistsreceivedfromthesaleoftheirproducts,thusalsoincludingtherentsandproÞtsthroughwhichtheproperty-owningclassesappropriatedthesurplus.40InHodgskinÕswrit-ingsthecooperativisttheseswereleftsomewhatintheshade,andnotexplicitlycriticised,greaterattentionbeinggiventotherolethatworkersÕassociations(thetradeunions,whichdidnotcorrespondexactlytothemodernunionsbutrepresentedtheirearlyforerunners)couldhaveincombatingexpropriationofpartoftheproductoflabourintheformofproÞtsandrents.HodgskinalsorecalledtheSmithiandistinctionbetweenÔhumaninstitutionsÕ(whichmayassuchbemodiÞed)andÔthenaturalorderofthingsÕ.41LikeHodgskin,JohnBray(1809Ð97)too,theauthorofLabourÕswrongsandlabourÕsremedy(1839)upheldtheworkersÕrighttothefullproductoftheirlabour.Brayadvocatedcommonproperty,tobeestablishedthroughanintermediatestageofanetworkofcooperativesbasedonjoint-stockcompanies.LikeProudhon,Braysupportedtheissueofmoneyrepre-sentinglabourtime.4240ThedistinctionbetweenÔnaturalpriceÕandÔsocialpriceÕrecallsthatproposedbyPetty(cf.above,3.5)betweenÔnaturalpriceÕandÔpoliticalpriceÕ,wherethelatterincorpo-ratedadditionalitemsofcostinvolvedinnon-optimalorganisationofsociety.41ThiswasinfactthesamedistinctionbetweenÔhumanlawsÕandÔdivineÕorÔnaturallawsÕthat,inclassicalantiquity,fuelledthedebateonthenatureofprivateproperty,attributedbydifferentauthorstoonecategoryortheother:cf.above,ch.2.Cole1953,p.111,remarksthatHodgskinÔfavouredtheexistenceofprivatepropertyÕandÔbelievedintheexistenceofaÒnaturallawofpropertyÓÕ.42However,bothProudhon(onwhomcf.below,chapter9,note22)andBrayundervaluedtheproblemofthecompatibilityofthissystemwiththefunctioningofamarketeconomy.Ifeachworkerreceivesanumberofunitsoflabour-moneyequaltothenumberofhoursofactualwork,andifthisdeterminesthepriceoftheproduct,wheneverthelabourtimeactuallyspentdidnotcorrespondtotheÔsociallynecessarylabourÕtherewouldemergeonceagainthecategoryofproÞt,positiveornegativeaccordingtothesignofthedifference.Thesamewouldapplytoallinstancesofdeviationofthemarketpricefromthenaturalprice.InstancesofÞrmbankruptcieswouldfollowfromthis,whichwouldmakethesituationunbearableforthebanksthathadlentlabour-moneytosuchÞrms,andthesystemwouldbreakdown.Thus,forinstance,despitetheadvantagesintrinsictoanexperimentconstructedonasmallscaleandwithanimportantidealsupport,anddespitetheprecautions(amongwhichthereferencenottoactualworkhoursbuttothoseusuallyrequired),theOweniteexperienceoftheLabourExchangesdidnothavealonglife(fromSeptember1832uptotheendofthe1830s).Onthebasisofthisexperience,theGermanWilhelmWeitling(1808Ð71),anopponentofMarxintheInternationalWorkingMenÕsAssociationwholaterfoundedtheCommuniacommunityinWisconsin,proposedamodiÞedversion,inwhichthestateguaranteessubsistencetoeverycitizeninexchangeforsixhoursÕlabouraday(ÔnecessarylabourÕ);anyadditionalwork(ÔcommerciallabourÕ)isnon-compulsory,andallowsfortheacquisitionofusefulbutnotnecessarygoodsandservices,onthebasisofanexchangeratiobetweenquantity

TheÔRicardiansÕandthedeclineofRicardianism225AnotherinterestingÞgurebelongingtothiscurrentofthoughtwasPiercyRavenstone(thepseudonymofacertainRichardPullen).43Afewdoubtsonthecorrectnessofsomeopinionsgenerallyentertainingonthesub-jectofpopulationandpoliticaleconomywaspublishedin1821.CriticismofMalthusÕslawofpopulationledRavenstonetoarguethatpovertywasduenottonaturalbuttoartiÞcialcauses,connectedwiththesocialinstitu-tionsandintheÞrstplacetherighttoproperty,aboveallwithrespecttothemeansofproduction,orinotherwordscapital,whichwasultimatelynothingbutaccumulatedlabour.LikeHodgskinandvariousothers,RavenstonealsocriticisedtheRicardiantheoryofrent,maintainingthatdifferencesinproductivitybetweendifferentplotsoflanddependedonÔartiÞcialfertilityÕÐamatterofinvestinginlandimprovementÐmuchmorethannaturalfertility;thusrent,likeproÞts,alsoderivedfromÔaccu-mulatedlabourÕ.Althoughhisworksappearedatthedawnofthegoldenageofthisliterature,Ravenstonerepresentedanextremecase,andisconsideredbyanumberofcommentatorsthemostdirectprecursorofMarx.ThesebriefexamplesshouldsufÞcetoshowthatBritishsocialistlitera-ture,loominglargeinthedebatesofthetime,displayedmoreSmithian44thanRicardiancharacteristics,centredasitwasonanalysisofthesocialdivisionoflabourandadichotomybetweenproductivelabourandotherformsofparticipationineconomiclifeandproductdistribution.Fromthispointofview,theliteratureofferedawealthofthought-provokingideas,unfortunatelylostsightofwhenitwas,misleadingly,reducedtoapre-Marxiancurrent.Actually,itmaybeconsideredusefulpreciselyforreconstructionofnon-Marxistsocialistanalysesofthepresent-daysitua-tionafterthecollapseofthecentrallyplannedeconomies.Here,togetherwithcooperativismwemayrecallanalysesofthetimethattookthedistri-butionofsocialincomeinconnectionwiththeproductiveorganisationofsociety,andillustratedthewasteintrinsictoaninstitutionalsystemthatleftagreatdealofroomforformsofincomecorrespondingtonopro-ductivecontribution.Proceedinginthisdirection,someexponentsofthisofÔcommercialÕlabourandquantityofÔnecessaryÕlabour(orofÔcommercialÕlabourlentinothersectors)determinedbythemarket.Weitlingwasalsoadecidedcriticofprivateownershipofland,butnotoftheothermeansofproduction,anticipatingheretheAmericanHenryGeorge(1839Ð97),whoseProgressandpoverty(1879),withtheproposalofasingletaxonland(whichinturnrecallsphysiocraticideas)hadenormoussuccess,leadingtothebirthofastillactivepoliticalmovement.43AccordingtoSraffaÕsreconstruction;cf.Ricardo1951Ð5,vol.9,pp.xxviiiÐxxix.44And,insomerespects,Lockean(cf.above,4.2),especiallyindeducingfromtheexpenseoflabourtherighttoownershipofthewholeproduct.Cf.Ginzburg1976,pp.xxviÐxl,whostresses,amongotherthings,thefrequentrecoursetothedistinctionbetweenÔnaturalÕandÔartiÞcialÕinstitutions.

226TheWealthofIdeassocialistliterature(inparticularGray)wentsofarastoproposeasocietyinwhichnecessarylabourwasequitablysharedamongall,reducingthesacriÞceeachhadtomakeinlabourtoafewhoursaday.TheseideasweretakenupbyMarxistslikePaulLafargue(1880),butaboveallbyradicalreformistslikeErnestoRossi(1946),althoughtheyhadalreadybeenappearinginUtopianliteratureinvariousguisessinceThomasMore(1516)andTommasoCampanella(1602).457.WilliamNassauSeniorandtheanti-RicardianreactionItdidnotneedtheÔRicardiansocialistsÕtomaketheconservativesofthetimewaryofRicardoÕsideas(whiletheirattitudetowardsSmithwaveredbetweenthedirectoppositionof,forinstance,Lauerdale,andthesym-pathyshownbyMalthus,albeitbasedonasofteningreinterpretation).Invariousforms,aviewalternativetoRicardoÕsÐandAdamSmithÕsbeforehimÐheldon,playinganimportantroleinthedebateofthetime.Atthepoliticallevel,itwasargued(byLauerdale,forexample:cf.above,6.4)thatthelandlordsplayedapositiveroleintheeconomicprocess;attheanalyticallevel,atheoryofvaluebasedonscarcityandutilitywaspro-posedasanalternativetothetheorybasedonthedifÞcultyofproduction,summedupaslabourcontained.Wesawabovehowsomeaspectsofthisview,alreadypresentinauthorslikeGalianiandTurgot,weretakenupbySamuelBaileyin1825,indirectoppositiontoRicardoÕsideas.Inthe45WeareherecompelledtoleaveasidetheverybroadÐandinmanyrespectsextremelyinterestingÐcurrentofegalitarianpoliticalliterature,whichalreadyfoundaplaceinclassicalantiquityandßourishedduringthebirthofcapitalismandtheindustrialrevo-lution,withanumberofimportantcasesineighteenth-centuryFrance.Wemayrecall,forinstance,theCodedelanature(1775)byMorelly,upholdingaformofstatecommunism;thisbookenjoyedalargecirculationatthetime,butweknowpracticallynothingaboutitsauthor,noteventheÞrstname.WemayalsorecalltheAbb«edeMably(1709Ð85),brotherofCondillac,andtheinspireroftheConspiracyofEquals,Franücois-No¬elBabeuf(1760Ð97).Cf.Cole1953and,morerecently,theÞnebookbySpini1992,whostressestheroleofthemostradicalcurrentsofProtestantisminthisliterature,inGermanyandEngland.AgaininFrance,oftheÔutopiansÕwemaymentionCharlesFourier(1772Ð1837),whoproposedtheconstitutionofÔphalangesÕ,thatiscommunitiesorganisedinsuchawayastomakelabourattractive,throughtherotationoftasksandfreedominthechoiceofoccupation;oftheÔsocialistsÕ,LouisBlanc(1811Ð82),supporteroftheconstitutionofpublicorcooperativeÞrms;and,withafootinbothcamps,ClaudeHenrydeRouvroy,CountofSaint-Simon(1760Ð1825),whosemessagesometimestookonsemi-religioustonesthatwaxedstrongerinhisdisciples;aconvincedsupporterofindustrialisationandoftechnicalprogress,heupheldaÔhierarchicalsocialismÕextollingtheroleoftheentrepreneur,whodiscoversandintroducesnewtechniques.Thecriticalattitudemostoftheseauthorshadtoprivatepropertydidnotstemfromargumentsaboutthetheoryofvalue,butfromthenegativeeffectsthatprivatepropertyhadonthecharacterofmen,favouringselÞshnessandprideratherthanthespiritofcooperationandthesenseofbelongingtoasocialcommunity.

TheÔRicardiansÕandthedeclineofRicardianism227followingyears,variousothertheoreticiansworkedonthesamethemes,throwingabridgetowardsthemarginalistediÞce.Thebest-knownauthorinthistraditionisWilliamNassauSenior(1790Ð1864),twice(1825Ð30and1847Ð52)holderofoneofthemostimportantchairsofpoliticaleconomy,theOxfordUniversityDrummondChair.InaseriesofwritingsÐmostnotablytheIntroductorylectureonpoliticaleconomy(1827)and,aboveall,Anoutlineofthescienceofpoliticaleconomy(1836)ÐSeniorproposedasubjectivetheoryofvaluebasedonscarcityandutility(consideredasubjectivejudgementthatdiffersfromonepersontoanother),andtouchedupontheprincipleofdecreasingmarginalutility46(althoughintermsmuchascanbefoundinvariousother,earlier,authors,fromGalianion).HisowndeÞnitionofwealth(thestudyofwhichconstitutedtheobjectofpoliticaleconomy)includedallgoodsandservicesthatwereusefulandscarce;moreover,theobjec-tiveofeachpersonwasÔtoobtain,withaslittlesacriÞceaspossible,asmuchaspossibleofthearticlesofwealthÕ(1827,p.30).Aboveall,Seniorinterpreteddistributivevariablesasdeterminedbythesamemechanismasprices,locatingbehindtheproÞtrateacost(negativeutility)bornebythecapitalist,namelyabstinence.Thiselement,laterembodiedinMillÕsPrinciples,constitutedadecisivestepforthetransformationoftheclassi-calapproach(wheretheÔdifÞcultyofproductionÕpointedtoanobjectiveelement:technology)intotheMarshallianÔrealcostÕapproach,which,asweshallsee,combinedobjectiveandsubjectiveelementsalike.Absti-nencewasinfactthecapitalistsÕcontributiontotheproductiveprocess;aswagesweretherewardfortheworkersÕtoil,soproÞtsweretherewardforaspeciÞcsacriÞce,thenegativeutilitybornebycapitalists.Thepoliticalcontentofthistheoryisclear,foreshadowingasitdidthemarginalistapproachtodistribution,takingwages,proÞtsandrentsasrewardsfortheservicesoftheÔfactorsofproductionÕ:labour,capitalandland.Seniorhimselfstressed,however,withcreditableconsistency,thatifabstinencemeanttherighttoarewardforthosewhoboreit,thisrightdidnotextendtotheirheirs.AnotherimportantelementontheroadleadingtoMarshall(althoughBaileyhadreacheditbeforeSenior)concernedtheroleattributedtothecostofproductionintheframeworkofasubjectivetheoryofvalue.Whenutilityisconfrontedwithscarcity,inordertodeÞnethislatterwemustbearinmindthepossibilityofincreasingthesupplyofreproduciblecom-modities,andwithitthecostofproduction.Naturally,changesinsupplycomeupagainstobstacles,andtheshorterthetimeisforadjustmenttothenewproductionlevelthebiggertheywillbe,moreoverpossibly46ÔThepleasurediminishesinarapidlyincreasingratioÕ(Senior1836,p.12).

228TheWealthofIdeasaggravatedbyelementsofmonopoly;forthisreasonthecostofproduc-tionisnottheÞnalcauseofprice,butonlytheÔregulatorÕ.47AlsoworthnotingonthesubjectofthecostofproductionisthatSeniorheldincreas-ingreturnstoscaletoprevailinmanufacturing,whileinagriculture,giventhatlandcannotbeincreasedinthesameproportionastheothermeansofproduction,labourproductivitydecreaseswhenproductionincreases.48WaryashewasindistinguishingÔtheartofgovernmentÕfromtheÔsci-enceofpoliticaleconomyÕ,Seniorisalsorememberedfortheparthetookinthedebateonthepoorlawsandforhiscontributiontothereformstheselawsunderwentin1834,attemptingtolimittheirscopeofapplicationtothoseacceptingtoworkinpublicworkhouses(cf.above,6.5).DespitehisoppositiontolegalrecognitionoftheworkersÕassociations,whichfoundhimeverdifÞdentifnotdownrighthostile,49Seniorcannotbeconsideredadie-hardreactionary,aswasinfactthestereotypeassignedhimbyMarxisthistoriographyonthebasisofsomecelebratedpagesbyMarx.Actually,Seniorwasquitefavourableto,amongotherthings,sociallegislationrangingfromhousingandhealthtostate-fundededu-cation,freeelementaryeducationforallandconstraintsonchildlabour(aterribleplagueatthetime).MarxÕscriticismfocusednotonlyonthetheoryofabstinence,butalsoonthedecidedlycaptiousargumentationSeniorlinedup(intheLettersontheFactoryAct,1837)againstthereductionofworkinghoursbylaw(toÔonlyÕtenhoursaday!).SeniormaintainedthatthewholeproÞtÐnecessaryforcapitaliststobeinducedtobringproductiveactivityunderwayÐstemmedfromtheÔeleventhhourÕ.Thethesiswasnot,however,setoutasatheoryofproÞt(atheorywhichwouldalsohavecontradictedhisowntheoryofvalue),butasempiricalreasoningbasedonnumericalexamplesassembledforthepurpose,andhereMarxÕsironyappearsfullyjustiÞed.5047FerraracriticisedSeniorforhavingdistinguishedscarcityfromutilityasanindependentcauseofvalue,whileitisonlyafactorwhichinßuencesmarginalutility.Cf.Bowley1937,pp.103Ð4.48Cf.Bowley1937,pp.122Ð4.SeniorpreÞguresherethedistinctionbetweenchangesinthescaleofproductionandchangesintheproportionsbetweenproductivefactors,towhichSraffalaterdrewattentioninhis1925article.49Cf.Bowley1937,pp.277Ð81.50InsubstanceSenior,apartfromassumingthattheweeklywageremainsconstant(hencethatthehourlywageand,giventheproductivityperhourofwork,thecostoflabourperunitofproduct,increaseinproportiontothedecreaseinthehoursworked),forgotaboutthecirculatingcapitalandhencethefactthatcostsrelatingtoitfallwiththedecreaseinworkinghours.Cf.Senior1837and,forcriticism,Marx1867Ð94,vol.1,pp.222Ð8:cf.7.3.Ifthewageperhourofworkremainsconstant(hence,assumingthattheproductivityperhourofworkremainsunchanged,ifthecostoflabourperunitofproductremainsunchanged),withÞxedtechnicalcoefÞcientsforcirculatingcapitalgoods,and

TheÔRicardiansÕandthedeclineofRicardianism229InthewakeofSenior,similarpositionsonthesubjectofvalueanddistributionwereupheld,forinstance,byhissuccessorstotheOxfordchair,RichardWhately(1787Ð1863;hisIntroductorylecturesonpoliticaleconomyaredated1831)andWilliamForsterLloyd(1795Ð1852;hisLectureonthenotionofvaluedatesto1837).Lloyd,inparticular,clearlydistinguishedbetweenwhatwenowcalltotalandmarginalutility,andconnectedhissubjectivetheoryofvaluewithaprincipleofdecreasing(marginal)utility.OnceraisedtothearchbishopricofDublin,Whatelyfoundedthereaschoolofpoliticaleconomyfaithfultothesubjectiveviewofvalue.ThechairinpoliticaleconomynamedafterhimatTrinityCollege,Dublin,hadasitsÞrstholderMountifortLongÞeld(1802Ð84).Thosewhoenter-taintheillusionofaÔmarginalistrevolutionÕ,borninthespaceofjustafewyears,between1870and1874,alreadyadultandarmedlikeAthenafromthemindofJupiter(inourcase,fromthemindofthetrioJevonsÐMengerÐWalras),areadvisedtomeditateonLongÞeldÕsLecturesonpoliti-caleconomy(1834),wheretheessentialelementsofthemarginalisttheoryofvaluewerealreadyallpresent,includingtheideaofwagesregulatedbythe(marginal)productivityoflabour.Moreover,inaworkdated1835,Lecturesoncommerce,LongÞelddevelopedtheRicardiantheoryofinter-nationaltradealongthelineslateradoptedbyOhlinandSamuelson(cf.above,7.6),takingendowmentsoflabourandlandaselementsdeter-miningtheinternationalspecialisationoflabour.1833sawthepublicationofthePrinciplesofpoliticaleconomybyGeorgePoulettScrope(1797Ð1876).Thiswasapopulartext,distinguishedonthescientiÞclevelbytheattentionpaidtothemechanismofsupplyanddemand,aswellasatheoryofinterestbasedontheproductivityofcapitalandaproposalforatabularstandardanticipatingthetheoryofindexnumbersforprices.Moreover,ScropedefendedpublicworksasameanstoÞghtunemployment.WemayalsorecallhereaScottisheconomist,JohnRae(1796Ð1872),whomainlylivedinNorthAmericaandauthoredaStatementofsomenewprinciplesonthesubjectofpoliticaleconomy(1834).ThetheoryofcapitaldevelopedinthisworkforeshadowedthetheoryofB¬ohm-Bawerk(cf.below,11.4),focusingattentiononthedifferentevaluationofpresentifthewearandtearofÞxedcapitalgoodsdependonthequantityproducedandnotonthepassageoftime,thereductioninworkinghoursleavestheproÞtperunitofproductunchanged,whiletotalproÞtsdecreaseinproportiontothereductioninworkingtimeandtherateofproÞtsfallsmoreslowly(atapacethatdependsontheproportionbetweenÞxedandcirculatingcapital).Ifthereductioninworkinghoursisaccompaniednotonlybyanunchangedhourlywagebutalsobyacompensativeincreaseinthenumberofworkersemployedandreorganisationofshiftssuchastoleavethedegreeofutilisationoftheplantunchanged,neithertotalproÞtsnortherateofproÞtsneedchange.

230TheWealthofIdeasandfuturegoodsbyeconomicagents,andcomparingtheinvestorsÕcon-sequentsacriÞcewiththecapitalreturns.Raeisalsointerestingfortheimportanceheascribedtotechnicalprogress,andtheactiveroleheattributedtothestateinfosteringinnovationsandtechnologicalchange.AlthoughtheinßuencetheseauthorshadintheeconomicdebateofthetimecameshortofRicardianslikeMcCullochand,alittlelater,JohnStuartMill,wecannotconsideritanundergroundliterature(asindeedwecaninthecaseofGossenÕsworkÐbelow,10.2Ðsowidelycelebratednowasaprecursorofmarginalism,solittleknowninhisowntime):thesubjectivetheoryofvaluethenhadevengreaterweightinthedebatethantheobjectivetheoryhastoday.51AroundthemiddleofthenineteenthcenturytheoreticaldebateinEnglandwascharacterisedbythesimultaneouspresenceofdifferentlinesofanalysis,developedbyauthorswhowouldconfrontoneanotherinlivelydebate.InFrance,ontheotherhand,eclecticismwastherule(withChevalier,Cherbuliez,Garnier,Ganilhandvariousothers),52combiningSayÕstheoryofvaluebasedonutilityandscarcitywithSeniorÕstheoryofabstinenceandRicardoÕsstationarystate,andelementsofSmithÕsanal-ysisofthedivisionoflabourwithelementsoftheoryofaccumulationdrawnfromJohnStuartMillÕsmanual.Germany,too,showednolackofsupportersofsubjectivetheoriesofvalueatthetime;indeed,authorslikeGottfriedH`ufeland(1760Ð1817)tookupSayÕstorch,precedingtheEnglishsubjectivists;53aboveall,aÔhistoricalschoolÕgrewup,focusingontheinstitutionalaspectsofthewaytheeconomyworks,butthisisalineofresearchwewillreturntolateron(11.2).8.CharlesBabbage54CharlesBabbage(1791Ð1871),anEnglishengineeramongNewtonÕssuccessorstotheLucasianchairofmathematicsatCambridge,is51Schumpeter1954,p.598,wentsofarastostatethatÔtheRicardianswerealwaysintheminority,eveninEnglandÕ;hisopinioniscertainlycorrect,ifthetermÔRicardiansÕisinterpretedinasufÞcientlyrestrictiveway,andwelimitourselvestoconsideringthenumberofauthorsorthepagespublished;however,thingschangeifwetakeintoaccountthepoliticalandculturalinßuenceofRicardoÕstheories,inparticularhissupportforfreetrade,andallthemoreifweincludeamongtheÔRicardiansÕJohnStuartMillwithhisPrinciples.Bowley1937,p.17,saidthatÔbetween1823and1862[…]thereweretwodifferentandmoreorlesscontemporaryschoolseveninEngland,theclassicalorRicardianandtheutilityschoolsÕ,unlessweconsiderasclassicalÔallthoseeconomistsbeforeJevonswhodrewinspirationdirectlyorindirectlyfromAdamSmithÕ.52Cf.above,note3.53SoBowley1937,p.114,wasabletosuggestthatÔGossenÕsstatementofthelawofdiminishingmarginalutilityin1854wasabrilliant,butnotsurprising,interpretationoftheideasgenerallycurrentatthattime.Õ54OnBabbageandhistheoryofthedivisionoflabour,cf.Corsi1984.

TheÔRicardiansÕandthedeclineofRicardianism231consideredaprecursorofTaylorism,ontheonehand,andcomputerscience,ontheother.HisbestknownworkisTheeconomicsofmachineryandmanufactures(1832;fourthedn.1835),whereBabbagecombinedcloseanalysisofvariousproductiveprocessesandattentiontotechno-logicalchangebasedontheintroductionofmachinery55withgeneralreßectionsoncausesandconsequencesofthedivisionoflabour.Withrespecttothelatter,hiscontributiontothetheoryofthedivisionoflabourwastwofold.Firstofall,Babbageconsideredthedivisionoflabourakeyelementinreducingproductioncosts.Inparticular,breakingacomplexlabourpro-cessdownintosimpleoperationsallowsfortheutilisationoflessqualiÞedworkers,whoreceivedlesspay.InfactitsufÞcedforeachworkertohaveonlypartofthequaliÞcationsnecessaryforcompletionofthewholesetofworkingoperationsgoingintoanygivenlabourprocess.Forinstance,ifsomeoneweretobuildhousesbyhimself,hewouldhavetobeasuper-qualiÞedworker,withadegreeinarchitectureandatthesametimeanableelectrician,plumber,masonandpainter:obviouslyhiswagewouldhavetobeveryhigh,farinexcessofthatofasimplemasonorevenarchitect.Ontheotherhand,whenthedifferenttasksinvolvedinbuildingahouseareassignedtodifferentworkerstheyneednosuchqualiÞcations,andtheirwageswillbecorrespondinglylower.BabbageÕsthesisthatdivisionoflabourallowsforutilisationoflessqualiÞedworkerssuggestsatheoryofproletarianisationmuchlikeMarxÕs(cf.below,9.6),althoughBabbagethenwentinanoppositedirection.Hisideawasthatdevelopingthedivisionoflabour,preciselybecauseitmeansbreakingdowneachoperationintoitselementaryconstituentelements,favourstheinventionofmachineryabletoperformthesesim-pleactivities,therebygeneratingaprocessofcontinuoussubstitutionofworkerswithmachinery.Thusthemorenobleandcomplexactivitiesinvolvedinorganisingtheworkprocessandresearchfortechnologicaldevelopmentarereservedforhumanbeings,whiletheduller,morerepet-itiveactivitiesdisappearfromthescene.Thiswas,afterall,thesameideathatlaybehindthequestofhiswholelife,andwhichmadehimfamousÐaÔnumericalcomputingmachineÕ,thedistantprogenitorofmechanicalcalculatingmachineswhichwere,inturn,theforerunnersofmoderncomputers.Themachinewasinfactbasedontheprincipleofbreakingdownanycomputationintoitselementarycomponents,forwhichitiseasiertosubstitutethemindofmanwithastandardisedprocessthatcanbeperformedbyamachine.55Schumpeter1954,p.541n.,praisedhimforÔhisdeÞnitionsofamachineandhiscon-ceptionofinventionÕ.

232TheWealthofIdeasEssentially,Babbageconceivedofatwo-stageprocess.IntheÞrststage,thedivisionoflabour(namely,gradualbreakdown,overtime,oftheworkprocessintomoreandmorespeciÞcworkoperations)favoursthesubstitutionofqualiÞedwithnon-qualiÞedworkers;inthisstagewehaveatendencytoproletarianisation,muchliketheprocesslaterdescribedbyMarx.56Inthesecondstage,however,agradualsubstitutiontakesplaceofnon-qualiÞedworkerswithmachinery,andhenceagradualreductionoftheshareofnon-qualiÞedworkersoverthetotalactivepopulation.Thisholdstrue,astheexampleofthecomputingmachineshows,notonlyformanualworkersbutalsofortheÔwhitecollarsÕonthelesshighlyqualiÞedjobs.OneofthemostinterestingaspectsofBabbageÕsanalysisliesinthefactthatitdrewadirectconnectionbetweenincreasingdivisionoflabourandmechanisation.BearinginmindnotonlyBabbageÕsÞrstprinciple(thesubstitutionofworkershavingmanifoldqualiÞcationswithspecialisedworkersmeanssavingonwagecosts),butalsoBabbageÕssecondprinciple(thedivisionoflabourfavoursthesubstitutionofnon-qualiÞedlabourwithmachinery),weÞndthatdivisionoflabourandmechanisationinteractintheprocessofdevelopment.Asaresultofthetwocontrastingforces,thisinteractiondoesnotimplyatendencyleading,asMarxforesaw,totheprogres-siveimpoverishmentofincreasingmassesofthepopulation,butrathertowardsprogressivegrowthinthewealthofnations,whichalsoallows,albeitinalternatestages,fortheprogressiveenhancementoftheroleplayedbytheworkersintheproductiveprocess(thusatleastinpartcom-pensatingforwhatSmithhimselfconsideredascrucialnegativeaspectofthedivisionoflabour,namelythefragmentationofworktasks).LessinterestingthanBabbageisAndrewUre(1778Ð1857),theÔsingerofmechanicismÕ(asMarxcalledhimÐitisinfactabovealltoMarxÕscriti-cismsthatheoweshisnotoriety).Aninventor,andprofessorofchemistryandnaturalsciencesatGlasgowforagoodmanyyears,Ureextolledthemechanisedfactoryandthedivisionoflabouronthebasisofhisanaly-sisofcertainproductiveprocesses,andthecottonindustryinparticular.56Itwasonthisstage,excludingthesecond,thattheAmericanMarxistHarryBravermanfocusedattentioninhisinterestinganalysisofmoderntrendsinthedivisionoflabour(Braverman1974).Decompositionoftheworkingprocessintoitselementaryoperations,tobethenrecomposedinsuchawayastooptimisetheproductiveprocess,wasbroughttothelevelofscientiÞcexactnessbyFrederickWinslowTaylor(1856Ð1915),anAmericanengineer,withhisscientiÞcmanagement(orTaylorism,fromhisname).ThemainessaysarecollectedinTaylor1947.Taylorismfavouredthespreadofassembly-lines,theÞrstexamplesofwhichdatefromaround1860(intheChicagoslaughter-housesandintheproductionoftheColtrevolver);thetriumphoftheassembly-linecamein1912whenthefamousmodel-TFordwentintoproduction.

TheÔRicardiansÕandthedeclineofRicardianism233HisbestknownbookisThephilosophyofmanufacture(1835),buttheanalyticalcontentofhisworksremainedthin.9.JohnStuartMillandphilosophicalradicalismImportantashewasasaneconomistÐanexponentofthematureRicar-dianismandauthorofanauthoritativeoverviewoftheeconomicdoc-trineofthetimeÐJohnStuartMillwastheleadinglightofthepoliticalcurrentofÔphilosophicalradicalismÕ,alineofthoughtoriginatingfromBentham.Inthehistoryofpoliticalculture,Millisthemainreferenceforaprogressiveviewofliberalism:anadvocateofademocracywheretheminoritiesarenotoverwhelmedbythemajority(Onliberty,1859),astaunchbelieverintheemancipationofwomen(andapropagandistofbirthcontrol),57opentosuggestionsofsocialistcooperatives,aleaderoftheanti-slaveryandanti-racistmovement,58withhisintellectualhonestyandopen-mindednesshewasakeyÞgurewhoseinßuencereachedwellbeyondhisowntimes.ThesonofJamesMillÐalreadymetasthefriendwhohelpedRicardoinwritingthePrinciplesÐandapupilofBentham,theyoungJohnStuartgrewupinanenvironmentrichinculturalstimuli.Subjectedbyhisfathertoaformidableeducationaltourdeforce(whenthreeyearsoldhebeganstudyingGreekandarithmetic),intelligentandcultivated,butalsosen-sitivetothestimuliofColeridgeÕspoetry,afteraperiodofpsychologicalcrisiswhichbroughtanendtoachildhoodandyouthsadlylackinginhumanwarmthandlight-heartedness,attheageoftwenty-ÞveMillfellinlovewithHarrietTaylor,twoyearsyoungerbutalreadymarriedandmothertotwochildren.JohnStuartandHarrietmarriedtwentyyearslater,in1851,afterthedeathofherhusband;butHarriethadbythenlongbeen,andwouldremainuntilherdeathin1858,animportantsourceofinspirationforJohnStuart.LikehisfatherJamesbeforehim,heworkedfortheCompanyoftheIndies,withpositionsofincreasingresponsibility,from1823uptohisretirementwhen,in1858,theCompanywaswoundupandtheadministrationofIndiabecamethedirectresponsibilityoftheBritishgovernment.57Cf.Schwartz1968,pp.26Ð30,andpp.245Ð56wheretheleaßetswithcontraceptionadvice,probablydistributedbytheyoungMill,arereproduced.58Millopposedtheidea(supportedbyCarlyle,Ruskinandmanyothers)thatrace,ratherthaninstitutions,explainsunder-development,condemningÔthevulgarerrorofimputingeverydifferencewhichhe[Carlyle]ÞndsamonghumanbeingstoanoriginaldifferenceofnatureÕ(quotedbyPeartandLevy2003,p.134).ThisisfullyinlinewithAdamSmithÕsstandingontheoriginsofthedivisionoflabour(cf.above,5.7).

234TheWealthofIdeasWewillconsiderhereinoutlinetwomainaspectsofhismanycontri-butions,regardingutilitarianismand(in10)politicaleconomy(thusdisregarding,amongotherthings,hisimportantcontributionsonlogic59andonlibertyanddemocracy).60Withregardtoutilitarianism,weshallfocusonthesubstantialdifferencesbetweenhisviewandthedifferentapproachesofBenthamandJevons,discussedrespectivelyin6.7and10.3.WeshallalsoseethatMillÕsutilitarianismhasnothingtodowiththesubjectivetheoryofvaluedevelopedbynew-bornmarginalism,con-stitutingratheracritiqueofitwellaheadofitstime.BenthamÕsfeliciÞccalculusconsistedinevaluationofthepleasuresandpains(consideredaspositiveandnegativequantitiesinamono-dimensionalspace)derivingfromanygivenaction.Thisprovidesthesolutiontotheproblemofethics:analgebraicallypositiveresultforthefeliciÞccalculusindicatesagoodaction,anegativeresultabadaction.Obviously,thecalculusofpleasuresandpainsconcernedtheimplicationsoftheactionunderconsiderationforthewholeofsociety.InhisfamouspamphletonUtilitarianism(1861),Milldefendedconsequentialismasopposedtodeontologicalmorals.Atthesametime,however,hecriticisedtheideathathumanfeelingscouldbereducedtodifferentquantitiesofaone-dimensionalmagnitude,pleasure(or,inthenegative,pain).AbandoningthesensisticviewofhumannatureunderlyingBenthamÕstheories,61Millmadeaclear-cutdistinctionbetweenutilitarianismas59ÔMillwasaradicalempiricistÐtheonlysourceofknowledgewassenseexperience;knowledgewasobtainedinductively;andscientiÞclawsweresimplyempiricaleventregularitiesÕ(Hands2001,p.16).60ForarecentdiscussionofMillÕsideasonlibertyanddemocracyandoftheirrelevancetocontemporarydebate,cf.Urbinati2002.MillÕsviewpointischaracterisedasÔlibertyfromsubjectionÕ,ratherthanthetraditionalcategoriesofÔlibertyasnon-interferenceÕorÔlibertyasautonomyÕ;thisimpliesasortofinternalself-controlonthedemocratictenetofÔmajorityruleÕ,requiringnotsuppressionofdissentbutopennesstowardsit:Ôapoliticalorderthatthrivesonpublicity,speech,andjudgementeducatesindividualstoregardcriticalinquiryanddissentaspoliticalvirtuesratherthandisruptiveforcesÕ(Urbinati2002,p.12).DespotismofÔthemanyÕorÔtheoneÕorÔthefewÕareequallycondemned;publicadministrationbasedonguidelinesandabureaucracyindependentfrompartypoliticsareimportant.Participationandrepresentation(byelections)shouldbeconceivedÔnotastwoalternativeformsofdemocraticpolitics,butasrelatedformscomprisingthecontinuumofpoliticalactioninmoderndemocraciesÕ(ibid.,p.70).Con-trarytoRousseauandtheupholdersofanabsolutistviewoftheÔsocialcontractÕ,Millwasstronglyaversetotheideathat,onceelectionsaredonewith,politicsisthebusinessoftheelected;inthisasinotherrespects,MilldeclareshimselfinagreementwithTocqueville.WhatUrbinati2002,p.82,callsÔtheagonisticmodelofdeliberativedemocracyÕimpliesaÔfeelingofallegianceÕ(recallingHumeÕsÔcommonconsentÕ),butwithampleroomfordissentanddebate.WemayalsorecallthatÔMilldeclaredunequivocallythatasocialorderbasedonnationalizedmeansofproductionwouldbedespoticÕ(ibid,p.194);however,Mill1848favoursnationalisationofmonopolies.61IndeedCondillac,supporterofasensisticview,maybeconsideredacommonprecursortoBenthamandJevons.

TheÔRicardiansÕandthedeclineofRicardianism235amoralcriterionandutilitarianismasinterpretationofindividualsÕbehaviour.Thereweretwoaspectsinthisdistinction.First,Mill(1861,pp.312Ð13)explicitlymaintainedthathabitratherthanconsciousfeliciÞccalculusaccountedforalargepartofhumanactions.62Second,whenwetakeintoconsiderationthoseaspectsofhumanbehaviouruponwhichwewishtopassmoraljudgement,theutilitariancriterionwastobeappliedÐagainaccordingtoMill(ibid.,p.324)ÐnottosomeimmediatesensisticÔpleasureÕ,buttoamorecomplexmixtureoffeelingsandreason,situatedatahigherlevel.ThisideaofacomplexmixtureoffeelingsandreasonwasconnectedtoMillÕsrecognitionthattherearequalitativedifferencesbetweendifferentkindsofpleasures(andpains),whichcannotbereducedtoquantitativedifferences.Millstressed,attimesevenscathingly,BenthamÕsfailuretorecognisethisaspect(speakingforinstanceofÔtheincompletenessofhisown[BenthamÕs]mindÕor,quotingCarlyle,ofÔthecompletenessoflimitedmenÕor,again,recallingBenthamÕsdeclaredindifferencetowardspoetry).63Itwasinthiscontext,andreferringtothestrengthofhabit,thatMill(1861,p.313)stressedthatÔthewilltodorightoughttobecultivatedÕ,or(ibid.,p.289)Ôthateducationandopinion,whichhavesovastapoweroverhumancharacter,shouldsousethatpowerastoestablishinthemindofeveryindividualanindissolubleassociationbetweenhisownhappinessandthegoodofthewholeÕ.Anotherreasonforeducation,inthesenseofthedevelopmentofanintelligentunderstandingofhumannatureanditsÔmany-sidednessÕ,wasthatapplicationoftheutilitariancriterioninmoraljudgementrequiressuchanunderstanding.64Indeedthisapplicationisnosimplematter,mechanicalandunambiguous:Ôsomanythingsappeareitherjustorunjust,accordingtothelightinwhichtheyareregarded.[…]Utilityisanuncertainstandard,whicheverydifferentpersoninterpretsdifferentlyÕ,andevenÔinthemindofoneandthesameindividual,justiceisnotsomeonerule,principle,ormaxim,butmanyÕ(Mill1861,pp.328).62WemaydiscernDavidHumeÕs(and,derivatively,AdamSmithÕs)inßuenceinthis.63Mill1838,p.148;1840,pp.173Ð4;1861,pp.279Ð83.WemayperhapsdetectanechoofMillÕscriticismsinSchumpeterÕsinvectives(1954,p.133)againstutilitarianism:Ôtheutilitariansreducedthewholeworldofhumanvaluestothesameschema,rulingout,ascontrarytoreason,allthatreallymatterstoman.Thustheyareindeedentitledtothecreditofhavingcreatedsomethingthatwasnewinliterature[…],theshallowestofallconceivablephilosophiesoflife.Õ64ÔGoetheÕsdevice,Òmany-sidednessÓÕ(or,possiblybetter,amultiplicityoffacets)wasrecalledbyMillinhisAutobiography(Mill1873,p.98).Cf.alsotheessayonColeridge(Mill1840,p.201).

236TheWealthofIdeasAsanexampleofdifferentopinionsMillconsideredtheissueofegal-itarianism,whereÔtheequalclaimofeverybodytohappiness,intheestimationofthemoralistandthelegislator,involvesanequalclaimtoallthemeansofhappinessÕ,immediatelyadding,however,aqualiÞcationwhichopensthewaytodifferencesinjudgement,Ôexceptinsofarastheinevitableconditionsofhumanlife,andthegeneralinterest,inwhichthatofeveryindividualisincluded,setlimitstothemaximÕ(Mill1861,p.336).Itisclear,then,thatMillrejectedtheimageofanall-embracing,uni-vocalfeliciÞccalculuswhichindividualscouldsafelyapplyasacrite-rionformoraljudgementwithoutdifferentevaluationsandcontroversiescontinuallyarising.Asaconsequenceofthemulti-dimensionalnatureofmen,conßictisinevitable,andmayevenrisetotheintensityofthecon-ßictsunderlyingGreektragedies.Incidentally,recognitionofthisfactÐnamely,thelegitimacyofprofounddifferencesofopinionÐplayedacru-cialroleinMillÕstheoryofpolitics,centredonthenotionofliberty(towhichhededicatedafamousessay,Onliberty,publishedin1859).65MillÕsÔmodiÞedutilitarianismÕ,inshort,didnotrejectconsequentialistethics,asopposedtothedeontologicalaprioriprinciples.However,itwasevenremoterthanBenthamÕspositionfromJevonsÕssubjectivetheoryofvalue.Thislattertheorywas,asweshallsee(10.3),basedonaone-dimensionalnotionofutility,intermsofwhichindividualpreferenceswereexpressed;thesewere,moreover,assumedtobeindependentofoneanotherandsufÞcientlystableastoallowfortheiruseinanalysisofeco-nomicagentsÕbehaviour.66EveninBentham,asremarkedabove(6.7),consequentialistethicsdidnotimplythenotionofÔrationaleconomicagentsÕmaximisingaone-dimensionalutility;inMill,thecautionsandqualiÞcationswithwhichthefeliciÞccalculuswassurroundedsharplydifferentiatedtheclassicalnotionofÔeconomicmanÕfromtheJevonianconception.TheclassicalnotionofÔeconomicmanÕisnearertotheLatinideaofthegoodpaterfamiliasthantothesensisticideaofanautomatonmaximisinghappinessconceivedasaone-dimensionalmagnitude.(Asamatteroffact,thenotionofthegoodpaterfamiliasiscommonlyappliedbyjuristspreciselyinordertocircumventtheimpossibilityofdeterminingoptimalbehaviourunivocallyandobjectively,referringinsteadtosuch65InthisessayMillunderlinedtheneedtoguaranteetominoritiesareasoffreedomwhichmaynotbesuppressedbydecreebythemajority,stressingamongotherthingsthatÔunityofopinion[…]isnotdesirableÕ(Mill1859,p.56).66DeMarchi1973,pp.78Ð97,pointsoutthatMill,unliketheotherclassicaleconomists,wasacquaintedwithdifferentialandintegralcalculus;hisdistancefromthemarginalutilityviewdependedonhisviewsonthemethodofscienceandonhumannature,includinghisadhesiontoassociationistpsychology.

TheÔRicardiansÕandthedeclineofRicardianism237behaviourasanimpartialobservercoulddeemjustiÞedbythecircum-stances,evenifnotnecessarilysuchastomeeteverybodyÕsapproval.)ItisimportanttostressherethatMillÕsviewlinkedbackwithAdamSmithÕsand,moregenerally,thatoftheScottishEnlightenment,inatleasttwoimportantrespects.TheÞrstwastheideaoftheÔimpartialspecta-torÕpropoundedbySmithinhisTheoryofmoralsentimentsandtakenupagainbyMillinhisformulationofthemaximumhappinessprinciple.67Thesecondelementconsistedintheview,commontoSmith(andtheScottishEnlightenmentasawhole)andtoMill,ofhumanbeingsasÔsocialanimalsÕ:adecisiveelement,inSmithasinMill,foranunderstandingofhowthecitizensofcivilisedsocietyareabletoperceivetheexistenceofcommoninterestsevenastheypursuetheirpersonalinterest,thusrisingabovemereselÞshness.Theseelements,commontoMillandtheScottishtradition,havebeenoverlookedbycommentatorslikeViner(1949),whosawinthedifferencesbetweenBenthamandMillthecontrastbetweeneighteenth-centuryrationalismandnineteenth-centuryromanticism.AlthoughthisinterpretationdoesinfactcorrectlycapturesomeimportantaspectsofMillÕsthought,thecontrastshouldnotbestretchedtothepointofcreat-ingagapbetweeneighteenth-(andearlynineteenth-)centuryrational-isticpoliticaleconomyandanewromantictrendwhosepointofarrivalwouldbetheGermanhistoricalschooloritsBritishequivalent,withaÞnalreturntorationalismaseconomicscametobepredominatedbythetheoryofrationalchoicebasedonthenotionoftherationaleconomicagent.Inordertounderstandtheeighteenth-centuryrootsofMillÕsthoughtwemustavoidanyconfusionbetweentheScottishEnlightenmentandtheFrenchCartesiantradition,withitsextremeexaltationofthegoddessReasonintheFrenchRevolution.Benthamwasinfactverycloseinspirittothelatterpersuasion,somuchsothathewasmadeanhonorarycitizenofRepublicanFrance.Mill,ontheotherhand,followedthetraditionoftheScottishEnlightenment,whichstressedthesimultaneouspresenceofdifferentelementswithinhumannatureand,withSmith,distinguishedselÞshnessfrompersonalinterest,guidedbysensitivitytooneÕsfellowhumanbeingsÐtheethicsofsympathyÐandcivicawareness.Wemaythusconcludethattheclassicaleconomists,fromSmithtoJohnStuartMill,focusedattentiononacomplexindividual,simultaneouslyguidedbypersonalinterestandsocialrules.TheclassicaleconomistsÕ67ÔThehappinesswhichformstheutilitarianstandardofwhatisrightinconduct,isnottheagentÕsownhappiness,butthatofallconcerned.Asbetweenhisownhappinessandthatofothers,utilitarianismrequireshimtobeasstrictlyimpartialasadisinterestedandbenevolentspectatorÕ(Mill1861,p.288).

238TheWealthofIdeasanalysescertainlyassumedthattheeconomicagentbehavedinaratio-nalway;butthisdidnotimplyacceptingthesensisticviewÐoratanyrateaone-dimensionalviewÐofhumannature.Inthecontextofclassi-calpoliticaleconomy,ÔrationalbehaviourÕsimplyimpliedtheabsenceofcontradictionsandtheideathat,wheneverthereisaspeciÞcmagnitudethatmeasurestheoutcomeofthechoicebetweendifferentalternatives,ashappenswithproÞtsinthecompetitionofcapitals,moreispreferredtoless.Butthispossibilitywascertainlynotgeneralisedtoembracethewholeofhumanbehaviour.SpeciÞcally,intheiranalysisofconsumptiontheclassicaleconomistseschewedtheideaofmeasuringtheoutcomesofeconomicagentsÕchoicesintermsofaone-dimensionalmagnitude.InthisÞeld,individualchoiceswereconsidered,rather,astheoutcomeofhabitsandcustoms,continuouslymodiÞedbytheappearanceofnewgoods,sothatproducerswereinfactconsideredtheprimummovensindeterminingconsumptionstructures.AllthisappearsconÞrmedbyMillÕsdeÞnitionofpoliticaleconomy,aslimitedtoaspeciÞcaspectofhumannature,namelythedesiretopossesswealth.68ThisdeÞnitionisinfactequivalenttoassumingÔratio-nalityÕinthesensethatceterisparibusindividualsprefermorewealthtoless(hencemorewages,proÞts,rentstoless).However,thishadnothingtodowithconsumerchoicesorresorttotheassumptionofthemeasur-abilityofusevaluestoaccountforexchangevalues.Asamatteroffact,consumerchoicewasanissueconspicuouslyabsentfromMillÕsmonu-mentalPrinciples;heshould,rather,beconsideredatypicalexponentofclassicalpoliticaleconomyinthat,aswehaveseen,heappearedtocon-sidercustomsandhabitsthemainelementinanaccountofthestructureofconsumptionanditsevolutionovertime.10.MillonpoliticaleconomyLetusnowsharpenthefocusonMilltheÔRicardianÕandonhiscontri-butionstopoliticaleconomy.69MillÕsÞrstwritingsintheeconomicÞeld,theEssaysonsomeunsettledquestionsofpoliticaleconomy,werewrittenin1829Ð30butonlypublished68TheissuewasdealtwithintheÞfth(andlast)oftheEssaysonsomeunsettledquestionsofpoliticaleconomy.PoliticaleconomywasheredeÞned(Mill1844,p.133)asÔthesciencewhichtreatsoftheproductionanddistributionofwealth,sofarastheydependuponthelawsofhumannatureÕ;asaconsequence,politicaleconomyÔdoesnottreat[…]ofthewholeconductofmaninsociety.Itisconcernedwithhimsolelyasabeingwhodesirestopossesswealth,andwhoiscapableofjudgingofthecomparativeefÞcacyofmeansforobtainingthatendÕ(ibid,p.137).69StudiesonthedifferentaspectsofMillÕsthoughtarenumerous.Forinterpretationofhiscontributiontopoliticaleconomy,wemayatleastmentionHollanderÕs1985extensivestudy,whichfavoursaneoclassicalinterpretativekey,incontrasttoourapproachhere.

TheÔRicardiansÕandthedeclineofRicardianism239in1844.TogetherwiththedeÞnitionofpoliticaleconomyoutlinedabove,theycontainacrucialcontributiontothetheoryofinternationaltrade,namelythetheoryofreciprocaldemandutilisedtodeterminetheexchangeratiosbetweenimportsandexports.RicardoÕstheoryofcom-parativecosts(cf.above,7.6)didnotdeterminespeciÞcvaluesfortheexchangeratiosbetweenanypairofinternationallytradedcommodities,butanintervaltheextremesofwhicharegivenbytheexchangeratiosbetweenthetwocommoditieswithineachofthetwocountries,namelyÐunderthelabourtheoryofvalueÐtheratiobetweenthequantitiesoflabourrespectivelyrequiredfortheirproduction.InordertodeterminethespeciÞcinternationalexchangeratiowithinthisinterval,Millcom-paredthedemandfromeachcountryfortheproductexportedbytheothercountry,theinternationalexchangeratiobeingdeterminedatthatlevelwhichensurestheequalityinvaluebetweenthereciprocaldemandofthetwocountries.Thismeans,amongotherthings,thatthereisanadvantageforasmallcountry,whosedemandisrelativelysmall.70Fur-thermore,intheseessaysMilldevelopedanimportantcriticalevaluationofÔSayÕslawÕ(elaborationofwhich,aswesawabovein6.3,sawthecon-tributionofhisfatherJames)byassigningtotheeconomicagentsÕstateofconÞdencealeadingroleinaccountingforeconomicvicissitudes.Afteradeservedlyfamoustreatiseonlogic(Mill1843),inacoupleofyearsÕworkekedoutfromhistimeattheIndiaCompanyMillproducedwhatwasforoverfortyyears(uptothepublicationofMarshallÕsPrinciplesofeconomicsin1890)toremainthestandardtextforthestudyofpoliticaleconomy,atleastintheAnglo-Saxonworld.71ThePrinciplesofpoliticaleconomyappearedin1848,andwentthrougheighteditionsbeforetheauthorÕsdeath.ThetextisanexpositionofRicardianthought,butnotonlythis.TogetherwithMillÕsowncontributions,italsoincorporatedsomeideas70ThetheoryofreciprocaldemandwastakenupbyMarshallintheelaborationofhistheoryofvalue(cf.below,13.2),andre-elaboratedinafullymarginalistconceptualframeworkbyEdgeworth1894a.71Moreover,thewidelyreadtextbyJohnElliottCairnes(1823Ð75),Someleadingprinci-plesofpoliticaleconomynewlyexpounded,1874,clearlyreßectedMillÕsinßuence.CairneshimselfwasaleadingexponentoftheAnglo-Saxonacademicworld.WeowetohimdevelopmentoftheMilliannotionofÔnon-competinggroupsÕandthenotionofÔcom-mercialcompetitionÕwhich,unlikeÔindustrialcompetitionÕ,lacksterritorialmobilityofsupply(thatis,exchangemusttakeplaceinaspeciÞclocation,forinstancetheshop);withtheseconcepts,CairnesforeshadowedsomeelementsoftheÔimperfectÕorÔmonop-olisticcompetitionÕnotionsofhalfacenturylater(cf.below,13.10).Anotherwidelyreaduniversitytext,theManualofpoliticaleconomy,waspublishedin1863byanotherfol-lowerofMill,HenryFawcett(1833Ð84).From1863tohisdeath,despitehisblindness,FawcettwasprofessorofpoliticaleconomyatCambridge,andwasthusMarshallÕspre-decessorinthisrole;moreover,asfrom1865hewasaninßuentialMemberofParliament(onFawcettÕsinterestingpersonality,cf.Goldman1989).

240TheWealthofIdeasdevelopedbyanti-Ricardianeconomists,suchasSeniorÕstheoryofabsti-nence(cf.above,7).Millalsodevelopedhisownversionoftheposi-tivismexpoundedbyAugusteComte(1798Ð1857;theCoursdephiloso-phiepositive,insixvolumes,isdated1830Ð42),whoadvocatedaÔgeneralscienceofsocietyÕabletocapturetheinterdependencieslinkingupallsocialphenomena.Millapparentlychosetotackletheproblemofinter-pretinghumansocietiesfromdifferentvantagepoints,applyingasub-stantiallyinductivediscipline(ComteÕssociology)togetherwithasub-stantiallydeductivediscipline,politicaleconomy,andwithasciencestilltobeformed,namelyethology,orthescienceofnationalcharacter.Withastep-by-steplogicalprocedurethatwastosetthepattern,thePrinciplesweredividedintoÞvebooks(possiblyanechoofSmithÕsWealthofnations):production,distribution,exchange,economicdevelopmentandtheroleofthegovernment.Treatmentofproduction,accordingtoMill,logicallyprecedesdistribu-tionsincetheformerisconsideredtheÞeldofÔnaturallawsÕ,independentoftheinstitutions,whichbycontrastareheldtoberelevantforthelatter,subjecttohistoricallyrelativelaws.Thereareimplicitexceptionstothisprinciple,however,sinceanumberofissuesconcerninginstitutionsaretackledinbookoneofthePrinciples.TheSmithiananalysisofthedivisionoflabourconstitutestheback-groundforMillÕstreatmentofproduction;onmachinery,andontheimportanceofincreasingreturnstoscale,Babbage(1833)isalsoquoted.Millthussuggeststhethesisofatendencytoindustrialconcentration(increaseinthesizeofÞrms),onwhichMarxwouldlaygreatstress.AmongotherspeciÞctopicsdealtwithbyMillunderthegeneralheadingofproduction,thereistheissueofnaturalmonopolies(theremedyforwhichisnationalisation),andtheseparatetreatmentofagriculture,inwhichsmall-scalepeasantfarmingisfavoured.Booktwo,ondistribution,openswithachapteronproperty.Millpro-videshereabalanceddiscussionoftheprosandconsofdifferentregimes.Thejudgementonprivatepropertydependsonwhetheritisorganisedinsuchawayastoavoidexcessiveandarbitraryinequalities,whichinturndependsonwidespreadeducationandchecksonpopulationgrowth,butalsoonprogressiveinheritancetaxationandculturalandinstitutionalsafeguardsagainsttheabuseofpropertyrights.Communism,identiÞedwithrealisationofgeneralisedequality,isconsideredinferiortosocial-ism,whichallowsforindividualdifferencesaccordingtomerit.Coopera-tivesandproÞt-sharing,discussedindetailinbookfour,representMillÕsfavouredsolution.Asforincomedistributionitself,proÞtsareidentiÞedwithabstinence,followingSenior,andarethusdeterminedbysocietyÕsevaluationofthe

TheÔRicardiansÕandthedeclineofRicardianism241presentcomparedtothefuture.MalthusÕspopulationprincipleloomslargeinthediscussionofwages:Millinsistsontheneedtocontainpop-ulationgrowthasapriorityforimprovingtheconditionsoftheworkingclasses.Elementsofawagefundtheoryarealsopresent,butnotintherigidformsometimesattributedtothewholeofclassicalpoliticalecon-omybyexcessivelysimpliÞedaccountsfocusingonMillÕsÔrecantationÕ(onwhichmorebelow).Thetheoryofvaluemadeitsappearanceonlyinthethirdbook,deal-ingwithexchangeÐachoicethatmayhavehadsomethingtodowithanon-metaphysicalinterpretationofthenotionofvalue(variousotherauthors,fromRicardotoMarx,oftenretainedametaphysicalelementofÔintrinsicÕ,orÔabsoluteÕvalue),andwhichshowsjustwhatadistancelaybetweenMillandthemarginalistapproach(whichtookdistributionasaparticularaspectoftheproblemofvalue).72MillÕstheoryofexchangevaluedrawsonSmithandRicardo,butalsoonauthorssuchasBailey.Althoughnevercited,thelatteristheproba-blesourceofthedistinctionbetweencommoditiesthesupplyofwhichisÞxed,thosethesupplyofwhichcanbeincreasedindeÞnitelywith-outincreasesintheaveragecostofproduction,andthosethesupplyofwhichcanbeincreasedbutonlyatincreasingcosts.Thetheoryofvaluecanproperlybeappliedonlytothesecondcategory.Here,ÔnaturalÕpricescorrespondtocostsofproduction(inclusiveofrents,represent-inganopportunitycost,andproÞts,consideredastheremunerationofabstinence);ÔmarketÕpricesdependonsupplyanddemand,andcoincidewiththenaturalpricewhensupplyequalsdemand.AsalreadymentionedwithrespecttoDeQuincey(in8.4),thisre-elaborationofthetheoryofvaluerepresentsatransitionalstagefromtheclassicaltotheMarshallianapproachÐalthoughwemustrememberthatMillismilesawayfromasubjectiveapproach:asforSmithorRicardo,valueinuseonlyrepresents72ItwaspreciselythisthatprovokedSchumpeterÕscriticism(1954,pp.542Ð3):ÔThecentraltheoryofvalue,whichshouldcomeÞrstonlogicalgrounds[…]ispresentedinBookIIIasifithadtodoonlywiththeÒcirculationÓofgoodsandasifproductionanddistributioncouldbeunderstoodwithoutit.ÕIndeed,theroleofthetheoryofvaluewithintheclassicalapproachisacomplexissue.Ontheonehand,itconstitutedthecentralcoreoftheclassicalanalyticalstructureandexpressedthenucleusofitsviewsofthefunctioningofacompetitiveeconomy.Ontheotherhand,purgedofthemetaphysicalelements,theclassicaltheoryofvalue,insofarasitconcernedthedeterminationofexchangeratiosbetweensectorsinaneconomybasedonthedivisionoflabourandprivateownershipofthemeansofproduction,tooktechnologyasgiven,whichstemsfromtheevolutionofthedivisionoflabour,andincomedistribution,whichstemsfrominstitutionalorganisationandtherelativebargainingstrengthofthecontendingsocialclasses.Obviously,wemuststressthatinthiscontextexchangesconcernnotonlysaleofconsumptiongoods,butalsoandaboveallthatnetworkofrelationsamongsectorsthatallowsfortheÔreproductionÕovertimeoftheeconomicsystem.

242TheWealthofIdeasa(non-quantiÞable)prerequisiteforapositivevalueofexchange,butdoesnotcontributetoitsdetermination.BookfourofthePrinciplesconcernsthetrendsofhistoricalchange;hereweÞndanillustrationofthetendencyofproÞtstoaminimum,andoftheconsequenttendencyoftheeconomytoastationarystate.Buteconomicstagnationshouldnotbeconfusedwithsocialandculturalstagnation:infact,MillreturnstooneofhisfavouritethemesÐconstraintsonpopula-tiongrowthÐtopointthewaytopossibleprogressintheconditionsoftheworkingclasseswithinastationaryeconomy;wealsoÞndreferencesinthiscontexttotheissueoftheecologicalsustainabilityofeconomicprogress.Thebookcloseswithachapterontheprobablefutureoftheworkingclasses,wherecooperativesandsocialismarediscussed.AsinSmithÕsWealthofnations,bookÞvedealswiththeroleofthegovernment:taxation,publicdebt,areasofpublicinterventionintheeconomy.EvenmorethaninSmith,hereespousing(political)liberalismdoesnotimplyrigidcommitmenttoeconomicliberalismintheabstract,butacomplexandwell-arguedcase-by-caseanalysisoftheopportunedeparturesfromthelaissez-faireprinciple.MillwasaproliÞcwriter;butafterthePrincipleshismaincontributionsconcernedpoliticalissues(libertyanddemocracy,theemancipationofwomen,socialism)andutilitarianism.However,historiansofeconomicthoughtoftenrecallasanimportant,latecontributionhis1869Ôrecan-tationÕofthewagesfundtheory.Initsmostrudimentalformulation,thetheoryofthewagefundstatedthatthewagerateisdeterminedbytheratiobetweentwoindependentmagnitudes:theamountofcapitalavailableforthemaintenanceoftheworkersandthenumberofworkersemployed.Themaindefectofthistheory,atleastinitssimplestformulation,isthatitconsideredthenumer-atorasagivendatumoftheproblem,whileitisclearthattheamountofcapitalavailableforthemaintenanceoftheworkers(thewagefund)notonlyvariesinthecourseoftimeasaconsequenceofaccumula-tion,butcanalsovaryatagivenmomentintimeifthemaintenanceofproductiveworkersinvolvesmakinguseofgoodspreviouslyutilisedforotherpurposes,suchasluxuryconsumption.InanarticleappearingintheMay1869issueoftheFortnightlyReview,MilldeclaredthathehadabandonedthewagefundtheoryaftercriticismraisedinthesameyearbyWilliamThornton(1813Ð80)inhisbookOnlabour(1869).VarioushistoriansofeconomicthoughtseeadeÞningmomentinthisÔrecanta-tionÕbyMill,readingintoittheultimatedecadenceofRicardianism,butthefactisthatthewagefundtheoryplayednopartinRicardoÕslogi-calconstruction,noranycentralroleinMillÕsanalyticalstructureeither,beingmainlyrelevanttothedebateÐveryimportantonthepolitical

TheÔRicardiansÕandthedeclineofRicardianism243levelÐonthepoweroftheunionstoraisethestandardoflivingoftheworkers.73FarmoreimportantfromthepointofviewoftheprogressivedecayoftheRicardianediÞce,asalreadysuggestedabove,togetherwithaccep-tanceofSeniorÕstheoryofabstinencewasthetransformationofthenotionofmarketpriceintoatheoreticalvariable,determinedbydemandandsupply.ItispreciselyinthisrespectthatwecansaythatMill,attemptingtoreconcileinoneanalyticalconstructiontheRicardian-classicalprinci-pleofdifÞcultyofproductionandtheanti-Ricardianprincipleofdemandandsupply(hence,behindthescenes,ofutilityandscarcity),openedthewaytotheMarshalliansynthesis,74althoughMillkepthisfeetÞrmlyintheclassicalÞeld,rejectinganyideaofbringingtothecentreofthetheoryofvaluethoseelementsÐscarcityandutilityÐuponwhichthesubjectiveapproachrelied.73ForaÔLakatosianÕ(cf.above,1.3)reconstructionofthedebateonthewagefundtheory,cf.Vint1994.OnMillÕsÔrecantationÕ,cf.Schwartz1968,pp.91Ð101.74Schumpeter1954,p.530,wentsofarastospeakofaÔSmithÐMillÐMarshalllineÕ;inthesamedirection,cf.Dobb1973,pp.112Ð15.

9KarlMarx1.IntroductionTheanalyticstructurebasedonthenotionofsurplusandrepresentationoftheeconomicsystemasacircularßowofproductionandconsumption,developedbytheclassicaleconomists,andinparticularbyRicardo,wastakenupandutilisedinanoriginalwaybyKarlMarx(1818Ð83).Hefocusedhisanalysisontheclashofinterestsbetweenthebourgeoisieandtheproletariat,hisresearchesintheeconomicÞeldbeingguidedbyadominantpoliticalaim,namelyradicalcriticismofthecapitalisticmodeofproduction.HisframeofthoughtalsoreßectedtheinßuenceofHegelianphilosophy(inparticularthatoftheso-calledHegelianleftÐLudwigFeuerbach,BrunoBauerandMaxStirner)andFrenchanti-capitalisticcurrents(fromBabeufandBuonarrotitoProudhon).Thus,aswewillseeinmoredetailinthefollowingpages,withhistheoryofalienationintheÞrstphase,andlateronwithhistheoryofcommodityfetishism,Marxproposedacritiqueofthedivisionoflabourincapitalisticsociety.Furthermore,withhistheoryofexploitation,MarxsoughttoshowthatproÞtsstemfromÔunpaidworkÕeveninasystemthatadherestothecapitalisticcriterionofjusticeÐexchangeofequalsÐwherethetwopartiestoexchangegiveandreceiveequalvalues.Indevelopingthisthesis,Marxadoptedthelabour-containedtheoryofvalue.Atthesametimehewas,likeRicardo,wellawareofthelimitsofthistheory;andhesetoutÐunsuccessfully,asitprovedÐtodemonstratethattheresultsobtainedbyrecoursetoitretainedtheirvaliditywhentheanalysiswasinsteadbasedonÔpricesofproductionÕ,answeringtothereq-uisiteofauniformrateofproÞtsthroughoutallsectorsoftheeconomy.Thesameweakfoundationsunderlaytheso-calledlawofthetendencyoftherateofproÞtstofalland,moreindirectly,thatoftheincreasingimpoverishmentoftheproletariat:twoaspectscentraltoMarxÕspoliti-callycrucialthesisthattheoverthrowofcapitalismwasinevitable.OtheraspectsofMarxÕstheoreticalconstructions,suchasthetheoriesonthebirthanddevelopmentofthecapitalisticmodeofproduction(i.e.244

KarlMarx245thetheoriesconcerningprimitiveaccumulation,simpleandexpandedreproductionschemes,theindustrialreservearmy,thetendencytoindus-trialconcentration),arehoweverlessdirectlyconnectedtothelabour-containedtheoryofvalue,andhencelessconditionedbyitsshortcom-ings.Leavingasidehisimmenseinßuenceonpolitics,MarxÕscontributiontothedevelopmentofeconomicsciencewasprobablymostimportantinthoseÞeldsofresearchwhereithadtheleasttodowithhisrevolutionaryproject.Therefore,inevaluatinghiscontributiontoourÞelditisimpor-tanttobearinmindthepoliticalcontextinwhichitwasdeveloped,butatthesametimeweshouldavoidmakingeverythingdependentonit,asifalltheelementsoftheMarxiantheoreticalconstructionweretostandorfalltogetherwithhisoverallpoliticaldesign.12.Lifeandwritings2KarlMarxwasborninTrier,asmallPrussiantown,on5May1818.Hisfather,alawyer,wasaJewconvertedtoProtestantism.Karlattendedthegymnasiuminhisnativetown,andtheuniversityÐwhereintruthheshowednogreatapplicationÐÞrstinBonn(1835)andtheninBerlin(1836Ð41),ÞnallygraduatinginJenain1841withadissertationonDemocritusandEpicurus.In1843hemarriedJennyvonWestphalen,thedaughterofahigh-rankingPrussiancivilservant.DuringtheuniversityyearsMarxwasinßuencedbytheHegelianleft(Feuerbach,BauerandStirner).Hisinitialambitionwastoembarkonanacademiccareerasprofessorofphilosophy,butherapidlyfellbackonjournalism.InMay1842hebecameeditoroftheRheinischeZeitung,aliberalnewspaperofColognewhichwas,however,closedafteronlyayearbythePrussianauthorities.MarxthenemigratedtoParis,wherehemetFriedrichEngels(1820Ð95),hisgreatfriendandlifetimecollaborator.Somenotebooks,posthumouslypublishedasEconomicandphilosophicalmanuscripts,datefromthisperiod;theyareimportantforreconstructionoftheformativestageofMarxÕsthought,andaboveallforhistheoryofalienation.In1845MarxwasexpelledfromParis,andmovedtoBrussels.Fromthisperiodwehavesomemainlyphilosophicalwritings,inwhichMarxandEngelselaboratedthetheoryofhistoricalmaterialism.Inshort,thetheorywentthattransformationsinthemodeofproduction(thatis,changesintheeconomicstructureofsociety)exertadecisiveinßuence1OfthenumerousillustrationsofMarxÕseconomictheorywemaymentionSweezy1942.2OfthemanybooksonMarxÕslife,wemaymentionRiazanov1927,NikolaevskijandMaenchen-Helfen1963.

246TheWealthofIdeasontheÔsuperstructureÕ,thatis,onthepoliticalinstitutionsandculturalenvironment.Avoluminousmanuscript,TheGermanideology,datesfrom1845Ð6:itwaswrittenintheheavy,convolutedjargonoftheHegelianleft;MarxandEngelsleftitÔtothestingingcriticismofthemiceÕ(asMarxhimselfrecallsintheprefacetoAcontributiontothecritiqueofpoliticaleconomy,1857,p.86),anditwaspublishedonlyposthumously.TwootherworksdevelopedacritiqueofFeuerbachÕsmaterialism:theThesesonFeuerbach,writtenin1845,andthePovertyofphilosophywrittenin1847.EntrustedbytheLeagueofthecommunists,3in1848MarxandEngelswrotetheirprogramme,theCommunistPartymanifesto,aliterarymas-terpieceintheforcefulnessofitslanguage,whichwastobecomeoneofthemostinßuentialwritingsofalltimes.TherevolutionaryprojectthatMarxandEngelswouldremainfaithfultofortherestoftheirlives,wassetoutthereinincisiveterms,4asadistillationofthefruitsoftheirvastreßectionsonphilosophical,politicalandeconomicissues.Thus,forinstance,theirformulationofhistoricalmaterialismwasexpressedinasinglesentence:ÔThehistoryofallhithertoexistingsocietyisthehistoryofclassstruggles.Õ5ThepoliticalprogrammeoftheManifestosawprivateownershipofthemeansofproductionovercomethroughexpropriation,tobetransferredunderdirectcontrolofthestate(whichwouldobviouslynolongerbeÔamanagingcommitteeforthecommonaffairsoftheentirebourgeoisieÕ,6butthepoliticalexpressionoftheproletariat).1848wasayearofrevolutions,alloverEurope.MarxreturnedtoColognetoedittheNeueRheinischeZeitungandplayhispartinthepolit-icalupheavalsofhiscountry.Therevolutionaryfeversoondieddown,however;byApril1849theNeueRheinischeZeitunghadalreadybeenclosedandMarx,expelledfromPrussia,movedtoLondon.Herehe3TheCommunistLeaguewasbornin1847asanevolutionfromtheLeagueoftheJust,inturnfoundedin1836withintheclandestinemovementofexpatriateworkers,withwhichMarxandEngelscameincontactinParis.TheLeagueoftheJustwasafÞliatedtotheFrenchSocietyofSeasons,inßuencedbytheideasofFranücois-Noel(Gracchus)BabeufandFilippoBuonarroti(1761Ð1837;hisLaconspirationpourlÕ«egalit«e,describingtheeventsof1796,datesfrom1828).OnthehistoryoftheCommunistLeague,itisworthreadingthepagesbyEngelsandtheStatutespublishedintheappendixtotheItalianeditionofMarxandEngels(1848,pp.251Ð76).4Letusrecall,forinstance,theopeningandclosingsentencesoftheManifesto:ÔAspectreishauntingEuropeÐthespectreofcommunismÕ;ÔThecommunists[…]openlydeclarethattheirendscanbeattainedonlybytheforcibleoverthrowofallexistingsocialconditions.Lettherulingclassestrembleatacommunisticrevolution.Theproletarianshavenothingtolosebuttheirchains.Theyhaveaworldtowin.Workingmenofallcountries,unite!Õ(MarxandEngels1848,pp.48and82).5Ibid.,p.48.6Ibid.,p.51.

KarlMarx247spenttherestofhisdays,leadingalifeofstudycentreduponthelibraryoftheBritishMuseum,althoughmaintaininganactiveinvolvementinpoliticsthroughtheFirstInternational(moreprecisely,theInternationalWorkingMenÕsAssociation,foundedin1864).7MarxÕsfamilylivedinstraitenedcircumstances:ofhissevenchildren,onlythethreedaughterssurvivedKarl.Marxlivedontheroyaltiesfromhiswritingsandoccasionalworkasajournalist(from1851to1861hewasEuropeancorrespondentoftheNewYorkDailyTribune),butmostlyreliedonÞnancialhelpfromEngels,whowasthedescendantofafamilyofGermancottonentrepreneursandworkedinManchesterintheEnglishsubsidiaryofthefamilyÞrm.OftheLondonyearsweshallconsiderfourworks.FirstwehavetheCritiqueofpoliticaleconomy,publishedin1857.HereMarxillustrated,bet-terthananywhereelse,thematerialisticconceptionofhistory,presentingitastheresultofhisreßectionsduringtheParisyears.WemayquoteherethecelebratedpassageinwhichMarx(1857,p.84)summarisedhisviews:InthesocialproductionwhichmencarryontheyenterintodeÞniterelationsthatareindispensableandindependentoftheirwill;theserelationsofproduc-tioncorrespondtoadeÞnitestageofdevelopmentoftheirmaterialpowersofproduction.Thesumtotaloftheserelationsofproductionconstitutestheeco-nomicstructureofsocietyÐtherealfoundation,onwhichriselegalandpoliticalsuperstructuresandtowhichcorresponddeÞniteformsofsocialconsciousness.Themodeofproductioninmateriallifedeterminesthegeneralcharacterofthesocial,politicalandspiritualprocessesoflife.Itisnottheconsciousnessofmenthatdeterminestheirexistence,but,onthecontrary,theirsocialexistencedeter-minestheirconsciousness.Atacertainstageoftheirdevelopmentthematerialforcesofproductioninsocietycomeintoconßictwiththeexistingrelationsofproduction,orÐwhatisbutalegalexpressionforthesamethingÐwiththe7TheFirstInternationalwasdissolvedin1867,followingincreasingfrictionintheinternalpoliticaldebate,inparticularbetweenBakunin,LassalleandMarx.TheSecondInterna-tionalwasbornin1889asanallianceoftheEuropeansocialistparties,andwasdissolvedwhen,ontheoutbreakoftheFirstWorldWar,nationalistfeelingsprevailedevenwithinthesocialistparties.TheThirdInternationalorKomintern(1919Ð43),borninMoscowasanallianceofthecommunistpartiesallovertheworldaftertheSovietRevolution,wasdominatedbytheSovietUnion,tobefollowedaftertheSecondWorldWarbytheKominform(1947Ð89).TherestillexistsaFourthInternational,foundedbyTrotskyin1931inParis.TheSocialistInternational(orFifthInternational),foundedinZurichin1947,groupstogetherthesocial-democraticparties.MikhailBakunin(1814Ð76)broughttotheforetheanarchistideaslatentinthewrit-ingsofauthorssuchasGodwinorProudhon.FerdinandLassalle(1825Ð64),aGerman,supporterofuniversalsuffrageasmeansfortheemancipationoftheworkers,alsoadvocatedcooperativesandwasaboveallapoliticalleader,founderoftheGeneralAssociationofGermanWorkers,whichledtotheSPD,theGermansocial-democraticparty.HeisalsoknownastheauthoroftheexpressionÔtheironlawofwagesÕ.

248TheWealthofIdeaspropertyrelationswithinwhichtheyhadbeenatworkbefore.Fromformsofdevelopmentoftheforcesofproductiontheserelationsturnintotheirfetters.Thencomestheperiodofsocialrevolution.Inotherwords,thecontinuouschangeoftechnology(broadlyinterpretedasthedevelopmentofthedivisionoflabour:whatMarxcalledÔthepowersofproductionÕ)constitutesadynamic,progressiveelementthatgeneratesincreasingtensionswithinthestatic,conservativeelementrepresentedbyÔproductionrelationsÕ,namelythesetofinstitutionsandhabitswithinwhicheconomicactivitytakesplace.TheforceofinertiarepresentedbyÔproductionrelationsÕisinturnconnectedtothepolitical,juridicalandculturalÔsuperstructureÕ.ThedynamicelementÐproductiveforcesÐisdestinedtooverturnthesystemofproductionrelationsandthesuper-structureinarevolutionarystage.Wethenhavethetransitiontoanewsystemofproductionrelations(inMarxianterminology,anewÔmodeofproductionÕ:fromfeudalismtocapitalism,andthentosocialismandsubsequentlytocommunism),withcorrespondingupheavalofthesuper-structure.AscanbeseeninthepassagebyMarxquotedabove,historicalmate-rialismdidnotindicateamechanicaldependenceofinstitutionalandideologicalsuperstructuresontheeconomicÔstructureÕ.Rather,weareconfrontedbyacomplexinterrelationbetweenthetwoterms:whatMarxmaintained,perhapswithexcessiveimpetuosity,wasthatthecausallinkgoingfromstructuretosuperstructureisfarstrongerthanthelinkrun-ningintheoppositedirection.8Bethatasitmay,historyÐthepathofdevelopmentofhumansocietiesÐwasconceivedasadialecticalprocessinwhichstagesofnormaldevelopmentinevitablyleadtorevolution-arystages,markingthetransitionfromonesystemofsocialrelationstoanother.ThesecondimportantworkoftheLondonperiodconsistedoftheGrundrisse,asetofmanuscriptswrittenbetween1857and1858andpub-lishedposthumously,whichconstitutedtheimmediatepremiseofCapitalandwhich,sincetheirpublication(1939Ð41),haveprovedparticularlyattractivetothoseinterpretingMarxÕsthoughtfromthephilosophicalratherthaneconomicviewpoint.ThethirdandfundamentalworkwasCapital.TheÞrstvolumewaspublishedin1867,thesecondandthirdvolumescomingoutposthumously,editedbyEngels,in1885and1894respectively.What8MarxÕscriticshave,abovealloverthepastfewdecades,commonlystressedthatthisthesisimpliesdrasticunderestimationoftheroleofnationalisticandreligiousfeelingsindeterminingthehistoryofpeoplesandcountries.Somepoliticalscientistsmaintainthatitispreciselytheseelementsthatplayacrucialroleintheconßictsofthepastdecadearoundtheworld:cf.forinstancetheimportantessaybyHuntington1996.

KarlMarx249MarxprobablyintendedtobeafourthvolumeofCapital,thatis,theTheoriesofsurplusvalue,asurveyofthehistoryofeconomicthoughtleftunÞnishedaslittlemorethanasetofpreparatorynotes,waseditedbyKautskyandpublishedin1905Ð10.Wenowturntothisgroupofwrit-ingstoillustrateMarxÕscontributiontoeconomicscience.Clearly,wearedealingherewiththematurestageofMarxÕsthought;itisimportanttostressthat,eventhougheconomicissueswerealreadypresentinhisresearchintheParisyears,Marxbecameinvolvedineconomictheoryasalogicaldevelopmentofhisphilosophicalandpoliticalinvestigations.Finally,wemayrecallamongtheworksoftheLondonyearstheÔCritiqueoftheGothaprogrammeÕ(1878),abriefbutwide-rangingtextthatattractedconsiderableattentionforitspassingreferencestothechar-acteristicsofthesocialistandcommunistsocietiesthatweretofollowcap-italism,butalsoimportantbecauseitconstitutedMarxÕs(andEngelsÕs)reactiontoapoliticalcurrent,social-democraticreformism,thatwastak-ingongrowingimportancewithinthemajorworkersÕpartiesofthetime:thoseinGermanyandBritain.Marxdiedin1883:thesameyearinwhichKeynesandSchumpeterwereborn.93.Thecritiqueofthedivisionoflabour:alienationandcommodityfetishismThenotionofalienation(fromtheLatinalius,theÔotherÕ)isaconceptofHegelianderivation,developedbyMarxintheEconomicandphilosophicalmanuscriptsof1844.WiththisconceptMarxintendedtohighlightthepositionoftheworkerinthecapitalisticmodeofproduction.Theworkerisalienatedforthreemainreasons.Firstly,theworkersdonotowntheirmeansofproduction,whichbelongtothecapitalists.Secondly,thework-ersdonotowntheproductoftheiractivity(alsobelongingtothecapi-talists,whoadvancemeansofproductionandwagesinexchangefortherighttotheproduct).Thirdly,theworkersdonotcontrolorganisationoftheproductiveprocess,wheretheyplayonlyalimited,speciÞcrole.Thus,Marxremarked,tools,productandlabourprocessappeartotheworkersasextraneousentities;asaconsequence,theworkersdonotconceivethempositivelyaswaysandmeansfortheiractiveroleinsocietyandinrelationtonaturetoÞndexpression.10WorkthusprovesfortheworkersthemeanstooneparticularendÐtoearnawage,andhencethe9TheobituariesandtheimmediatereactionstoMarxÕsdeatharecollectedinFoner1973.10ÔWhatconstitutesthealienationoflabour?First,thattheworkisexternaltotheworker,thatitisnotpartofhisnature;andthat,consequently,hedoesnotfulÞlhimselfinhisworkbutdenieshimself,hasafeelingofmiseryratherthanwell-being,doesnotdevelop

250TheWealthofIdeasmeansofsubsistenceÐratherthanself-fulÞlmentasindividualswithinsociety.11Allthisalsoimpliestheestrangementofthehumanbeingfromotherhumanbeings.Thenotionofalienation,soimportantintheManuscriptsandsorev-elatoryoftheinßuenceofHegelianphilosophy,disappearedfromthesceneinthemainworkofthematureperiod,Capital,whereitgavewaytotheconceptofÔcommodityfetishismÕ.LetusseewhatMarxmeantbythis.Anysocietybasedonthedivisionoflabour,Marxargued,followingAdamSmithÕslead,isbasedoncooperationbetweenproducers.Oncethestageofproductionforself-consumptionissuperseded,eachworkerper-formsaspeciÞctasktheresultsofwhichareingeneralutilisedforthesat-isfactionofothersÕneedsanddesires;thustheworkerneedstheproductoftheworkofothersforsubsistenceandmeansofproduction.Asemergesfromrepresentationofeconomicactivityasacircularßowofproductionandconsumption,thisnetworkconnectingseparateproductiveactivitiescooperatingforthesurvivalandreproductionoftheeconomyconsti-tutestheveryfoundationonwhichtheeconomyandthesocietyrest.AlltheclassicaleconomistsÐandMarx,herefollowingintheirfootstepsÐconsiderthedivisionoflabouranditsdevelopmentasthebasisforthewealthofnations,andsoforsocialwell-being.However,thisdoesnotmeanthattheyignoredthenegativeaspectsofthedivisionoflabour:aswesawabove(5.8),Smithhimselfaddressedtheissue,insomerespectsanticipatingMarxiananalysisofalienation.Theopenquestionhereiswhetherrecognitionofcertainnegativeimplicationsofthedivisionoflabourmustofnecessitytranslate,asinMarx,intowholesaleindictmentofthesocialandpoliticalorganisationofthemarketeconomyorrather,asinSmith,intocomparativeevaluationoftheadvantagesanddisadvan-tages,generalapprovalcounterbalancedbyactionagainstthenegativeeffects.12Withthenotionofcommodityfetishism,illustratedintheÞrstchapterofBook1ofCapital,Marxtookastepfurtherinaprecisedirection,freelyhismentalandphysicalenergiesbutisphysicallyexhaustedandmentallydebased.Theworker,therefore,feelshimselfathomeonlyduringhisleisuretime,whereasatworkhefeelshomeless.Hisworkisnotvoluntarybutimposed,forcedlabour.Itisnotthesatisfactionofaneed,butonlyameansforsatisfyingotherneeds.[…]Finally,theexternalcharacterofworkfortheworkerisshownbythefactthatitisnothisownworkbutworkforsomeoneelse,thatinworkhedoesnotbelongtohimselfbuttoanotherpersonÕ(Marx1844,pp.124Ð5;italicsintheoriginal).11ÔAlienatedlabourreversestherelationship,inthatman[…]makeshislifeactivity,hisbeing,onlyameansforhisexistenceÕ(ibid.,p.127).12ItshouldberememberedthatsimilarthemeswerepresentinvariousauthorsbelongingtotheScottishsociologicalschool,suchasAdamFerguson(cf.above,4.9),whosetreatmentofthesubjectMarxrecalledwithapprobation.

KarlMarx251explicitlyframinghisindictmentofthedivisionoflabourintermsofthespeciÞcformitassumesincapitalisticeconomies.Herenotonlydotheßowsofexchangesconnectingdifferentproductiveunitsgothroughthemarket,buttheworkersthemselvesarecompelledtoselltheirlabouronthemarket,andbuytheirmeansofsubsistencethere.InthiswaythesocialrelationsofproductionÐcooperationbetweenworkersactiveindif-ferenteconomicsectorsanddifferentproductiveunitsÐareobscuredbythefactthatwhatisexchangedisnotthelabourtimeofoneforthelabourtimeofanother,butdifferentcommodities.Themarket,whileconstitut-ingthecommongroundforthenecessaryconnectionbetweenseparateworkers,operatesinsuchawaythatcommoditiesbecomefetishes,theultimateendofproductionandexchangeactivity,andnecessarycondi-tion(bothasmeansofproductionandasmeansofsubsistence)forthesurvivalandreproductionofindividuals,asindeedoftheeconomicsys-temasawhole.Onclosercriticalscrutiny,however,apointemergesthatiseasilymissedatÞrstsight,namelythattheexchangeofcommoditiesinthemarketconstitutesthemeansfortheexchangeoflabourtime,orinotherwordsforcollaborationbetweenworkers,eachperformingaspe-ciÞcactivity.Inasocietybasedonthedivisionoflabour,eachworkercontributestothesocialproductandhencetothecommonwell-beingwithhisorheractivity.However,thissocialcollaborationisobscured,andsodivertedfromitstrueend,bycommodityfetishism,sinceitappearsthattheultimateendofeveryeconomicagentisownershipofexchangevalues,inasituationcharacterisedbysocialstratiÞcationwherethepro-ductiveprocessesarecontrolledbyaspeciÞcsocialclassÐthecapitalistsÐandnotbysocietyasawhole.134.ThecritiqueofcapitalismandexploitationTogetherwithcommodityfetishism,thesecondÐandmainÐaspectofMarxÕscritiqueofcapitalismliesinthethesisthatcapitalistsocietiesarebasedontheexploitationoftheworkersbythecapitalists.InordertodemonstratethisthesisMarxintroducedthedistinctionbetweenlabourandlabourpower.Labouristheexerciseinrealpracticeofsomeproductiveactivity.Labourpower,ontheotherhand,istheworkerasaperson,incorporatingthepotentialtoexerciseaproductiveactivity.13ÔWeareconcerned[…]withadeÞnitesocialrelationbetweenhumanbeings,which,intheireyes,hashereassumedthesemblanceofarelationbetweenthingsÕ(Marx1867Ð94,vol.1,p.45).

252TheWealthofIdeasThedistinctionbetweenlabourandlabourpowermaybecomparedtothedifferencebetweenheatandaspeciÞcsourceofheat,forinstancecoal.Coalisthecommodityboughtandsoldonthemarket,atapricesuchastocoveritscostsofproduction.Thebuyerthenutilisescoaltogetheat,butcouldutiliseitforotherpurposes,forinstancewritingonawallorinanyotherway:oncebought,thecommoditybelongstothebuyer,andcanbeutilisedassheorhelikes.14Somethingofthesorthappensintherelationshipbetweenworkerandcapitalist.Thecommoditysoldbytheworkerislabourpower,orworkcapacity;thecapitalistpaysforitatitsvalue,orinotherwordssheorhepaysenoughtocoverthecostsforitsproduction.Inthecaseoflabourpowerthesecostscorrespondtothemeansofsubsistencerequiredtokeeptheworkeralive(togetherwiththeworkerÕsfamily,soastoensuresubstitutionoftheworkerwhensheorheretiresordies).Thusthevalueoflabourpowercorrespondstoaminimumsubsistencewage.Onpayingforit,thecapitalistacquirestherighttoutilisetheworkerintheproductiveprocess,togetfromherorhimagivennumberofdaily(orweekly)hoursoflabourwhichwillinfactbeasmanyassheorhepossiblycanobtain,andhence,giventhelengthoftheworkingday,15asaruleanumberofhoursinexcessofthevalueofthelabourpower,orthenumberofhoursoflabourÔcontainedÕintheworkerÕsdailymeansofsubsistence.Astheuseofcoalgivesusheat,sotheuseoflabourpowergivesuslabouror,moreprecisely,givesittothebuyerofthecommodity,whointhecaseoflabourpoweristhecapitalist.Inaneconomicsystemwhereasurplusisproduced,thequantityoflabourdailyprovidedbyworkersishigherthanthequantityoflabourrequiredtoproducetheirdailymeansofsubsistence.Thetotalamountoflabourperformedinoureconomicsystemmaythenbesubdividedinto14Obviously,thereisalwaysasetofrulesconstrainingourfreedomofuseofthecommodity:forinstance,wecannotuseourcoaltolightaÞreinthecommoncourtyardofacon-dominiumortowriteonthewhitewallsofsomebodyelseÕshouse,norcanweuseaworkerasaslave.SpeciÞcally,thecapitalisthasarightonlytoagivennumberofweeklyhoursofworkfromthehiredworker,onthebasisofthelawandrulesestablishedwiththetradeunionsingenerallabouragreements.15Therearedifferentelementsregulatingthelengthoftheworkingday,withresultsthatdifferfromonesectoroftheeconomytoanother,overtimeandinrelationtodifferenteconomicsystems:Þrst,wehavesocialhabits,embodiedinthesituationinheritedfromthepast;second,therearelawsandregulations;third,therearepowerrelationsbetweendifferentsocialclasses,andpoliciesadoptedbytherelevantinstitutions,andaboveallthetradeunions,thatinßuencelabourhoursscheduledincollectivelabourcontracts;Þnallywehavethevagariesoftheeconomicconjunctureinßuencingdefactolabourhours.Yearlyhoursofworktendtodecreaseovertime,inagradualbutsystematicway,withsigniÞcanteffectsinthelongrun:sinceMarxÕstimesworkinghourshavebyandlargehalved,withrevolutionaryrepercussionsonlifestylesandlifephilosophiesgiventheincreasingimportanceoffreetime.

KarlMarx253twoparts.TheÞrstpart,ornecessarylabour,isthatrequiredtoproducethemeansofsubsistenceforalltheworkersemployedwithintheeconomy.Thesecondpart,orsurpluslabour,isalltherestofthelabourperformed:i.e.itisequaltothedifferencebetweentotalsociallabourandnecessarylabour.Thisrepresentationofaneconomicsystempresupposesseparationoftheworkersfromownershipoftheproduct.16Aswehaveseen,inacapi-talisticsocietythisseparationgoestogetherwithseparationoftheworkersfromownershipoftheirmeansofproduction.Capital,understoodasthecapacitytocontrolmeansofproductionandlabourpoweritself,isinMarxÕsopinionaboveallaÔsocialrelationofproductionÕÐacategoryexpressingclassrelationshipsinacapitalisticsociety,andinparticularthesubordinationoftheworkerstothecapitalists.Theoriginofcapitalinthissenseofthetermcoincideswiththeformationofaclassofwork-ersdispossessedoftheirmeansofproduction,andistheresultofalongsocialprocessthatMarxcalledÔprimaryaccumulationÕ,andwhichmarksthetransitionfromfeudalismtocapitalism.17Letusassumethelabourtheoryofvalue(whichMarxtookupfromRicardo)tohold.Theannualnationalproducthas,then,avalueequaltothetotalsociallabour,L,whichisthequantityoflabouremployedduringtheyear.Withawagerateequaltothesubsistenceminimum,thetotalwageofallworkersintheeconomyhasavalueequaltonecessarylabour,LN.Thesurplushasavalueequaltothelabourtimeexceedingnecessarylabour,orequaltosurpluslabourPL(=L−LN),goingtothecapitalistsintheformofproÞtsP(andtolandlordsintheformofrent,butforthesakeofsimplicityherewewilldisregardthiselement,asalsoÞnancialcapitalandinterests,whichMarxandtheclassicaleconomistsconsideredpartoftheproÞts).Thus,eveniftheworkersreceivethefullvalueofthecommoditytheysell(namelytheirlabourpower,thevalueofwhichaswesawisequaltoitscostofproduction,thatis,totheamountoflabourcontainedinitsmeansofsubsistence),orinotherwordsevenifwhatMarxconsideredthecriterionofeconomicjusticeundercapitalismÐÔexchangeofequalvaluesÕÐdoesindeedhold,thesurplusvaluegoingto16Infeudalsocietiessurpluslabourwas(prevalently)utilisedinunproductiveways,fortheluxuryconsumptionoftherulingclasses(nobilityandclergy);furthermore,andmoreimportantly,theformsofappropriationofsurpluslabourweredifferentfromthoseprevailinginacapitalisticsociety.17PrimaryaccumulationwasdescribedbyMarx(inchapter24ofBook1ofCapital:Marx1867Ð94,vol.1,pp.790Ð847)asdissolutionoftheeconomicstructureofthefeudalsocietyguidedbythelawoftheÞttest.Onthetransitionfromfeudalismtocapital-ism,therehasbeenkeendebateamongMarxianscholars.Cf.Dobb1946;Dobbetal.1954.

254TheWealthofIdeasthecapitalistscorrespondstounpaidlabour,andhencetoexploitationoftheworkersbythecapitalists.18MarxdeÞnedtherateofexploitationsasratioofÔunpaidlabourÕorsurpluslabourtoÔpaidlabourÕorvalueoflabourpower;hences=PL/LN.Therateofexploitationthereforedependsonboththelengthoftheworkingdayandtheshareofitcorrespondingtonecessarylabour,andsotothevalueoflabourpower.Marxdistinguishedinthisrespectbetweenabsolutesurplusvalue,duetoalengthenedworkingday,andrelativesurplusvalue,resultingfromareductioninthevalueoflabourpower.19TherateofexploitationisequaltotherateofproÞts(givenbytheratiobetweenproÞtsandcapitaladvanced)onlywhenthecapitaladvancedconsistssolelyofwages,orinotherwordswhentheworkersdonotutilisemeansofproduction(rawmaterials,toolsandmachinery).However,suchanassumptioncontradictstheverynatureofthecapitalis-ticsystem,wherethecapitalistsÕrolepreciselyderivesfromtheircontroloverthemeansofproduction.Thus,ingeneralthecapitaladvancedalsoincludesmeansofproductionotherthanlabour,andtherateofproÞtswillbelowerthantherateofexploitation.ThereforetherateofproÞtsgivesareductiveideaoftheexploitationoftheworkersbythecapitalists.WithhistheoryofexploitationMarxshowedhowthesurplusemergesfromtheproductiveprocess,andnotfromthecirculationofcommodi-ties.ThelatterthesisisdescribedasproÞtuponalienation,theideabeingthatproÞtsaccruefrombuyingatlowpricesandsellingathighprices.MarxattributedthisthesistotheÔmercantilistsÕand,asnotedabove(2.6),attackeditvehemently:ÔThecapitalistclassofacountrycan-not,asawhole,overreachitself.Õ20AccordingtoMarx,inthesphereofcirculationÔliberty,equality,propertyandJeremyBenthamaresupremeÕ:liberty,sinceeverybodyentersfreelyintoexchangeagreements;equality,becauseÔthebuyerandtheseller[…]exchangeequivalentforequivalentÕ;property,ÔbecauseeachofthemdisposesexclusivelyofhisownÕ;Bentham18Extensionofthecategoryofexploitationfromrelationsbetweensocialclassestorela-tionsbetweendevelopedanddevelopingcountries,proposedbyMarxiantheoriesofimperialism(Luxemburg1913;Lenin1916),impliesdrasticoverhaulingoftheMarx-iantheoryofexploitation;infact,thetheoriesofimperialismarebasedtoagreaterorlesserdegreeonunequalexchangesresultingfromdrasticinequalitiesineconomicandmilitarypower.19ÔIgivethenameofabsolutesurplusvaluetosurplusvalueproducedbyaprolongationoftheworkingday.Ontheotherhand,tothesurplusvaluethatisproducedbyareductionofthenecessarylabourtime,andbyacorrespondingchangeintherelativeproportionsofthetwocomponentsoftheworkingday,IgivethenameofrelativesurplusvalueÕ(Marx1867Ð94,vol.1,p.328;italicsintheoriginal).20Ibid.,p.150.

KarlMarx255(thatis,utilitarianism)sinceÔthepower[…]whichmakesthementerintorelationonewithanother,isself-interest,andnothingmoreÕ.21Marxaimedthiscriticismnotonlyatmercantilistthought,butalsoatthevarioussocialistcurrentsthatcondemnedproÞtsasunjustdeduc-tionfromthefruitsoflabour,aheterogeneousgroupincludingboththeÔRicardiansocialistsÕ(cf.above,8.6),whoheldthatallthevalueoftheproductshouldaccruetoworkers,andanti-capitalisticwriterslikeProudhon(knownforhissaying:ÔpropertyistheftÕ).22Inordertodistin-guishhistheoryofexploitationfromthesetheses,MarxstressedthathiswasaÔscientiÞcsocialismÕ,whichrecognisedthattheequitablecriterionofÔexchangeofequalsÕwashonouredinthecapitalistsystem.TheproÞtuponalienationthesiscanberepresentedbytheschemeMÐCÐM,whereMindicatesmoneyandCcommodities:moneyMbuyscommoditiesC,thatarethensoldagainforagreatersumofmoney,M.Itisself-evidentthatthisschemeviolatestheruleofexchangeofequals:ifCisequivalenttoMintheÞrststep,itcannotbeequiv-alenttoMinthesecondstep.23Marx,however,proposedaschemethatrepresentedtheprocessofcirculationandtheprocessofproductionsimultaneously:M−C(LPandMP)…C−MInthislatterscheme(whereexchangesarerepresentedbydashesandtheproductiveprocessbyaseriesofdots)moneyMbuyscommodi-ties,andmorepreciselylabourpowerLPandmeansofproductionMP;throughtheproductiveprocesswegetadifferentsetofcommodities,C,whichisexchangedforasumofmoney,M,greaterthantheinitialsum.Thevalueofthemeansofproductionotherthanlabouristransmittedunchangedinthevalueoftheproduct;24theproÞtP(=M−M)origi-natesfromthefactthatlabourpowertransmitstothevalueoftheproductnotonlyitsownvalue(equal,aswehaveseen,tothevalueofitsmeansofsubsistence),butalsothesurpluslabourorunpaidlabour.Theexploitationcharacterisingthecapitalisticmodeofproduction(and,evenmoredirectly,previousmodesofproductionsuchasfeudalism21Ibid.,p.164.22Pierre-JosephProudhon(1809Ð65),Frenchtypesetterandproof-reader,self-deÞnedanarchist,supporterofprojectsformonetaryreformandadvocateofassociationism,followedtheÔRicardiansocialistsÕindeducingfromthelabourtheoryofvaluethethesisthatproÞts,interestsandrentsareÔunearnedincomeÕ.Hismainwork,Whatisproperty?,waspublishedin1840.Theanswertothequestionofthetitle,ÔpropertyisatheftÕ,revivesthedeÞnitionbyBrissotdeWarvillein1782:cf.Cerroni1967,p.xxx.23Tobeprecise,MarxusedtheschemeCÐMÐC(thecommodityissoldinexchangeformoney,withwhichanothercommodityisacquired)torepresenttheprocessofcirculationofcommoditiesingeneral(Marx1867Ð94,vol.1,pp.83ff.).24Obviously,forÞxedcapitalthisreferstodepreciation.

256TheWealthofIdeasandserfdom)canbeovercome,Marxheld,withtransitiontostillmoreadvancedmodesofproduction,socialismÞrst,andthencommu-nism.Socialismischaracterisedbycollectiveownershipofthemeansofproduction,whichMarxenvisionedasapreparatorystageforcom-munism.Marxconsideredtransitionfromcapitalismtosocialismanec-essaryconsequenceofcertainÔlawsofmovementofcapitalismÕ,morepreciselythegrowingbi-polarisationofsocietybetweenanincreasinglyvast,everpoorerproletariat(theÔlawofincreasingmiseryÕ)andanincreasinglystrongbutnumericallysmallbourgeoisie(theÔlawofcap-italisticconcentrationÕ);suchbi-polarisationmustofnecessityendinrevolution.Wewillreturntothesepointslateron,in6.Aswehaveseen,akeyelementintheconstructionofthetheoryofexploitationillustratedaboveisrecoursetothelabour-containedthe-oryofvaluetoexpressinhomogeneoustermsthedifferentmagnitudes(product,meansofsubsistence,surplus).AswesawinthechaptersonSmithandRicardo,accordingtothelabourtheoryofvaluetheexchangevalueofcommoditiesisproportionaltotheamountoflabourcontainedineachofthem,orinotherwordsthequantityoflabourdirectlyandindirectlyrequiredtoproducethem.LikeRicardo,Marxtoowascon-sciousofthefactthatexchangevaluesdeterminedonthebasisofthelabourtheoryofvaluedonotcorrespondtothepricesatwhichcom-moditiesareexchangedincompetitivemarkets,whenwehavetoassumethattherateofproÞtsisuniformthroughoutallsectorsoftheeconomy.Thelabourtheoryofvaluecanatbestbeutilisedasaninitialapproxi-mation,providedthatitcanthenbeshown,asasecondstep,nottohaveledtoirremediableerrors.Asweshallseebelow(7),MarxsetouttotacklethiscrucialweakpointinhistheoryinBook3ofCapital,butthesolutionheproposedÐtheso-calledtransformationoflabourvaluesintopricesofproductionÐalsoprovedinsufÞcient,withtheconsequencethatanumberofcrucialelementsoftheMarxiantheoreticalediÞcemustbecalledintoquestion,includingthetheoryofexploitationitself.5.AccumulationandexpandedreproductionInBook2ofCapital,Marxillustratedtwoschemesforgeneralanalysisoftheeconomicsystem,atthelevelofsimplereproduction,andintermsofexpandedreproduction,oraccumulation.25Bothschemesincorporatethereproducibilitycondition:foreachcommodity,thequantityproducedmustbeequaltoorgreaterthanthequantityutilisedintheproductiveprocessasmeansofproductionornecessarysubsistence.25InsomeimportantrespectstheseschemeswereforerunnersofvonNeumannÕs1937modelofproportionalgrowth.

KarlMarx257Inthecaseofsimplereproduction,periodafterperiodthelevelsofpro-ductionremainunchanged.Ifthereisasurplus,itgoesintoluxurycon-sumptionorsubsistencefortheunemployedorunproductiveworkers.Inthecaseofexpandedreproduction,ontheotherhand,atleastpartofthesurplusisaccumulatedÐadded,thatis,tothepreviousamountsofmeansofproductionandsubsistence.Inthisway,periodafterperiodthenumberofworkersemployedintheproductiveprocesscanincrease,andwiththemthequantityofmeansofproductiontheyuse.Withoutanychangeintechnology,aprogressivewideningoftheeconomytakesplace.Overandabovethisprocess,thereistechnicalprogressgenerallytakingtheformofanincreasinguseofmachinery,accordingtoarepre-sentationofeconomicdevelopmentcommontobothMarxandclassicaleconomistssuchasRicardo.Marxdistinguishedtwosectorsoftheeconomy,oneproducingmeansofconsumption,theothermeansofproduction.Therelativeactivitylevelsofthetwosectorsareinequilibriumwhentheentireproductionofthetwosectorscanbeabsorbedbytheeconomy.Inthecaseofsimplereproduction,thishappenswhenthequantityofmeansofproductionthatareproducedequalsthequantityemployedintheproductiveprocessesinthetwosectors,whilethequantityofcon-sumptiongoodsproducedequalstherequirementsofmeansofsubsis-tencefortheworkersemployedintheeconomyplusthequantityutilisedforluxuryorunproductiveconsumption.Inthiscase,theentiresurplusconsistsofconsumptiongoods.Inthecaseofexpandedreproduction,thesurplusmustconsistofbothmeansofproductionandconsumptiongoods.Furthermore,theratiobetweenconsumptiongoodsandmeansofproductionwithinthesurplusmustbeequaltoorhigherthanthecorrespondingratiobetweenmeansofsubsistenceandmeansofproductionavailableatthebeginningoftheproductionprocess.Thisisduetothefactthatthesurplusmeansofpro-ductioncanonlybeusedforaccumulation,whilesurplusconsumptiongoodscanbepartlyusedforluxuryorunproductiveconsumption.TherateofgrowthofthesystemisequaltotheÔrateofsurplusÕofthemeansofproduction;26themaximumrateofgrowthoftheeconomyobtainswhenthereisnoluxuryconsumptionandtheÔrateofsurplusÕofcapitalgoodsisequaltothatofconsumptiongoodsÐwhentheproportion,thatis,betweenthetwogroupsofgoodsinthesurplusisequaltotheirpro-portionatthebeginningoftheproductionprocess,sothatnowasteof26Asthenamesuggests,theÔrateofsurplusÕforanycommodityisgivenbytheratiobetweenthequantityofthatcommodityincludedinthesurplusandthequantityofthesamecommodityrequiredasmeansofproductionandmeansofsubsistenceatthebeginningoftheproductionprocess.

258TheWealthofIdeasconsumptiongoodsoccurs,allgoingtoÔnecessaryÕconsumption,forthemaintenanceofproductiveworkers.Here,too,applyingalabourtheoryofvalue,Marxcallsvthevari-ablecapital,i.e.thevalueofsubsistencegoodsutilisedintheproductiveprocess;ctheconstantcapital,i.e.thevalueofmeansofproduction(labourexcluded);sthevalueofthesurplus.Letuscallthesectorpro-ducingmeansofproduction1,andthesectorproducingconsumptiongoods2;Cstandsforthevalueofproductioninsector1,andVforthevalueofproductioninsector2.WemaythenexpressMarxÕsreproductionschemesasfollows:c1+v1+s1=Cc2+v2+s2=V.Inthecaseofsimplereproduction,theequilibriumproductionlevelsofthetwosectorsare:C=c1+c2V=v1+v2+s1+s2.Inotherterms,thelevelofproductionofsector1correspondstothequantityofmeansofproductionutilisedinbothsectors;thelevelofproductionofsector2correspondstothemeansofsubsistencerequiredforalltheemployedworkers,plustheluxuryconsumptiongoodsthatcapitalistsbuywiththeirproÞts,thelatterbeingequaltotheentiresurplusoftheeconomy.Wecanreducethesetwoequationstooneequilibriumconditionfortheexchangesbetweenthetwosectors:thevalueofcapitalgoodssoldbysector1tosector2isequaltothevalueofmeansofsubsistencesoldbysector2tosector1.Algebraically:c2=v1+s1.Inthecaseofenlargedreproduction,ashareofthesurplus,q,goestoaccumulationofnewcapitalgoods;correspondingly,ashareequalto(1−q)ofthesurplusthusconsistsofconsumptiongoods.Algebraically:C=c1+c2+q(s1+s2)V=v1+v2+(1−q)(s1+s2).Aswesawabove,capitalgoodsandmeansofsubsistenceservingtoincreasethenumberofemployedworkersmustgrowinthesamepro-portion.Besides,thesurplusmayincludearesiduumofconsumptiongoodstoserveforluxurygoodsortheconsumptionoftheunproductiveworkers;therateofgrowthisatamaximumwhenthisresiduumisnilandtheentiresurplusgoesintoaccumulation.

KarlMarx259MarxÕsaiminusingtheanalyticaltoolofthereproductionschemeswastoshowthatgivenacertainsetofconditionsthesystemmaygrowendlessly,withoutanyneedforproblemsofrealisationoftheproducttoarise.ThusMarxÞnallydemolishedtheunder-consumptiontheoriesproposedbyMalthus,SismondiandRodbertus.27Refutingtheunder-consumptiontheoriesdidnot,however,implyforMarxadhesiontotheso-calledÔSayÕslawÕ(discussedabove,in6.3),whichstatesthatanylevelofproductioncanbeabsorbedbythemarket.Firstly,crisesofdisproportionbetweenthetwosectorsmayoccurwheneverequilibriumproportionsdonothold(andgrowthinequilibrium,Marxsaid,canonlycomeaboutbychance).Secondly,andmoreimportantly,Marxdidnotruleoutthepossibilityofgeneralover-productioncrises:followingupontheroleTorrensattributedtoÞnancialintermediation,Marxclearlyrecognisedthepotentialforcrisesintrinsictoasystembasedoninvestmentdecisionsthataredecentralisedanddistinctfromdecisionstosave.28Nothingguaranteesthatsurplusproductionisrealised,orinotherwordsthatthecommoditiespro-ducedaresoldatapricesufÞcienttorecovercostsandobtainanormalproÞt.AnotheraspectthatMarxclearlyattributedadecisiveroletoinhistheoreticalconstructionhadtodowithßuctuationsinproductionlevels.Infact,hiswasoneoftheÞrsttheoriesofthetradecycle,stillretaininginterestforustoday.29MarxÕstheoryofthetradecyclewasbasedontheßuctuationsintheindustrialreservearmy(atermbywhichMarxdesignatednotonlyunem-ployedworkersbutalsoartisansandworkersemployedinagriculturebutreadytochangetoemploymentinmanufacturing).27OnMalthusandSismondi,cf.above,6.4.JohannKarlRodbertus(1805Ð75)wasoneoftheso-calledKathedersozialisten(ChairSocialists):universityprofessorswhosupportedasystemofsociallawsfortherealisationofwhichtheyentrustedthestateauthorityofthePrussianmonarchy.Theyfavouredactivestateinterventionintheeconomy:tariffsonimports,subsidiestonationalindustriesandsupporttoexports,regulationbylawofhoursofworkandworkingconditions,dismantlingoflargelandholdingsandsupporttodirectownershipoflandonthesideofsmallpeasants,anddiffusionofstateownership.Amongthem,AdolphWagner(1839Ð1917),professorinBerlinfrom1870,supportednationalisationofmonopolisticindustriesandofreal-estateproperty,andisknownfortheso-calledWagnerÕslaw,accordingtowhichasaconsequenceofdevelopmentthepublicsectorgrowsasashareofnationalincome.Thisgrouphadstronglinks(andmanyoverlaps)withtheÔyoungGermanhistoricalschoolÕledbySchmoller,onwhichseebelow(11.2).28OnthisaspectofMarxÕsthought,cf.Sardoni1987andthebibliographygiventhere.29Thistheorywasagainproposed,forinstance,withtheÔclosedorbitoscillatorÕofRichardGoodwin(1967)basedonthepreyÐpredatorcyclestudiedbytheItalianVitoVolterra,andmoregenerallybycycletheoriesbasedontheexistenceofadistributiveconßictbetweenwagesandproÞts.

260TheWealthofIdeasIntherecoveryphase,whenincomegrowsrapidly,unemploymentfallsandtheindustrialreservearmydiminishes.Asaconsequence,thebargainingpoweroftheworkingclassincreases,whilethecompetitionbetweenentrepreneursinsearchofworkersfortheirfactoriesgrowstougher,andtherealwageraterises.30Atthebeginningoftherecoverystage,wagesincreaseslowlybecausetheindustrialreservearmyisstilllarge;subsequently,intheboomstage,productioncontinuestogrowandtheindustrialreservearmycontinuestoshrink,eventuallybringingaboutsharperincreaseinwages.TheincreasedcostoflabourgivesrisetoareductioninproÞtsperunitofoutput.Firmsthenreacttotheincreaseinwagesbytryingtosaveonthelabourutilisedintheproductiveprocesses.Tothisendtheymechaniseproduction,steppinguptheuseofmachineryintheproduc-tionprocess.Thisfavourstechnicalprogress,whichformsthebasisforeconomicdevelopment.Growthinnationalandpercapitaproductionthusconstitutesatrendunderlyingcyclicalßuctuations.Whatismore,themechanismofeconomicdevelopmentis,aswehaveseen,directlyconnectedtothemechanismthatgivesrisetocyclicalßuctuations.TheprocessofmechanisationallowsÞrmstoreducethenumberofemployedworkers.Theindustrialreservearmythusgrows,andthisputsabrakeonwageincreases.Risingunemploymentmarksthebeginningofthethirdstageofthetradecycle,crisis,andcontinuesinthefourthstage,depression,whenunemploymentisabovetheaveragelevel(whileincomeisbelowthetrendlevel).Thegrowingsizeoftheindustrialreservearmyhaltswageincreaseswhile,thanksalsototheproductivityincreasesobtainedwithmechani-sation,thecostoflabourperunitofoutputdecreaseswithaconsequentriseinproÞts.Firmsagainexpandandhirenewworkers,theincreaseinproÞtsconstitutingbothanincentivetoincreaseproductionlevelsandasourceofÞnanceforinvestmentstoexpandproductivecapacity.Theindustrialreservearmyagainshrinks.Wethushaveastageofexpansion,markingthebeginningofanewcycle.Aswecansee,thistheorypresentsanumberofinterestingaspects:itisatthesametimeatheoryofthetradecycleandatheoryofeconomic30Byutilisingasacentralelementinhisanalysisofthetradecycleaninverserelationbetweenwagesandunemployment,Marxanticipatedtheso-calledÔPhillipscurveÕ,namelytheinverserelationshipbetweenrateofchangeofmoneywagesandlevelofunemploymentempiricallyestimatedfortheUnitedKingdombetween1861and1957bytheNewZealandeconomistA.W.Phillips(1914Ð75),inamuch-citedarticlepub-lishedin1958,whichwewillcomebacktolater(17.5).Furthermore,asalreadynoted,MarxÕsanalysisofincomedistributionwasbasedontherelativebargainingpowerofworkersandcapitalists,asinSmith,andincontrasttothesupportersoftheÔironlawofwagesÕbasedontheMalthusianprincipleofpopulation.

KarlMarx261development;atheoryoftechnicalchangeandatheoryoftheevolutionovertimeofemploymentandofthedistributiveshares.TheconnectionbetweentradecycleandeconomicdevelopmentmaypossiblybeseenasMarxÕsmaincontributiontoclassicalpoliticaleconomy;oncetheclassicalapproachhadlapsedintooblivion,thisconnectionwaspracticallyignoredintwentieth-centurytheoreticalanalyses,whilethetendencysetintoanalyseeconomicgrowthandthecycleseparately.316.ThelawsofmovementofcapitalismOnvariousoccasionsandinvariouswaystheclassicaleconomistsaddressedthecloselinkbetweenthedivisionoflabourandsocialstruc-ture.Theconnectionbetweenevolutioninthedivisionoflabour(andhenceintechnology)andchangesinsocialstructureunderliesthemajorattemptstosingleoutthebasictrendsinhumansociety,orinotherwordstounderstandÔwherewearegoingÕ.ThemostcelebratedofsuchattemptsmustsurelybethatofMarx.Inhisopinion,capitalismisnottheÞnalstageinthehistoryofhumansocieties,butonlyanintermediatestage.Indeed,asitwasprecededinthehistoryofhumansocietiesbyotherformsoforganisationofsociety(serfdom,feudalism),socapitalismwillgivewaytonewformsofsocialorganisation(socialismÞrst,thencommunism).Thereforeweshouldstudythelawsofmotionunderlyingcapitalism,tounderstandhowitcameintobeing,howithaschangedinthecourseofitsevolution,andthereasonswhyitwillhavetogivewaytoanewformofsocialorganisation,namelysocialism.InthisrespectMarxnotedthetendencyofcapitalisticsocietiestowardsincreasingeconomicandsocialpolarisation:32ontheonehand,wehavethegrowingmisery,atleastinrelativeterms,ofanincreasingproportionofpopulation,andontheotherhand,evergreatereconomicandpoliti-calpowerconcentratinginafewhands.Inotherwords,Marxperceived,ontheonehand,agrowingproletarianisation,namelytheformationof31Atheorydealingsimultaneouslywithcyclicalßuctuationsanddevelopmentwas,instead,proposedbySchumpeter(cf.below,15.3).However,aswewillsee,inSchumpeterÕscontribution,too,thecausesofcyclicalßuctuationsÐtheÔclusteringÕofinnovationsovertimeÐappearedasadeusexmachinamorethananendogenouselementsuchasweÞndinMarxÕstheory.ForillustrationandcomparisonofthetheoriesofthetradecyclebyMarxandSchumpeter,cf.SylosLabini1954.32ThisthesiswasalreadypresentintheManifestoofthecommunistparty(MarxandEngels1848,pp.55Ð61).TheelementscomposingitrecurredrepeatedlyinMarxÕs(andEngelsÕs)writingsandwerethesubjectofkeeninterpretativedebate:somereferencestothisdebatearegiveninthefollowingfootnotes.

262TheWealthofIdeaswiderandwidermassesofcommonworkers,33andontheotherhand,thetendencytoincreasingconcentrationofmanufacturingproductioninafewbigÞrms.34Suchatendencywasduenotonlytothetechnologi-calandorganisationaladvantagesinvolvedinlarge-scaleproduction,butalsotothewaytheÞnancialandcreditsystemworksandthemecha-nismsofcapitalisticcompetitionimplying,amongotherthings,obstaclestotheentryofnewÞrmsinthearena.Allthis,Marxargued,leadstodwindlingnumbersofsmallentrepreneursandindependentartisansastheyjoinwilly-nillytheranksofdependentworkers.Hencethegrow-ingpolarisationbetweenaburgeoningproletariatandacapitalistclasseversmaller,everricher,evermorepowerful.FromthistendencyMarxderivedthethesisofinevitablecollapsefacingthecapitalisticmodeofproduction,andtransitiontoasocialistsociety,whentheproletariatÐbythentheoverwhelmingmajorityofthepopulationÐexpropriatethecap-italistclass,economicallydominantbutnumericallyweak.Ineluctablycapitalismwillthusbesuperseded,andthewayopenedtosocialism.AnotherthesisdevelopedbyMarxtakesmuchthesamecourse,withtheÔlawofthefallingrateofproÞtsÕ,illustratedinthethirdsectionofBook3ofCapital.35Thisthesiswasderivedfromtheprocessofincreas-ingmechanisationcharacterisingtechnologicalchangeincapitalisticsoci-eties,whichwehavealreadyseeninthecontextofMarxÕstheoryofthetradecycle.Theprocessentailsprogressiveincreaseintheorganiccom-positionofcapital,orinotherwordsoftheratiobetweenconstantcapitalc(thevalueofmeansofproductionutilisedintheproductiveprocessotherthanlabourpower)andvariablecapitalv(thevalueoflabourpoweremployedinproduction),bothexpressedintermsoflabourcontained.Moreprecisely,therateofproÞtscanbeexpressed(s/v)/(c/v+1),havingasnumeratortherateofexploitationandasdenominatorthe33AnumberofcommentatorspointedtoaÔlawofincreasingmiseryÕoftheworkersalongwiththeÔlawofproletarianisationÕ.Debateontheinterpretationofitreachedfarandwide:cf.forinstanceSylosLabini1954,pp.36Ð40;Sowell1960;Meek1967,pp.113Ð28;andthebibliographygiveninthesewritings.Indeed,inMarxÕswritingspassageshavebeenidentiÞedsupportingatleastthreedifferentinterpretationsoftheÔlawÕ:aÔthesisofincreasingabsolutemiseryÕ,understoodasafallinrealwages;aÔthesisofincreasingrelativemiseryÕ,understoodasareductioninthewageshareinnationalincome;and,Þnally,arathervagueÔthesisofdeteriorationinworkersÕlifeconditionsÕ,thathadtodowithphenomenasuchasaccelerationofthelabourprocesses,increasingsubdivisionofoperationswithineachlabourprocess,anddeteriorationoftheenvironmentintheurbanagglomeratesofthetime.InMarxÕspoliticalandeconomicthought,theÔlawofincreasingmiseryÕmayhavelinedupalongsidethethesisofproletarianisationinsupportofhisdeepconvictionoftheinevitabilityofrevolutionforcapitalistsocieties,evenifitcannotbeconsideredanecessaryconditionforthevalidityofthelatter.34Cf.speciÞcallychapter22ofBook1andchapter27ofBook3ofCapital:Marx1867Ð94,vol.1,pp.636ff.andvol.3,pp.566Ð73.35Marx1867Ð94,vol.3,pp.317Ð75.

KarlMarx263organiccompositionofcapitalplusone.Therefore,iftheorganiccom-positionofcapitalincreasesandtherateofexploitationdoesnotincreaseparipassu,therateofproÞtsnecessarilydecreases.36Here,however,thereasoningisßawedbyconfusionbetweenvariablesexpressedintermsoflabourvaluesandunderlyingquantitiesofthevar-iouscommodities.Infact,mechanisationdoesnotnecessarilyimplyanincreaseintheorganiccompositionofcapital.Itisnotthecase,forinstance,ifagrowingnumberofmachines,thankstotechnicalprogress,requiresthesameoralowerquantityoflabourfortheirproduction,whentheorganiccompositionofcapitalwillinfactremainconstantordecrease.Furthermore,technicalprogressitself,byreducingthequantityoflabourrequiredfortheproductionofsubsistencegoods,causesanincreaseintherateofexploitationforaconstantrealwage.377.ThetransformationoflabourvaluesintopricesofproductionAswehavehadoccasiontorecallquiteoftenintheprevioussections,inCapitalMarxadoptedthelabourtheoryofvalue,inthewakeofatradi-tionwell-establishedamongeconomistsintheÞrsthalfofthenineteenthcentury,inparticularwithRicardo.However,justlikeRicardo,Marx,too,realisedthatsuchatheorywasinconsistentwiththeassumptionofauniformrateofproÞtsthroughoutallsectorsoftheeconomy:anassump-tionexpressinginanalytictermstheSmithianideaoftheÔcompetitionofcapitalsÕ,which,inMarxÕsopiniontoo,representedacentralfeatureofthecapitalisticmodeofproduction.Marxneverthelesssetouttotackletheproblem,inBook3ofCapital(which,letusrecall,waspublishedposthumouslyundertheeditorshipofEngelsonthebasisofnotesleftbyMarx;thuswehavenocertaintyaboutjusthowconvincedMarxhimselfwasofthesolutionheworkedout)throughtheso-calledÔtransformationoflabourvaluesintopricesofproductionÕ.38MarxÕsideawastoshow36Forsimplicity,itisassumedherethatallcapitalbecirculatingcapital.37ThelawofthetendencytoafallingrateofproÞts,too,likesomanyotheraspectsofMarxÕsthought,gaverisetowide-ranginginterpretativedebate.Anumberofauthors(cf.forinstanceSweezy1942,pp.147Ð55;Meek1967,pp.129Ð42)notedamongotherthingsthatMarxhimselfreferredtotheelementsmentionedaboveinordertocriticisehisownÔlawÕ;suchelementswouldrepresentÔcounter-tendenciesÕ,thathinderbutdonoteliminatethebasictrend.However,asSweezyhimselfstressed,itisquitedifÞculttoexplainwhythealgebraicsignofthedifferentforcesandcounter-forcesshouldgointhedirectionindicatedbyMarx,ratherthanintheoppositedirection.Asamatteroffact,itisquitedifÞculttomaintainthatoverthepastcenturytherehasbeenatendencytoadecreaseintherateofproÞtsÐnotwithstandingquiteasharpincreaseinrealwages!38Section2ofBook3ofCapitalisdevotedtothesubject:Marx1867Ð94,vol.3,pp.245Ð316.

264TheWealthofIdeasthatthisÔtransformationÕdidnotmodifythesubstanceoftheresultsreachedonthebasisofthelabourtheoryofvalue,inparticularinsofarasthethesisofexploitationwasconcerned(but,forthepurposesofhispoliticalconstruction,thetendencyoftherateofproÞtstofallisalsoimportant).InthefollowingparagraphswewillillustratetheÔtransformationprob-lemÕbyutilisingMarxÕsreproductionschemes;wewillthenbrießyreviewtheensuingdebateuptoourownday.Inthenextsection,whereweattemptaprovisionalevaluationofMarxÕscontributiontoeconomicsci-ence,wewilltakethisaspectintoaccounttogetherwiththeÔmetaphysicalÕimportanceofidentifyingvaluewithlabourcontainedandtheÔlawsofmovementÕofcapitalismdiscussedintheprevioussection.ItwillberememberedthatMarxcalledvthevariablecapital,orinotherwordsthevalueoflabourpoweremployedintheproductiveprocess,whichcorrespondstothequantityoflabourcontainedinthemeansofproductionnecessarytosuchworkers;thatheusedctoindicateconstantcapital,orthevalueofmeansofproductionemployedintheproductiveprocess(ascirculatingcapitalandasamortisationforÞxedcapital);and,Þnally,thatsdesignatedsurplusvalue,orthevalueofthesurpluscorre-spondingtosurpluslabour,consistinginthelabouremployedinexcessoftherequirementstoreconstitutethemeansofsubsistence.Likethetotallabouremployedintheeconomy,soalsotheworkingdayofeachindividualworkerisfoundtobemadeoutoftwoparts:ÔnecessarylabourÕandÔsurpluslabourÕ.TheÔrateofexploitationÕisdeÞnedasequaltotheratiobetweensurpluslabourandnecessarylabour.Ifweassumethatcompetitioninthelabourmarketbringsoutuniformworkingconditionsinthedifferentsectorsoftheeconomy,andinparticularanequallengthofworkingday,andifwegoontoassumethatthesubsistencewageisthesameforallworkers,39thentherateofexploitationcorrespondstotheratiobetweensurplusvalueandvariablecapital,s/v,andisthesameforeachindividualworker,foreachsectorandfortheeconomicsystemasawhole.However,theconditionofauniformrateofexploitationinallsectorsoftheeconomyisinconsistentwiththeassumptionofauniformrateofproÞts.Letusindicatethedifferentsectorswith1,2,…,n.Theconditionofequalratesofexploitationinthedifferentsectorsoftheeconomyisexpressedby:s1/v1=s2/v2=…=sn/vn.(1)39ThismeansfocusingattentiononÔcommonlabourÕ:ÔqualiÞedlabourÕconstitutesacomplicationtobedealtwithinasubsequentapproximation.Cf.Roncaglia1973.

KarlMarx265Inconformitywiththelabourtheoryofvalue,letusmeasureintermsoflabourcontainedboththevalueofthesurplus(totalproÞts)andthevalueofadvancedcapital.TheassumptionofequalratesofproÞtinallsectorsoftheeconomy(computedforeachsectorastheratiobetweenproÞtsandvalueofcapitaladvanced,whichincludesbothconstantandvariablecapital,orwages)isexpressedby:40s1/(c1+v1)=s2/(c2+v2)=…=sn/(cn+vn).(2)Letusdividebothnumeratoranddenominatorofthedifferenttermsofthisseriesofequalitiesrespectivelybyv1,v2,…,vn.Weget:(s1/v1)/(c1/v1+1)=(s2/v2)/(c2/v2+1)=…=(sn/vn)/(cn/vn+1).(3)Atthedenominatorwethushavetheratiobetweenconstantandvariablecapital,c/v,whichMarxcalledtheÔorganiccompositionofcapitalÕ,plus1.Atthenumeratorwehavetheratesofexploitationofthedifferentsectors,byassumptionallequal.Asaconsequence,theseriesofequalities(3)Ðwhich,letusremember,wehavejustdeducedfromtheassumptionofuniformproÞtratesinallsectorsexpressedbytheseriesofequalities(2)Ðholdif,andonlyif,thedenominators,too,areallequal.UniformityofproÞtrateshencerequiresthatc1/v1=c2/v2=…=cn/vn,(4)orinotherwordsthattheorganiccompositionsofcapitalinthedifferentsectorsalsobeallequal.However,thereisnoreasonforthistohap-pennecessarily:ingeneral,onlybychancecanwegetuniformorganiccompositionsofcapitalinallthesectorsoftheeconomy.Infact,eachsectoradoptsatechnologyspeciÞctoit,theproportionbetweenlabourandmeansofproductionotherthanlabouringeneralvaryingwidelyfromonesectortoanother:take,forinstance,thedifferencebetweenareÞneryandavegetablegarden.Thus,confrontedwithdifferentorganiccompo-sitionsofcapitalindifferentsectorsoftheeconomy,theassumptionofauniformrateofproÞts,reßectingthecrucialassumptionofcompetition,contradictstheassumptionthatthequantitiesoflabourcontainedareacorrectmeasureoftheexchangevaluesofcommoditiesproducedandofmeansofproductionemployedinthedifferentsectors.40HerewedisregardthecomplicationsthatmightarisefromthepresenceofÞxedcapitalgoods:thatis,weassumethatconstantcapital,namelymeansofproductionotherthanlabourpower,onlyincludescirculatingcapitalgoods,whollyutilisedinthecourseoftheproductiveprocess.

266TheWealthofIdeasMarxrecognisedthisdifÞcultyand,aswesawabove,proposedÔtrans-formationÕofthemagnitudesexpressedintermsoflabourvaluesthatdonotcomplywiththeconditionofauniformrateofproÞtsintomagni-tudesexpressedintermsofpricesofproduction,thuscomplyingwiththecondition.Inordertodothis,headdedtotheproductioncostsofeachsector(givenbythesumofconstantandvariablecapitalemployedinthatsector)theproÞtsforthatsector.ThelatterarecomputedbyapplyingtheaveragerateofproÞtcalculatedforthesystemasawhole,expressedbys/(c+v),tothecapitaladvancedforthesector.Letusconsideratwo-sectoreconomy;wethenhave(c1+v1)+r(c1+v1)=Ap1(c2+v2)+r(c2+v2)=Ap2whereAandBrepresentthequantitiesofproductobtainedintheÞrstandsecondsectorrespectively,expressedintermsoflabourvalues(thatis,A=c1+v1+s1andB=c2+v2+s2,whilep1andp2representthepricesofproductionofthetwocommodities,andconstitutethetwounknownvariablesdeterminedbythetwoequations,therateofproÞtsbeingknown(since,letusrecall,r=(s1+s2)/(v1+v2+c1+c2)).However,thesolution(which,aswehavealreadyseen,Marxonlyproposedinamanuscriptleftunpublishedandclearlyincomplete)cannotbeconsideredsatisfactory:costsandadvancedcapitalareexpressedintermsoflabourcontained,whileitisobviousthatcapitalistscomputetheirproÞtrateasratioofproÞtsandcapitaladvancedmeasuredintermsofprices,notoflabourvalues.41ThisobjectiontoMarxÕssolutionwasraisedonmanysidesimmediatelyaftertheposthumouspublicationofthethirdvolumeofCapital,inpar-ticularbyB¬ohm-Bawerk(1896).Some,likeLadislausvonBortkiewicz(1868Ð1931),alsotriedtoformulateacorrectedversionofMarxÕspro-posal.Inordertogetroundtheerrorinthisversion,Bortkiewicz(1906Ð7,1907)adoptedasunitofmeasurementforeachofthetwocommodi-tiesaandbthequantityofthatcommoditycorrespondingtoaunitoflabourcontained.Inthiswaythepricesofproductionp1andp2canbeinterpretedasthosemultiplicativecoefÞcientsthatallowustomoveonfrommagnitudesmeasuredintermsoflabourcontainedtocorrespondingmagnitudesmeasuredinsuchawaytocomplywiththeconditionofa41Marx(cf.1867Ð94,vol.3,pp.261Ð72)recognisedtheexistenceofthisdifÞculty,butignoredit,consideringitaspracticallyirrelevantwhenreferringtoaggregatemagnitudesrepresentingtheeconomicsystemasawhole.Insum,Marximposedadoubleconstraint:(i)equalitybetweentotalsurplusvaluecreatedintheeconomy,andtotalvalueofproÞts;(ii)equalityofthetotalvalueoftheproductofthevarioussectorsintermsoflabourcontainedanditsvalueintermsofpricesofproduction.However,thetwoconstraintsaresimultaneouslysatisÞedonlyinveryrarecircumstances.

KarlMarx267uniformrateofproÞtsthroughoutallsectorsoftheeconomy.Therefore,notonlythequantitiesofthetwocommodities,AandB,butalsothequantitiesofconstantandvariablecapital(thatis,ofcapitalgoodsandsubsistencemeans)utilisedinthetwosectors,aretobemultipliedbysuchcoefÞcients.Thusweget:(c1p1+v1p2)(1+r)=Ap1(c2p1+v2p2)(1+r)=Bp2thatis,twoequationsinwhich,consideringthetechnologyandhencec1,c2,v1,v2,A,Basgiven,wehavethreeunknowns:p1,p2andr,whichcaneasilybereducedtotwobyfocusingattentionontherelativepricep1/p2andontheproÞtrater.42Marxhadalsotriedtodemonstratethattheresultsreachedonthebasisofthelabourtheoryofvaluedonotchangeifweshifttoreason-ingintermsofprices,applyingthenotionofanÔaveragecommodityÕ.Inthetransitionfromlabourvaluestoproductionprices,Marxsaid,wehavearedistributionofsurplusvalueamongthecapitalistsinthevarioussectors:intheformercase,surplusvalueisdistributedinproportiontotheamountofdirectlabouremployedineachsector,inthelatterinpro-portiontothecapitaladvanced.However,wecanassumethatthetotalsurplusvalueremainsequaltototalproÞts,andthatatthesametimethetotalproductremainsunchangedwhenmeasuredinlabourvaluesorinpricesofproduction.ThesepropertiesholdfortheÔaveragecommodityÕ,theproductiveprocessforwhichdisplaysanorganiccompositionofcap-ital(c/v)equaltotheaveragecompositionfortheeconomyasawhole:forthiscommodity,moreover,thepriceofproductionprovesequaltoitsvalue,andthesectorproÞtequaltothesectorsurplusvalue.Onceagain,however,theargumentisßawed.TotalproÞtsmayinfactbeequaltototalsurplusvalue,ifwechoosethisequalityasourconditiontosettheunitofmeasurementforprices.Butwecannotsimultaneouslyimposethefurtherconstraintofequalitybetweenlabourvalueandpriceforthetotalproduct,sincethesystemofequationswouldthusbecomeover-determined.Thetwoconditionsareconsistentonlyifmeansofpro-duction,productandsurplusarebutdifferentquantitiesofonecom-positecommodity;onlyinthiscaseÐanexceptionalcaseindeedÐdothetwoconditionsholdsimultaneouslyalsoforanÔaveragecommodityÕrepresentativeofthesystemasawhole.4342AfterBortkiewicz,thislineofreasoningwasfollowedbyWinternitz1948andSeton1957;cf.alsoMorishima1973;onthehistoryoftheÔtransformationproblemÕcf.Meldolesi1971,Vianello1973andVicarelli1975.43AttemptsatusingSraffaÕsÔstandardcommodityÕtosolvetheproblemthatMarxtackledwiththeÔaveragecommodityÕwereproposedbyEatwell1975bandMedio1972;forcriticism,cf.Roncaglia1975,pp.76Ð9.

268TheWealthofIdeas8.AcriticalassessmentMarxÕseconomicandpoliticalconstructionhasgivenrisetodebateonavastscale,revolvingaroundpracticallyallaspectsandgeneratingamassofliteratureofproportionsfartoovoluminoustocomefullytogripswith.Herewewillonlyconsider,withafewbriefremarks,certainaspectsparticularlyrelevanttoourmaintheme,namelyMarxÕsideasontheÔlawsofmovementÕofcapitalism;theroleofthelabourtheoryofvaluevis-`a-visthetheoriesofexploitationandofthetendencyoftheproÞtratetofall;andMarxÕscritiqueofthedivisionoflabourandhisideaofacommunistsocietyasthepointofarrivalfortheevolutionofhumansocieties.OnthesubjectoftheÔlawsofmovementÕofcapitalism,Marxstressedtheprocessofindustrialconcentration,stimulatedbylarge-scaleproduc-tioneconomies,andherehewasright.Thelastfewdecadesmayindeedhaveseenarelativegrowthinimportanceofsmall-andmedium-sizeÞrms,especiallyinthemoretechnologicallyadvancedsectors,butthefactremainsthatinaspanofoveracenturyfromthepublicationofCapitalthesizeofÞrmsgrewenormously,withthedevelopmentoflargeÞnancialgroupsandbigmultinationals.44However,allthishasnotledtobipolarisationbetweenaneversmallercapitalistclassandanevervasterproletariat:otherfactorswereatworkinthemeantime,leadingtotheformationoflargeandgrowingmiddleclasses.Indeed,thetrendprovedsostrongthatthemiddleclasseseventuallyoutweighedtheproletariatrepresentedbyunskilledworkers.45Thegrowthofthemiddleclasseswasassociatedwithadecreasingproportionofworkersdirectlyemployedintheproductionofcommodi-ties,andanincreasingproportionengagedinproducingservices,oronlyindirectlyemployedintheproductionofcommodities(administrativeemployees,techniciansandsuchlike).ThismeantarelativeincreaseintheweightofemployeesandqualiÞedworkerswithinthemanufacturingsector,andofindependentprofessionalsintheservicessector,asashareoftheactivepopulation.44OnMarxÕslead,thethesisofanincreasingconcentrationofÞnancialcapitalwasdevel-opedbyRudolfHilferding(1877Ð1941;hisbook,DasFinanzkapital,waspublishedin1910).Non-Marxianeconomistsaswell,suchasSchumpeter(cf.below,15.4)andKennethGalbraith(b.1908),consideredthetendencytoindustrialandÞnancialconcentrationasacentralaspectintheiranalysesofcapitalism.45Cf.SylosLabini1974.WeshouldstressherethatwhileMarxÕsmaintheoreticalmodelwasbasedonthedichotomybetweenworkersandcapitalists,inBook3ofCapitalandespeciallyinthehistoricalwritings(asÔTheeighteenthbrumaireofLouisNapoleonÕ:Marx1852)thepicturehadalreadyÞlledout,anotableinßuencebeingattributedtothemiddleclasses;inthebackground,however,thesimpledichotomyremainedthebasicpillarforanunderstandingofthemaintrendsincapitalisticsocieties.

KarlMarx269Thenewpoliticalandeconomicstrengthenjoyedbyemployedworkersfavouredredistributionofincomeinthedirectionofwagesandsalaries.Thisincreasedthesavingcapacityoftheworkers,andwithitabroadgrowthinshareholding,whichmeantthepossession(throughequities)ofsharesofownershipinbigindustrialcompanies.Thankstobroader-basedshareholding,andaboveallthankstothenotableweightofthepublicsectorintheeconomy,theprocessofindustrialconcentrationdidnotÐcontrarytoMarxÕspredictionÐentailparallelconcentrationinafewhandsofthetotalityorneartotalityofwealthandeconomicpower.46Thisfactseesthethesisofinevitablerevolutionloomingupintheevolutionofthecapitalisticsystemdeprivedofoneofitsmainpillars,andwithitthethesisoftheprogressivelyincreasingmiseryoftheproletariatisundermined.AnotherpillarÐthethesisofthetendencyoftherateofproÞtstofallÐalsoturnsouttohaveshakyfoundations(aswesawabove,in6).Asforthetheoryoflabourvalue,itissufÞcienttoconsiderhowBortkiewiczreformulatedittoseeitasnothingbutacomplicatedandsubstantiallyuselesswayofmeasuringthequantitiesofthemeansofpro-ductiontodetermineproductionprices.TheÔtransformationproblemÕseemstohavefoundconsummationinSraffaÕscontributiononthePro-ductionofcommoditiesbymeansofcommodities(1960)Ðseebelow,16.7ÐwhererelativepricesandtherateofproÞtsaredetermined,giventherealwagerate,throughasystemofequationsmuchlikeBortkiewiczÕs,withthedifferencethatanyreferencetoquantitiesmeasuredintermsoflabourcontaineddisappearsfromSraffaÕsequations:(Aapa+Bapb+…+Napn)(1+r)+Law=Apa(Abpa+Bbpb+…+Nbpn)(1+r)+Lbw=Bpb………………………………………………………………………………(Anpa+Bnpb+…+Nnpn)(1+r)+Lnw=NpnwhereAa,Ba,…,Na,Laarethequantitiesofcommoditiesa,b,…,nandoflabourrequiredtoproducequantityAofcommoditya;Ab,Bb,…,Nb,Lbarethequantitiesofcommoditiesa,b,…,nandoflabour46TheÞnancialcontrolstructureofthemajorÞrmsdiffersfromonecountrytoanother.Insomecases,e.g.theUnitedStates,investmentfundshaveanimportantrole;inoth-ers,e.g.GermanyorJapan,asigniÞcantdegreeofconcentrationofeconomicpower(fargreaterthancanbededucedfromthedispersionofshareownership)derivesfromanetworkofcross-shareholdingscentringonbanksandÞnancialcompanies.TheresearchessofarcarriedoutonthesesubjectsarequiteinsufÞcient,althoughthepastfewyearshaveseenacertainrevivalofinterest.

270TheWealthofIdeasrequiredtoproducequantityBofcommodityb;An,Bn,…,Nn,Lnarethequantitiesofcommoditiesa,b,…,nandoflabourrequiredtoproducequantityNofcommodityn;ristherateofproÞts;pa,pb,…,pnarethepricesofcommodities.Theequationsaren,asmanyasthecommodities,andallowustodeterminen−1relativepricesandoneofthedistributivevariables,wagerateorrateofproÞts,giventheother.Aswecansee,then,thereisnoneedtomeasurethedifferentmagni-tudesintermsoflabourcontained.Mayitperhapsbe,asColletti(1969a,p.431)said,thatÔSraffahasmadeabonÞreofMarxÕsanalysisÕ?Actually,thingsarerathermorecomplicated:itremainstrue,infact,thatproÞtscanexistonlyinsofarasthesystemiscapableofproducingasurplusthatisnotabsorbedbywages;someeconomists(forinstanceGaregnani,1981)havegoneontomaintainthatÔthefactÕofexploitationremainsevidentevenifwehavetoforgothelabourtheoryofvalue.However,curiousproblemsarise(forwhichseeSteedman1977,whoseworkisanessentialreferenceforapost-SrafÞancriticismofMarx):forinstance,inthecaseofjointproduction(when,asiscommonlythecase,eachÞrmproducesmorethanonesinglegood),itmayhappenthatforagiventechnologyanincreaseintherateofproÞtscorrespondstoadecreaseintherateofexploitation,orthatapositiverateofproÞtscorrespondstoanegativeexploitationratio.Furthermore,asLippi(1976)inparticularstressed,abandonmentofthelabourtheoryofvaluecanhardlybeheldpainlessfromtheMarxianpointofview,sinceittakeslabourtobethesubstanceofvalue.47ThislatterpointisrelatedtoMarxÕsÔvisionÕinthebroadsense,whichfocusedonthenecessityofovercomingnotthedivisionoflabouringen-eral,northeformwhichitassumesincapitalism,butthecompulsoryaspectofthedivisionoflabour.OntheevidenceoftheGermanideologyasindeedoftheÔCritiqueoftheGothaprogrammeÕ,itisclearthatMarxandEngelshadinmindnottheabsolutedisappearanceofthedivisionoflabour,butthepossibilityofsupersedingcompulsorylabour.48Theystressedthatonlywhenmen(andwomen,wemayadd)arefreetoÞsh,47ThesebriefremarksareobviouslyinsufÞcienttogiveanaccountofsuchavastandvarieddebateasthatonthemeaningofMarxÕslabourtheoryofvalue;amongthemanywritingsonthesubject,wemaymentionAlthusser1965;Colletti1969b;Garegnani1981;Napoleoni1972,1976;Meek1956;Sweezy1942;Rosdolsky1955.Itis,however,worthstressingthattheideaoflabourasasubstanceofvalueÐwhileimplyingtheideaofÔlabourintheabstractÕ,tobekeptdistinctfromÔcommonlabourÕ(cf.Colletti1969b,pp.28Ð30)Ðdidnotimplytheidea(whichwemay,rather,attributetocertainamongtheÔRicardiansocialistsÕ)oflabourasthesourceoftheproduct;intheÔCritiqueoftheGothaprogrammeÕ,Marx(1878,p.153)explicitlysays:ÔLabourisnotthesourceofallwealth.Natureisjustasmuchthesourceofusevalues.Õ48ÔInahigherphaseofcommunistsociety,aftertheenslavingsubordinationoftheindi-vidualtothedivisionoflabour,andtherewithalsotheantithesisbetweenmentaland

KarlMarx271philosophiseorcultivatetheirgardensastheylike,shallwehavereachedareallyfreesociety.49Untilthen,evenwiththecrucialtransitionfromcap-italismtosocialism,thedivisionoflabourretainsthenatureofanecessityimposedontheindividualworker.WemaycompareMarxÕsattitudetoSmithÕs.Accordingtothelatter,thedivisionoflabourisasourceofeconomicandcivicprogress,butalsoofsocialproblems;theformeraspectmaybeheldtooutweighthelatter,andthedivisionoflabourthusdeemeddesirable,butstepsmustalsobetakenagainstthenegativeaspects,tooffsetthemasfaraspossible.50Marx,ontheotherhand,seemedtoconsidertheliberationofmenfromtheserfdomofcompulsorylabourarealpossibility,whichimpliedamoredrasticallynegativejudgementofthetransitionalstagesbeforethetargetwasreached,andreadinesstobearthecostsnecessarytoreachit,includ-ingtheÔdictatorshipoftheproletariatÕinthesocialiststageprecedingtheultimateconstructionofcommunistsociety.51Now,notonlyhavethetheoreticalelementsinvokedbyMarxinsupportofthethesisoftheinevitabletransitionfromcapitalismtosocialism(socialpolarisation,ten-dencyoftheproÞtratetofall)provedfaultybut,aboveall,thesocialistmodeofproductionhasprovedafragileformofsocialorganisationascomparedwiththemarketeconomiesonthecrucialevidenceofhistoricalphysicallabour,hasvanished;afterlabourhasbecomenotonlyameansoflifebutlifeÕsprimewant;aftertheproductiveforceshavealsoincreasedwiththeall-rounddevelop-mentoftheindividual,andallthespringsofcooperativewealthßowmoreabundantlyÐonlythencanthenarrowhorizonofbourgeoisrightbecrossedinitsentiretyandsocietyinscribeonitsbanners:ÒFromeachaccordingtohisability,toeachaccordingtohisneeds!ÓÕ(MarxandEngels1878,p.160).Forasurveyofthedebateonthesubjectandthemainissuesconnectedtoit(asforinstancethenatureofstatepower),cf.Villetti1978.49ÔAssoonaslabourisdistributed,eachmanhasaparticular,exclusivesphereofactivitywhichisforceduponhimandfromwhichhecannotescape.Heisahunter,aÞsherman,ashepherd,oracriticalcritic,andmustremainsoifhedoesnotwanttolosehismeansoflivelihood;whileinacommunistsociety,wherenobodyhasoneexclusivesphereofactivitybuteachcanbecomeaccomplishedinanybranchhewishes,societyregulatesthegeneralproductionandthusmakesitpossibleformetodoonethingtodayandanothertomorrow,tohuntinthemorning,Þshintheafternoon,rearcattleintheevening,criticiseafterdinner,justasIhaveamind,withouteverbecominghunter,Þsherman,shepherd,orcriticÕ(MarxandEngels1845Ð6,p.295).50InthisrespectSmithopenedacurrentofsocialreformismwithinwhichwemayÞndsupportersofcooperativeorpublicwelfareschemes,ÔindustrialdemocracyÕschemes,orproposalstoattributethelessqualiÞed,moreoppressivetaskstoaÔlabourarmyÕ(Rossi1946).ItissigniÞcantthattherevolutionaryMarxisttraditionalwaysopposedsuchproposals,consideringthematmostastemporarypalliativesthatriskedleadingtheworkingclassastrayfromitsÔtrueobjectivesÕ,namelytheoverthrowofcapitalism.51Marx,infact,onlymadebriefreferencetothesethemes,whichbecameburninglyrele-vantonlyaftertheOctoberRevolutionof1917andthebirthoftheSovietUnion.Theharshnessofthedictatorshipoftheproletariat,supportedequallybyLeninandTrotskyasbyStalin,was,however,preÞguredbyMarxinthefewpassageshedevotedtothesubjectinhiswritings.

272TheWealthofIdeasreality,andpreciselywithrespecttowhatMarxconsideredthedecisiveelement,namelythedevelopmentofproductiveforces.TheapparentlymoremodestSmithianperspectiveÐapathofprogress,butwithnodef-initepointofarrivalÐseemspreferablethen,bothasaninterpretationoftheevolutionofhumansocietiesandasaguidetoaction,tothemoreradicalÐinfact,substantiallyutopianÐperspectivewithinwhichMarxcreatedhistheoreticalarchitecture.9.MarxismafterMarxMarxÕsinßuence,inthedecadesfollowingthepublicationofBook1ofCapitaluntilrecenttimes,hasbeenenormous.Histhoughtinspiredgreat,highlyorganisedcommunistmovementsinindustrialisedWesterncountries,andpoliticalregimesthatlongdominatedthemajordevelop-ingcountries,fromtheSovietUnionafterthe1917Revolution,toChinaaftertheSecondWorldWar.ThisexplainsthehugevolumeofMarx-ianliteratureandtheimportanceithashadinculturaldebate.However,wewilllimitourselvesheretoafewbriefreferencestocertainauthorsandthemesofmajorrelevancetotheeconomicdebate,whilealsoomit-tingsomeimportantlinesofresearchalreadyconsideredintheprevi-oussections(suchasthetransformationoflabourvaluesintopricesofproduction).MarxÕsimmediatesuccessorsÐhisfriendFriedrichEngelsandhispupilKarlKautsky(1854Ð1938)Ðaretoberecalledhereaboveallaseditorsofimportantworksbytheirmasterpublishedposthumously:Books2and3ofCapitalforEngels,andtheTheoriesofsurplusvalue(Marx,1905Ð10)forKautsky.InhispoliticalactivityKautskywasalsooneoftheÞrstoftheÔrevisionistsÕ,stressingtheimportanceofthemarket(andconsequentlyofmoney)forpoliticalandsocialprogress,showingapreferenceforalongphaseoftransitionfromcapitalismtosocialismratherthantheabruptrevolutionaryleaptoafullycentralisedsystemashappenedintheSovietUnionaftertheBolshevikRevolutionof1917.52Thesamelinewasfollowed,withgreaterclarityanddecision,byEduardBernstein(1850Ð1932);hisbest-knownworkisTheprerequisitesofsocialismandthetasksofsocial-democracy(1899),wherehedevelopedanevolutionisticviewoftheconstructionofsocialism(asshownbythetitleoftheEnglishtranslation,Evolutionarysocialism).IncontrastwithMarxiantheoriesonthenecessityofdictatorshipoftheproletariatinthe52OnKautsky,andmoregenerallyonthedebateofthetimebetweenthedifferentcurrentsofMarxistsocialism,cf.Salvadori1976.

KarlMarx273socialiststageoftransitiontowardscommunism,hestressedthecentralroleofdemocraticinstitutionsforpoliticalandsocialprogress.BernsteinsetouttopurgeMarxÕsanalysisofHegeliandialectic;fur-thermore,heviewedwithsomedifÞdencethemorestrictlytheoreticalaspectsofMarxÕseconomicthought,fromthelabourtheoryofvaluetotheÔlawsÕofthetendenciestoafallingrateofproÞtsandincreasingmiseryoftheworkers,attributingdecisiveimportancetowhatempiricalobservationofrealitycantellusaboutthem.AsomewhatsimilarlineofthinkingwasfollowedbythesocialistsbelongingtotheFabianSociety,foundedin1884byagroupofBritishintellectualsthatincludedGeorgeBernardShaw(1856Ð1950)andeco-nomichistoriansSidneyWebb(1859Ð1947)andhiswifeBeatrice(1858Ð1943).53Shaw,Webbandvariousothersproducedacollectivework,theFabianessaysinsocialism(Shaw1889),departingquitesharplyfromMarxisminthedirectionofanevolutionisticsocialismevenlessradi-calthanBernsteinÕs.Theverynameofthegroupisindicativeoftheirprogramme,recallingtheRomanconsulFabiusMaximus,dubbedtheCunctatorforhisvictoriouswartacticbasedonsmallstepsratherthangreatbattles.Asfaraseconomictheorywasconcerned,theFabianessaysshowtracesofacontroversyfollowingonanarticlebyPhilipWicksteed(onwhomcf.below,10.6),ÔDasKapital:acriticismÕpublishedintheperiodicalTo-DayinOctober1884.WicksteedÕscriticismsofthelabourtheoryofvalueandtheMarxiantheoryofexploitationbasedonitwontheattentionoftheÔFabiansÕ,andparticularlyGeorgeBernardShaw.ReviewingtheFabianessays,WicksteedwasabletoassertthatÔTheÒFabiansÓhavebeenatworkonpoliticaleconomy,andtheresultisthedistinctanddeÞnitiveabandonmentofthesystemofKarlMarx.Õ54WiththeFabiansevolutionarysocialism,originallybornasdirectprogenyofMarxism,brokesharplyaway.However,othercurrentsthatwereplacedundertheheadingofÔMarxistorthodoxyÕ,essentiallyonaccountoftheirpoliticalsuccess,canalsobeconsideredheterodoxwhenwecomparethemwithMarxÕsoriginalthought.53TheWebbssupported,amongotherthings,socialsecurityschemestobeÞnancedthroughtaxesratherthanthroughcompulsorycontributionsaswasthecasewiththesystemadoptedbyBismarckandthesystemthattookrootinGreatBritainaftertheSecondWorldWar.TheyalsofoundedtheLondonSchoolofEconomics,in1895,designedtofavourthedevelopmentofaprogressiveeconomicculturewellrootedinempiricalresearchandnotconditionedbytheconservativeideologyprevailinginthetraditionaluniversities.(OnthesubsequentradicalchangesoftheLondonSchool,cf.Robbins1971.)54TheInquirer,16August1890,quotedbySteedman1989,p.131,whoalsoprovidesanaccountofthedebate(ibid.,pp.117Ð44).

274TheWealthofIdeasTheÞrstnametobeinvokedhereisthatofVladimirIlichUlyanov(1870Ð1924),alsoknownasLenin.OfhisvastproductiononeconomicthemeswemayrecalltwoworksprecedingtheSovietRevolution:ThedevelopmentofcapitalisminRussia(1898)andImperialism,thehigheststageofcapitalism(1916).IntheÞrstofthesetwoworksLeninstressedtheroleofgrowthincommercialrelationsinunderminingthestructureofeconomicpowercharacterisingagriculture,byfarthedominantsectorinRussiaatthetime,andtheactiveinterventionofthetsariststateintheindustrialisationprocess,withthecreationofgreatfactoriesandlargeconcentrationsofworkers.Clearly,inrecognisingtherevolutionarypotentialitiesofsuchasituationLeninwasdepartingfromMarxÕsoriginalthesis,whichsawtheproletarianrevolutionastheinevitableoutcomeofafullydevelopedcapitalism.Thesecondwork,abriefessaywrittenundertheimpetusoftheFirstWorldWar,beganbyrecognisinganelementthatcontradictedMarxÕsanalysisandthathadbecomeclearwiththewar,namelythefactthattheworkersandsocialistpartiesindifferentcountriesidentiÞedwiththeirrespectivenationalinterests.LenintookupathesispropoundedbyBritisheconomistJohnHobson(1858Ð1940)inanessayonImperi-alismpublishedin1902,whichsawincolonialdevelopmentsthequestforoutletsforthepopulationandcapitalthatremainedunusedintheindustrialisedcountriesbecauseofthetendenciestounder-consumptionalwayslatentinthem.LenincombinedthisthesiswithaninterpretationofmonopolycapitalismfusingtheMarxianÔlawofindustrialconcen-trationÕwiththetheoryofintegrationofÞnancialandindustrialcapitalpropoundedbytheAustrianMarxistRudolfHilferding(1877Ð1941)inDasFinanzkapital(1910).55Asfarasthepost-revolutionarySovietUnionwasconcerned,LeninÕswritingspointedinthedirectionoftheNewEconomicPolicy(NEP)basedonrecognitionofacertainroletothemarket,aboveallfordeter-minationofthecrucialexchangeratiobetweenagriculturalproductsandmanufactures,withinacentralisedeconomycharacterisedbystateownershipofthemeansofproduction.AleadingsupporterofNEPwasNikolaiBukharin(1888Ð1938),who,afterthefailureofattemptstoexportthesocialistrevolutiontoWesternEuropeancountries,andinparticulartowar-impoverishedGermany,contributedtothedebateonÔsocialisminonecountryÕmaintaining55Intheareaofreformistsocialism,theAustriancurrentisparticularlyimportant;itincluded,togetherwithKautskyandHilferding,alsoOttoBauer(1881Ð1938)andvariousothers.OnthedebatebetweenAustriansocialistsandAustrianmarginalists,cf.Kauder1970.

KarlMarx275theexpediencyofpostponingthestageofcentralisedplanning,leavinggreaterleewaytomarketmechanisms.TheseshouldsimplybeÔguidedÕbythestateauthoritiesalongtheroadtoaccumulationandindustrial-isation,throughcontroloverthenervecentresoftheeconomy,whichimpliedrecognitionofsmall-scalepeasantagriculture,andgradualismintheindustrialisationprocess.SubsequentlyBukharinwasconvertedtotheStalinistviewsofstateagricultureandforcedaccumulation,butthisdidnotsavehimfromtheStalinistpurgesofthelate1930s.Amongotherthings,BukharinwastheauthorofanessayontheEconomictheoryoftheleisureclass(1917),criticisingthesubjectivethe-oryofvalueoftheAustrianschool(cf.below,ch.11),interpretedasthemanifestationofafreedomofchoiceinconsumptionopenonlytoasmallfractionofthepopulationbutextended,withideologicaldistor-tion,torepresenttheworkingofthewholeeconomy.LesswellknownishisTheABCofcommunism(1919),writtenwithEvgeniiPreobrazhensky(1886Ð1937).Thelatterauthorwas,unlikeBukharin,criticaloftheNEP,advocatingaÔprimitiveaccumulationÕthatcouldbeachievedinRussiaonlywithsys-tematicstateextortionofthesurplusproducedbytheagriculturalsector.Preobrazhenskywasthereforefavourabletostronglycentralisedplanning,stateownershipinagriculture,andexchangeratiosbetweenagriculturalproductsandmanufacturessetbythecentralplanningauthorityinfavourofmanufacturesinsupportoftheindustrialisationprocess.Inaworkof1921,Preobrazhenskywentsofarastoforeseeasinevitabletheclashbetweenthesocialiststateandthekulaks,thesmallindependentfarmerswhowereinfacttobeexterminatedbyStalin.AfterthedefeatoftheNEP,Preobrazhenskyturnedhisattentiontotheconditionsofequilibriumgrowth,anticipatingHarrodÕstheory(cf.below,17.6),andarguedthepossibilityofÔover-accumulationcrisesÕ.Perhapsitwasduetotheseideas,despitethemeritshehadacquiredintheNEPdebate,thatPreobrazhenskyfelloutofStalinÕsfavour:afterashowtrialoneoftheSovietUnionÕsbesteconomistswasshotin1937.56ThethemeofdisequilibriumintheprocessofaccumulationhadalreadybeensubjectedtoMarxistanalysesinrelationtothecapitalis-ticeconomiesbyTugan-Baranovsky(1865Ð1919)andRosaLuxemburg(1871Ð1919).57BothutilisedMarxÕssimpleandenlargedreproductionschemes(cf.above,5).Tugan-Baranovsky(1905)thusshowedboth56OnPreobrazhensky,cf.Ellman1987.57OnTugan-Baranovsky,cf.Nove1970;onRosaLuxemburg,cf.SweezyÕsintroductionandLucianoAmodioÕsmeticulousbio-bibliographicalnotetotheItalianeditionofhis1913book.

276TheWealthofIdeastheerrorofunder-consumptiontheoriesholdingcrisisfromdeÞciencyofaggregatedemandtobeinevitable,andjusthowdifÞcultitistofollowagrowthpathsoastomaintainequilibriumbetweenthepropensitytosaveandinvestmentopportunities.RosaLuxemburg,inhercelebratedTheaccumulationofcapital(1913),studiedtheconditionsofproductreal-isationbyfocusingontherelationshipbetweenaccumulationandgrowthofdemandinthepresenceofacontinuousdrivetowardstechnologicalchange.HerbookisamineofideasÐalbeitnotalwaysfullydevelopedÐthatpromptedaprofusionofinterpretativestudies.Amongotherthings,RosaLuxemburgstressedthemonopolisticnatureofcapitalism,theroleofpoliticalelements(andmilitaryviolence)inthefunctioningoftheeconomy,imperialistictendenciesandtheinternationalisationofcapitalism.Allthesethinkerswere,however,inonerespectoranotherhereticalinrelationtotheorthodoxythathad,sincethelate1920s,beenestab-lishedintheSovietUnionandtheEuropeancommunistpartiesbythepoliticalleadershipofJosephStalin(1879Ð1953).Wehavealreadyseenhispoliticalchoicesinfavourofacceleratedindustrialisationandstateeconomy.58Asfaraseconomictheoryisconcerned,mentionmustbemadeofhisthesisontheÔvalidityofthelawofvaluewithinthesocialisteconomyÕ,statedwithincreasingdeterminationintheaftermathoftheSecondWorldWarthoughpreviouslyithadbeendenied.Propoundedinacrypticform,thethesiswasinterpretedasgroundstoattributegreaterimportancetothepricemechanismwithinsocialisteconomies.AftertheendofStalinism,inanintellectualclimatelessstißing,althoughrespectfororthodoxthinkingstillremainedimperative,debateontheÔlawofvalueinasocialisteconomyÕsawthedevelopmentofsomecourageousheterodoxies,especiallyintheÔWarsawschoolÕwhereMichalKalecki(cf.below,14.8)wastheleadingÞgure,whileOskarLange(1904Ð65)andWlodzmierzBrus(b.1921),amongothers,supportedthedevelopmentofaÔsocialistmarketÕ.Amongthemostoriginalcontri-butionsbyWesternMarxisteconomistswemaymentionpublicationsbyPaulBaran(1910Ð64)andPaulSweezy(1910Ð2004).BaranwroteThepoliticaleconomyofgrowth(1957),ananalysisoftheprocessesofcapital-isticdevelopmentbasedonthenotionofÔpotentialsurplusÕandsingling58Theideathatcompulsoryaccumulation,afterhelpingtheindustrialisationprocess,wouldleadtotheSovietUnioncatchingupwithandpossiblyovertakingtheeconomicpoweroftheUnitedStates,waswidespreadamongMarxisteconomistsincommunistandWesterncountriesalike,aftertheendoftheSecondWorldWar.Withthefallofthecommunistregimeswenowsee,onthecontrary,thatRussiahadremainedalargelyunderdevelopedcountry:politicaltotalitarianism(andStalinistterror),apartfromthedamagetheyproducedintermsofcivicgrowth,broughtpreciouslittleadvantageevenintermsofpurelyeconomicgrowth.

KarlMarx277outthereasonsÐinparticularpoliticalandinstitutionalfactorsÐindif-ferentcountriesandepochsstandinginthewayoffulluseofproductivecapacities.Sweezy,apupilofSchumpeter,wasnotonlyresponsibleforthepreviouslymentionedThetheoryofcapitalistdevelopment(1942)ÐstillthebestillustrationofMarxÕseconomictheoryÐbutalso,togetherwithhistorianLeoHuberman,foundedtheMonthlyReviewin1949.In1966BaranandSweezytogetherpublishedMonopolycapital,abookthat,togetherwiththewritingsofphilosopherHerbertMarcuse(inparticularOne-dimensionalman,publishedin1956),becameoneofthemainpointsofreferenceinthestudentagitationthatspreadfromCaliforniatoParisin1967Ð8,whichthensweptthewholeworldover.

10Themarginalistrevolution:thesubjectivetheoryofvalue1.TheÔmarginalistrevolutionÕ:anoverviewThetermÔmarginalistrevolutionÕiscommonlyutilisedtoindicateasud-denchangeofdirectionineconomicscience,withtheabandonmentoftheclassicalÐand,moreprecisely,RicardianÐapproach,andtheshifttoanewapproachbasedonasubjectivetheoryofvalueandtheanalyticalnotionofmarginalutility.1TheoutbreakoftheÔrevolutionÕiscommonlylocatedintheyearsbetween1871and1874,whenthemainwritingswerepublishedoftheleadersoftheAustrianmarginalistschool,CarlMenger(1840Ð1921),oftheBritishschool,WilliamStanleyJevons(1835Ð82),andoftheFrench(Lausanne)school,L«eonWalras(1834Ð1910).Infact,1871sawtheappearanceofboththePrinciplesofpureeconomicsbyMengerandThetheoryofpoliticaleconomybyJevons,whileWalrasbroughtouthisElementsofpureeconomicsin1874.Letus,however,onceagainreiteratethattheÔmarginalistrevolutionÕhadhadimportantprecursors,aswewillseeagainbelow.Moreover,thedifferencesbetweentheAustrianimputationapproach,theFrenchgeneraleconomicequilibriumandMarshallianpartialequilibriumswerequiteimportant,asfarasbothmethodandthebasicviewofthefunc-tioningoftheeconomywereconcerned.AmongtheEnglisheconomists,then,AlfredMarshall(1842Ð1924;hisPrinciplesofeconomicsappearedin1890)followedapathofhisown,differingfromtheradicallysubjectivelinetakenbytheÞrstauthorofamarginalisttheoryofvalue,Jevons;andtheinßuenceexercisedbytheideasandtheacademicpoweroftheformerwasfargreaterthanthatofthelatter.Inthisandthefollowingchapterswewillillustratethemaincharacter-isticsofthethreeprincipalresearchcurrentstraditionallyincludedunderthemarginalistlabel;wewillthusseehowdifferenttheyarefromoneanother,andhowmisleadingitistodelineateaclear-cutbreakaround1Howey1960,pp.xiiiandxxvii,informsusthatthetermÔmarginalismÕwasintroducedbyJohnHobsoninWorkandwealth(1914),whilethetermÔmarginalÕwasÞrstutilisedbyWicksteedinhisAlphabet(1888),andWieserutiliseditinhisGrenznutzenin1884.278

Themarginalistrevolution:thesubjectivetheoryofvalue2791870.2However,beforedoingsoitmaybeusefultopointoutsomebasicelementscommontothesedifferentlinesofresearch,contrastingthemwiththeclassicalapproachillustratedinthepreviouschapters.Sraffa(1960,p.93)sumsupthecontrastwithtwoimages:theclas-sicalapproachconsistsintheÔpictureofthesystemofproductionandconsumptionasacircularprocessÕ,whilethemarginalistapproachalignstheperspectivealongÔaone-wayavenuethatleadsfromÒFactorsofpro-ductionÓtoÒConsumptiongoodsÓÕ.ThusSraffaoutlinesthedifferencesbetweenthetwoapproachesintermsoftheviewtakenoftheeconomicproblemandthestructureoftheanalysis,inparticularintheÞeldofvalueanddistribution,whichiswherethebasicnatureofthedifferentapproachesÞndsitsmostdirectexpression.Letustakeacloser,albeitsummary,lookatthesedifferences,whichconcerndeÞnitionoftheeconomicproblem,thenotionofvalue,theconceptofequilibrium,theroleofpricesandthetheoryofdistribution.Firstofall,withintheclassicalapproachtheeconomicproblemwasconceivedasanalysisofthoseconditionsthatguaranteethecontinuousfunctioningofaneconomicsystembasedonthedivisionoflabour,andhenceanalysisofproduction,distribution,accumulationandcirculationoftheproduct.Inthecaseofthemarginalistapproach,bycontrast,theeconomicproblemconcernedtheoptimalutilisationofscarceavailableresourcestosatisfytheneedsanddesiresofeconomicagents.Secondly,theclassicaleconomistsÕobjectiveviewofvalue,basedonthedifÞcultyofproduction,contrastswiththesubjectiveviewofthemarginalistapproach,basedonevaluationofutilityofcommoditiesonthepartoftheconsumers.Thirdly,asaconsequenceofthesedifferences,thenotionofequilib-riumtookonacentralroleinthemarginalistapproach,againmarkingitoutfromtheclassicalapproach:equilibriumcorrespondedtocondi-tionsofoptimalutilisationofscarceavailableresources,andwasthere-foreidentiÞedbyasetofvaluesforalleconomicvariables,pricesand2OntheÔmarginalistrevolutionÕ,togetherwiththebibliographyreferringtoJevons,MengerandWalraswhichwillbecitedbelow,cf.Hutchison1953,Howey1960,Kauder1965andthearticlescollectedinBlack,CoatsandGoodwin1973.Howeystresses,amongotherthings,thathistoriansofeconomicthoughtattheendofthenineteenthcenturydidnotrecognisetheexistenceofaÔmarginalistrevolutionÕ.Blaug1973entitleshispaperÔWasthereamarginalrevolution?Õandconcludes(p.14)thatitÔwasaprocess,notaneventÕ.Stigler1973,whileattributingtoBenthamtheÔutilitytheoryÕ(athesiswhich,aswesawabovein6.7,israthersuperÞcial),stresses(p.312)thatthetheoryÔtooknoimportantpartinanypolicy-orientedcontroversyuptoWorldWarI.ÕHutchison1953,p.6,maintainsthatÔÒmarginalÓorneoclassicaleconomicsonlyreallycameintoitsownintheninetiesÕofthenineteenthcentury,while(1973,p.202)onlyinthefourthquarterofthetwentiethcenturydidthedifferentÔschoolsÕmergeÔintoageneral,cosmopolitanNorthAmericanandwesternEuropeanmeltingpotÕ.

280TheWealthofIdeasquantitiessimultaneously.Theclassicalapproachheldtheproblemofrelativepricesdistinctfromtheproblemofdecisionsconcerningaccumu-lationandproductionlevels;atthemost,onemightspeakofequilibriumwithreferencetothelevellingofsectorproÞtratesstemmingfromthecompetitionofcapitals,whilethetermÔbalancingÕ,whichdidnotimplyapreciseequality,waspreferredwhenspeakingofdemandandsupply(asintheexpressionÔThebalancebetweensupplyanddemandÕ).Fourthly,inaccordancewiththeabovepoints,pricesacquiredthemeaningofindicatorsofrelativedifÞcultyofproductionfortheclassicalapproach,andofindicatorsofscarcity(relativetoconsumersÕprefer-ences)withinthemarginalistapproach.3Fifthly,andÞnally,incomedistributionwasnomoreorlessthanaspeciÞccaseofpricetheoryinthecontextofthemarginalistapproach(whereitconcernedthepricesoftheÔfactorsofproductionÕ),whilefortheclassicalapproachitwasaproblemwithautonomouscharacteristics,concerningtheroleofdifferentsocialclassesandtheirpowerrelations.4Asmentionedabove,suchcommoncharacteristicstookondifferentformsinauthorsbelongingtodifferentcurrentswithinthemarginalistapproach.Forinstance,theFrenchcurrentofgeneraleconomicequilib-riumfoundedbyWalras,takenupanddevelopedatthebeginningofthetwentiethcenturybytheItalianVilfredoPareto(cf.below,12.3)andsubsequently,inthelastthirtyyears,byauthorssuchasKennethArrowandGerardDebreu,wasbasedontheassumptionofinitialendowments3Obviously,thismeansneitherthattheÔdifÞcultyofproductionÕdidnotplayarolewithinthemarginalistapproach(indeeditdid,asmediationbetweenoriginalproductiveresourcesontheonehandandÞnalgoodsandservicesontheother),northatÔscarcityÕdidnotplayarolewithintheclassicalapproach(again,itdid,throughdifferentkindsofconstraints,concerningtechnologyÐasindifferentialrentÐorlevelsofproduction,throughthestagereachedbytheprocessofaccumulation).Itonlymeansthat,intheÞrstcase,scarcityplayedacentralanalyticalrole,inthebasicmodelofpureexchange,whiletechnologymaybeintroducedinasuccessivestageofanalysis;inthesecondcase,instead,scarcitycouldplayanindirectroleindeterminingproductionlevelsandtechnol-ogy,butnotadirectroleindeterminingprices.Onthislatterpoint,cf.Roncaglia1975,pp.125Ð6.4Alsowithinthisapproach,however,thedeterminationofpricesandthatofdistribu-tivevariableswereconnected,aswastobecomeevidentinSraffaÕsanalysis.Withsomeimprecision(withinthegeneraleconomicequilibriumapproach,allvariablesaresimulta-neouslydetermined),Walras1874,p.45,saidthatinoppositiontotheclassicalapproach(ÔtheschoolofRicardoandMillÕ),inthenewtheoryÔthepricesofproductiveservicesaredeterminedbythepricesoftheirproductsandnottheotherwayroundÕ.Othercharacteristicscommontothedifferentcurrentsofthemarginalistapproach(cf.forexampleCoats1973,p.338)wereaconsequenceofthosealreadynoticed(suchasattributionofanimportantroletodemandvis-`a-vissupplyinthedeterminationofprices,whichstemsfromthesubjectiveviewpoint),orwerelessclear-cut,concerningnottheanalyticalandconceptualstructurebuttheprofessionalisationofeconomics(greaterprecisionoflanguage)orthetoolboxutilised(calculus).

Themarginalistrevolution:thesubjectivetheoryofvalue281ofresources(differentkindsofworkingabilities,lands,capitalgoods)consideredasgiveninphysicalterms,andmatchedwitheconomicagentsÕpreferences.TheEnglishcurrentofJevonsandMarshall,bycontrast,tendedtoconsiderthequantitiesavailableofthedifferentresourcesalsoasvariablestobedeterminedwithinthetheory,utilisingasexogenousdatautilityanddisutilitymapsofthevariouseconomicagents.Inparticular,itwasthebalancebetweentheutilityofgoodsobtainablethroughproductiveactivityandtheworkerÕstoilandtrouble,orinotherwordsthedisutilityofwork,thatdeterminedtheamountofworkdoneandhence,giventheproductionfunction,theamountofproduct.FinallythetheoristsoftheAustrianschool(togetherwithMenger,weshouldalsomentionhispupilsvonWieserandvonB¬ohm-Bawerk:cf.below,11.4)adoptedaradicallysubjectiveviewpointaccordingtowhichthevalueofeachgoodorservicewasdeducedfromitsutilityfortheÞnalconsumer,directlyinthecaseofconsumptiongoodsandindirectlyinthecaseofproductiongoods.InthislattercaseashareoftheutilitythattheproducedgoodhasforconsumerswasÔimputedÕtothemeansofproduction,computingsuchashareinproportiontothecontributionrepresentedbythegoodorserviceunderconsiderationtotheproductiveprocess(hencetheexpressionÔimputationtheoryÕ).2.Theprecursors:equilibriumbetweenscarcityanddemandAsrecalledintheprevioussection,sidebysidewiththeclassicalviewoftheeconomicsystembasedontheideaofthecircularßowofpro-ductionandconsumption,wehaveadifferentviewinvolvingtheideaofscarcityofavailableresourceswithrespecttopotentialdemand.Thefor-merapproachhaspricesderivedfromtheconditionsofreproducibilityofaneconomicsystembasedonthedivisionoflabour,whileforthelatterpricesstemfromthesubjectiveevaluationsofeconomicagents,andthusexpresstherelativescarcityofthevariousresourcesandofthevariousgoodsobtainedfromthem.HereitisworthstressingthatthisviewwasnotbornwiththeÔmarginalistrevolutionÕintheyearsbetween1871and1874,buthasaccompaniedeconomicsciencefromitsverybeginnings.EvenintheprehistoryofpoliticaleconomyweÞnddiscussionoftheÔjustpriceÕ,withanimportantroleacknowledgedfortheplaybetweendemandandsupply.HerewealsoÞndconceptualisation,primitivethoughitmaybe,oftheissueofpricesinrelationtothemedievalmarkets,conceivedasaplaceandtimeforencounterandcomparisonbetweensupplyanddemand.Moreover,asearlyastheScholasticwritersweÞnd

282TheWealthofIdeasthethesisbeingairedthatutilityisthetruesourceorcauseofvalue;inotherwords,thecomparisonbetweensupplyanddemandwascon-sideredasanexpressionofthecomparisonbetweenscarcityandutility.Thisviewsurvivedanddevelopedovertime,sidebysidewiththeideathatthevalueofcommoditieslayessentiallyinthedifÞcultyofproduc-tion,andparticularlyinlabourrequirements.Whileintheseventeenth,eighteenthandnineteenthcenturiesthislatterviewfounditswayintotheclassicalapproachofPetty,SmithandRicardo,variousauthorstookonanddevelopedthealternativeview,connectingpriceswiththecompari-sonbetweenscarcityandbuyersÕevaluation,andcomingclose,insomecases,toestablishingalinkbetweenvalueinuseandvalueinexchangebasedonthenotionofmarginalutility.Thewidespreadacceptanceofthequantitytheoryofmoney,withitsanalyticalframeworkbasedonsupplyanddemand,constitutedanimportanthelp.AbriefsurveyshowsthatthesubjectiveapproachtothetheoryofvaluehadimportantrootsinEngland,Italy,FranceandGermany.5Herewelimitourselvestorecallingsomeofthebest-knownauthors,countrybycountry.InItaly,themostimportantexponentofthesubjectiveapproachwasprobablytheNeapolitanAbb«eFerdinandoGaliani,whoseworkiscon-sideredabove,in4.8,wherealsohispredecessor,BernardoDavanzati,isdiscussed.HalfacenturyafterGaliani,anotherItalianeconomist,LuigiMolinariValeriani(1758Ð1828)proposedinevenclearertermsatheoryofvaluebasedondemandandsupplyagainstthetheorybasedonproductioncosts,andsoughttodevelopfortheÞrsttimeamathematicalandgeo-metricalanalysisoftheissue(Delprezzodellecosetuttemercatabili,1806).6VariousFrencheconomistswhosupportedasubjectivetheoryofvalueintheeighteenthandnineteenthcenturies(apartfromJean-BaptisteSay,onwhomseeabove,6.3)wererecalledbyJevons,intheprefacetothesecondedition(1879)ofThetheoryofpoliticaleconomy.Inparticular,Lecommerceetlegouvernement(1776)byCondillacwasreferredtobyJevons(1871,p.57)asÔtheearliestdistinctstatementofthetrueconnex-ionbetweenvalueandutilityÕ.JevonsalsorecalledÔtheFrenchengineerDupuitÕand,quitenaturally,theRecherchessurlesprincipesmath«ematiques5Someauthors(forinstanceBowles1972;Blaug1973)explicitlydeny,onthesegrounds,therevolutionarycharacterofthemarginalistÔrevolutionÕ.6(Aboutthepriceofallthingssubjecttocommerce).OnValeriani,cf.SchumpeterÕs1954,p.511n.,laudatoryremarks,andFaucci2000,pp.165Ð6.Othereighteenth-centuryauthorsworthyofmentionhereareBeccariaandVerri(cf.above,4.8).Schumpeter1954,p.307n.,attributestothelatteraÔhyperbolicaldemandlawÕ;accordingtoVerriÕslaw,pq=c,wherecisaconstant.

Themarginalistrevolution:thesubjectivetheoryofvalue283delath«eoriedelarichesse(1838)byAntoineAugustinCournot(1801Ð77),who,however,whilebuildinghisanalysisofpricedeterminationondemandandsupply,consideredasfunctionsofprice,ÔdoesnotrecedetoanytheoryofutilityÕ(Jevons1871,p.59)andtowhom,asacon-sequence,itwasnotpossibletoattributeasubjectivetheoryofvalue.7Indeed,CournotwasmoreachildofFrenchrationalismthanofutilitar-ianism.8ÔAtheoryofpleasureandpainÕwasattributedbyJevons(1871,p.60)toaGerman,HermannHeinrichGossen(1810Ð58),authorofabookthatfellquicklyintooblivion,EntwickelungderGesetzedesmenschlinenVerkehrs…(Thelawsofhumanrelationsandtherulesofhumanactionderivedtherefrom,1854),whohaddevelopedamarginalisttheoryofconsumerequilibrium.9AgaininGermany,JohannHeinrichvonTh¬unen(1783Ð1850),alandowneractiveinlandimprovements,producedaworkintwoparts,DerisolierteStaat(Theisolatedstate,Þrstpart,1826;secondpart,1850),10inwhichhenotonlydevelopedatheoryofrentconnectedtothedistancefromtheplaceofconsumption,butalsoandaboveallproposedananalysisofsubstitutionbetweenlandandlabour,whenrentdecreases,substantiallybasedonequalitybetweenmarginalproductivityandpriceforeachoftheseproductivefactors.11Jevonsdidnot,however,dwellontheinterestingcontributionoftheSwissmathematicianDanielBernoulli(1700Ð82).Thislatterauthorhad7Ars`eneDupuit(1804Ð66),Piedmontesebybirth,engineerinthefamousFrenchCorpsdesPortsetChauss«ees,isknownforhiswritingsonhowtodeterminetheusefulnessofpublicworks.Inthesewritings,relyingondemandfunctions,hemeasuredwhatwaslatertobecomeknownasthenotionofconsumerÕssurplus.InthiscontextwemustalsorecallvariousotherFrenchauthors,suchasTurgotandCantillon(whomweconsiderhereamongtheFrench,sincethiswasthelanguageinwhichhisworkappeared,althoughhewasofIrishorigin:cf.above,4.5).InanessayonCantillon,Jevons(1881)consideredhimthefounderofpoliticaleconomypreciselyforhisanalysisofprices.Also,LeonWalrasÕsfather,AugusteWalras,inhisbookDelanaturedelarichesse,etdelÕoriginedelavaleur(1831)statedwithdecisionthatÔvaluedependsuponrarityÕ(quotedbyJevons1871,p.64).8NotethatCournotdidnotshowtracesoftheinßuenceofFrenchsensism.Streissler(1990,pp.56Ð7),however,stressesthatCournotwastheÞrstwhoexplicitlyintroducedademandcurve,inhis1838book,precedingbythreeyearstheGermanKarlHeinrichRau(cf.below,11.1).Walker1996,p.3,insteadstressesthat,asremarkedabove,Cournotdidnotprovidetheoreticalfoundationsforthedemandfunction(commonlylocatedbymarginalistsinindividualpreferences),butsimplypresupposedit.Blaug1962,p.43,noticesthatCournotÔÞrstlaiddownthemodernnotionofperfectcompetitioninwhichÞrmsfaceahorizontaldemandcurvebecausetheirnumberissolargethatnonecaninßuencethepriceoftheproductÕ.9OnGossen,cf.Georgescu-RoegenÕsintroductiontotheEnglishtranslationofhisbook(Georgescu-Roegen1983),andNiehans1990,pp.187Ð96.10Athirdpartwaspublishedposthumouslyin1863,bringingtogetherunpublishedwritingsofvarioustypes.Cf.Schumpeter1954,p.465.11OnvonTh¬unen,cf.Niehans1990,pp.164Ð75.

284TheWealthofIdeastackled,withinthetheoryofprobability,theso-calledStPetersburgpara-dox,thatis,theaversiontoriskmanifestedbyindividualswhopreferasuresumtoanequalsumgivenbytheactuarialvalueofabet(whoforinstanceprefer1,000eurosforsuretothepossibilityofwinning0or2,000fromtossingacoin,accordingtowhichsideofthecoinshowsup,whiletheactuarialvalueofthetwocasesisidentical).Tosolvesuchaparadox,Bernoulliassumedthattheincreaseofindividualwealthisaccompaniedbyanincreaseinutilitythatisaninversefunctionofthewealthalreadyowned;inotherwords,heinvokedaspeciÞcinstanceoftheprincipleofdecreasingmarginalutility.12InEngland,fromPettytoSmith,uptoRicardoandhisfollowers,thesubjectiveapproachtovaluewasdecidedlyconÞnedtoasecondaryplane.Wecan,however,recallthestatementsofprinciplebySamuelBaileyonthenatureofvalue(cf.above,8.3),thewritingsbySenior,Whately,LongÞeldandaboveallalectureonvaluein1833byWilliamForsterLloyd(1794Ð1852),professorofpoliticaleconomyatOxfordUniversity,andpublishedtogetherwithotherlecturesin1837(cf.above,8.7).Thus,inthedevelopmentofasubjectiveanalyticalconstruction,acentralrolewasplayedbyexplanationsofconsumersÕchoices,andhencebydemand.InthisÞeldwehavethemaininnovationoftheÔmarginal-istÕapproach,incomparisonwiththetraditionoftheclassicalschool,namelytheideaofexplainingexchangevalueonthebasisofuseval-ues.Withintheclassicalapproach,thedistinctionbetweenvalueinuseandvalueinexchangewasalreadyexplicit,forinstance,inAdamSmith(cf.above,5.5),whowasfollowedslavishlyinthisbymanyothers,includingDavidRicardoandJohnStuartMill.ValueinuseÐthefactofbeingusefultosomepurposeÐwasconsideredaqualityofcommodities,anindispensablecharacteristic(aprerequisite)forgoodstohaveaposi-tiveexchangevalue;notameasurablecharacteristic,however,andhencenotanelementtorelyonwhenexplainingexchangevalues.Itis,ofcourse,truethattheclassicaleconomistsalsospokeoflargeorsmallvalueinuse,butinverygenericterms.Thishappened,forinstance,withthewell-knownparadoxofwateranddiamonds:theformer,itwassaid,hasalargevalueinusebutasmallvalueinexchange,whilediamondshaveamodestvalueinusebutaconsiderablevalueinexchange.Aswesawabove(4.8),theparadoxwassolvedbeforeSmith,byGaliani12TheimportanceofBernoulliÕsworkisstressedbySchumpeter1954,pp.302Ð5,and,inhiswake,bySpiegel1971,pp.143Ð4.SchumpeterconsideredBernoullialsoaprecursorofthemodernvonNeumannÐMorgensterntheoryofgames(cf.below,17.2).SpiegelrecallsthatBernoulliÕsworkwasoriginally(1738)publishedinLatin,andonlymuchlatertranslatedintoGerman(1896)andEnglish(1954),thusescapingtheattentionofeconomists.

Themarginalistrevolution:thesubjectivetheoryofvalue285inparticular,recallingthatthemostusefulgoodmayalsobethemostabundantone,whileitisscarcityvis-`a-visthedemandfrompotentialbuyerswhichdeterminestheprice.13Thisargumentforeshadowedthekeyelementofmarginalisttheory,namelytheideathatvalueinuse(assumedascapableofmeasurement)decreaseswhenthequantityconsumedofeachcommodityincreases.Valueinusethusbecameadecreasingfunctionofthequantityconsumedofeachcommodityand,aswewillseeinmoredetailbelow,valueinexchangecouldbederivedfromthevalueinuseofthelastdoseconsumedofthegoodunderconsideration.Tobedevelopedontheanalyticalplane,thesubjectivetheoryofvalue,i.e.theapproachwhichderivedthevalueinexchangeofcommoditiesfromtheconsumerÕssubjectiveevaluation,thusrequiredanotionwhichsomeofthesubjectivetheoristsÕforerunnersofmarginalismforeshadowed,namelythenotionofmarginalutility.TheJevonianapproachwasmadeupofotherelementssidebysidewiththesimplesubjectivistorientationintheexplanationofthetheoryofvalue.Firstly,therewasareinterpretationofclassicalutilitarianism,orig-inallydevelopedbyBenthamwithdifferentaimsandmeaning.Secondly,therewasatwinmethodologicalchoice:methodologicalindividualism,andthesearchforÔscientiÞcrigourÕconductedthroughtheapplicationofthemathematicaltoolintheeconomicÞeld.Theseelementswillbediscussedinthenextsections.3.WilliamStanleyJevonsSomehistoriansofeconomicthoughthavespokenofaJevonianrevolu-tion,inordertostress,ontheonehand,thebreakwiththetraditionofclassicalpoliticaleconomyand,ontheotherhand,differenceswiththeothercurrentsoftheso-calledmarginalistrevolution,namelytheFrenchcurrentinitiatedbyWalrasandtheAustrianonestartingfromMenger.14WhatcharacterisedJevonsinhisbreakwiththeclassicaltraditionwere,ontheonehand,hisviewsonthepsychologyofthehumanbeingand,ontheother,hisaimtomathematiseeconomictheory:twoaspectswhichwewillexaminein4.Anotherinterestingaspect,forwhichJevonswasrepresentativeofhistimes,concernedtheprofessionalisationofeconomics.Thistendencywillbediscussedbelow,whenillustrating13Withintheclassicalapproach,whereattentionfocusesonreproduciblecommodities,scarcitycanbeovercomethroughproductionofadditionalunitsofthecommodity;asaconsequence,asseenabove,exchangevalueisbroughtbacktotherelativedifÞcultyofproduction.Wemayspeakofscarcity,insubstance,onlywhentheavailablequantityofacommodityisgiven.14Cf.Schabas1990:anessentialcontributiontoourunderstandingofJevons.

286TheWealthofIdeasMarshallÕscontributiontotheconstructionofaspeciÞcallyeconomiccurriculumofstudies.HerewewillonlystressthatJevonsÕsownlifewasindicativeofaclear-cutchange:personalsuccesscoincidedwithpubli-cationofnewtheoriesandtheiracceptanceonthepartofcolleaguesÐuniversityprofessorsÐwhileforPettyorCantillon,QuesnayorSmith,RicardoorJohnStuartMill,successwasrevealedinthewidercircleofmenofcultureorinacceptanceoftheirideasinthepoliticalarena.JevonswasborninLiverpoolin1835toaUnitarianfamily,followersofareligiouscreedcharacterisedbyconcernwithrealitiesratherthanform,andinparticularbycompassionforthederelict.PersonalandpublicvicissitudesinßuencedtheformationoftheyoungJevons:thedeathofhismotherin1845,theterribleIrishfamineof1847,andtheeconomiccrisisof1848withthecollapseofrailroadcompaniesandbankruptcyofthesmallfamilyÞrm.FurtherstagesinhislifeweremarkedbytheGreatExhibitionof1851,inLondon,andhisfatherÕsdeathin1855.Atthattime,oneofhisbrothershadmovedtoNewZealand,whileoneofhissistershadbeencommittedtoalunaticasylum;therelativeswithwhomJevonswasclosestwerehisyoungerbrotherThomas,whowastobecomeabankerinNewYork,andhissisterLucy;itisclearthatJevonshadtofendforhimselftoÞndhiswaythroughlife.Afterjuniorschool,in1850JevonswenttoUniversityCollege,London,wherehestudiednaturalsciences,chemistryandmathematics.AsachemisthewashiredbytheAustralianmint,andattheageofnineteenhemovedtoSydney,whereheresidedfrom1854to1859,dedicatinghissparetimetothestudyofbotanyandmeteorology.In1857hebegantocultivateaninterestinsocialandeconomicissues,andsoondecidedtomaketheÔstudyofManÕhismissioninlife.Tothisend,heforewentatenuredjobandreturnedtoLondontoregisteragainatUniversityCollege,wherehetookaÞrstdegreein1860andgraduatedin1862.Atthesametimehetriedtoekeoutalivingasajournalist;in1863heacceptedajobasgeneraltutorinManchester,thelowestrungontheacademicladder.Hehadalreadypresented(in1862)amemoirtotheBritishAssociation,withoutobtaininganyreaction,althoughhispaperalreadycontainedtheessentialelementsofhissubjectivetheoryofvalue.Anappliedeconomicsessayonthefallinthevalueofgold,publishedin1863,metwithabetterreception.Inthesameyearhepublishedaworkonlogic;tothisÞeldJevonsreturnedrepeatedlyinsubsequentyears.JevonsachievedfamewithThecoalquestion(1865).Thiswasagainanappliedeconomicswork,inwhichhemaintainedthethesisoftheimpendingexhaustionofcoalreserves,hencetheexistenceofaninsur-mountableconstrainttothedevelopmentofBritishmanufactures,sincecoalconstitutedtheenergysourcefortheentireproductivesystem.This

Themarginalistrevolution:thesubjectivetheoryofvalue287wasaMalthusianidea,inwhichascarcenaturalresourceÐcoalÐtookuptherolethatfoodproductshadinMalthus.Thedirepredictionsofthelatterhadnotcometrue,accordingtoJevons,becauseoftheabolitionoftheCornLaws,andhenceofdutiesoncornimports.Asamatteroffact,bothJevonsandMalthuswerewayoffthetrackintheirpessimisticforecastsofthwarteddevelopmentthroughpurblindundervaluationoftechnologicalchange.15Thefamethusacquired,togetherwithhisworksconcerninglogic,broughthimnominationtoaprofessorshipinlogicandmentalandmoralphilosophyatOwensCollege,Manchester,in1866.Finally,afterpubli-cationofhismajorcontributiontoeconomictheory,theTheoryofpoliticaleconomy,in1871,andthetreatiseonthePrinciplesofsciencein1874,in1876hebecameprofessorofpoliticaleconomyatUniversityCollege,London.16In1880Jevonsdecidedtoresign,inordertoworkfulltimeonhisresearches;butin1882hedrownedwhileswimmingduringaseasideholiday.JevonsÕspersonalitineraryhelpsustounderstandthebackgroundtohisÔsubjectiverevolutionÕ.Behindittherewasinfactadhesiontoaviewofpoliticaleconomynolongerasamoralscience,muchlikehistoryorpolitics,butasasciencelikephysicsormathematics.ThischoiceofperspectivecoincidedwiththeculturalpathfollowedbyJevonshimself:astudentofchemistryandmathematicsÞrst,thenauthorofessaysonmethodinscienceandformallogic(togetherwiththewritingsoneco-nomicsthatbroughthimfame).Hisviewsonhumanpsychology,relatingtoCondorcetÕssensism,pointedinthedirectionofnecessaryquantitativeconnections(ÔlawsÕ)alsointheÞeldofthesocialandhumansciences.Faithinthenaturalsciencesthuscombinedwithbeliefintheobjectivenatureofperception.Logic,asapurelyformalandabstractscience,pro-videdthetoolsforanalysisofÔlawsÕintheÞeldofboththenaturalandhumansciences.Thoughnotimportantinthemselves,inthisrespectitisworthnotingJevonsÕscontributionstoformallogic,wherehefollowedinthewakeofDeMorganandBoole(whoconceivedlogicasasectorofalgebra),butwithawiderperspective,maintainingthatwhilemathematicsconsiders15Inthecaseofenergysources,thehistoryofthelastcenturiesrecordsanoppositeten-dencytotheonesketchedoutbyJevons,withthetransitionfromlessefÞcientandmorecostlysources(Þrstwood,thencoal)tomoreefÞcientandlesscostlysources(oil,naturalgas).Cf.Roncaglia1983a.16JevonsÕspapersandcorrespondencehavebeenpublishedinsevenvolumes,editedbyBlackandK¬onekamp:Jevons1972Ð81.The(few)reviewsoftheTheoryofpoliticaleconomyaresummarisedbyHowey1960,pp.61Ð9.Amongthem,theonewithwhichMarshallbeganhiscareerasaneconomistwasconsideredbyJevonsasscarcelydeservingattention.

288TheWealthofIdeasquantities,formallogicconcernstherelationsbetweenqualities.Thelawsofprobabilityareconceivedofasapriori.FundamentalinparticularwasJevonsÕsviewÐinthisrespectfollowingatraditiongoingatleastfromPettytoCondorcetÐthatnumbersarecapableofexpressingeverything.17IntheÞeldofresearch,thescientistmustpursueagreementbetweentheoryandfactsthroughaprocedureconsistingininventinghypothesesandcomparingthedeductionsdrawnfromthemwithexperience.WeÞndmanyoftheseaspectsinthePrinciplesofscience,whichJevonspublishedin1874and,inalargelyrevisedsecondedition,in1877.Actu-ally,Jevonsdedicatedrathermoretimetothislineofresearch,beforeandafterpublicationofThetheoryofpoliticaleconomy,thantoresearchintheÞeldofeconomics,andthesethemesarethereforesigniÞcantforanunderstandingofhowoneofthefathersoftheÔsubjectiverevolutionÕreasoned.Fromourviewpoint,thepointtobestressedisthatJevonswasveryfarfrompursuinganaxiomaticmethod,wherewhatmatteredwasthelogicalconstructionofthetheoryandnotitsrealism:hadhenotembracedasensisticviewofman,itisunlikelythatJevonswouldhavegoneinthedirectionofbuildingasubjectivetheoryofvalue.4.TheJevonianrevolutionJevonsÕssubjectivetheoryofvaluewasthusthejointproductoftheprojectofrelyingonthemathematicalmethodineconomicsandonasensisticviewofhumanpsychology.IndevelopingthistheoryJevonsmodiÞedthemeaningofsomekeyconcepts,thusbreakingwiththeearliertradition.SuchmodiÞcations,essentialtobuildthemarginalistanalyticalediÞce,mainlyconcernedthenotionofutilityinheritedfromBentham,whichJevonsorientedintheoppositedirectiontothatsuggestedbyJohnStuartMill.Asremarkedabove,BenthamwithhisfeliciÞccalculusproposedtoconsiderpleasuresandpainsinquantitativeterms.ClosertoJevons(whoquotedhimasaforerunner)andtotheeconomicsÞeld,wasRichardJennings(1814Ð91)who,inhisessayontheNaturalelementsofpoliticaleconomy(1855)andinsomeotherwritings,alsotookthispath.Jevonsbroughtthelinetoanend,buildingasubjectivetheoryofvalueonthebasisofaquantitative,one-dimensionalviewofvalueinuse.17SchabasstressesthisaspectintheverytitleofherbookonJevons,Aworldruledbynumber.Cf.alsoMays1962,p.223:ÔfollowingBooleandDeMorgan,hebelievedthatanyrationalsystemofideascouldbeputintosymbolicform.Thesystemcouldthenbeoperatedonaccordingtothelawsoflogictoproduceachainofdeductions.ÕCf.alsoBlack1973.

Themarginalistrevolution:thesubjectivetheoryofvalue289Firstly,thequantiÞcationofpleasuresandpainsasone-dimensionalmagnitudeswasdevelopedbyJevonswithgreaterrigourthaninBen-tham.Thelatter,asremarkedabove(4.8),hadpointedtoanumberofelementsÐseven,forthesakeofprecision:intensity,duration,certainty,propinquity,fecundity,purityandextentÐwhichdeterminethequantityofpleasureorpainconnectedtoagivenaction.JevonsreducedtheseelementstotwoÐintensityanddurationÐandconsideredthequantityofpleasureasdeterminedbytheirproduct.Time,henceduration,wastreatedasacontinuousvariableand,symmetrically,sowasintensity.Inthiswaythequantityofpleasure,namelyutility,turnedouttobeitselfacontinuousvariable.Thesewereobviouslynecessaryfeaturesfortheapplicabilityofdifferentialcalculusor,inotherwords,fortheformu-lationoftheJevoniannotionoftheÔÞnaldegreeofutilityÕ,nowadayscommonlyknownasmarginalutility.Secondly,Jevonsstressedthatutilityisanabstractrelationshipbetweenobjectandperson,notapropertyintrinsictotheobject.18Anyobjectmay,infact,haveadifferentutilityfordifferentpersonsorindifferentmomentsoftime.Inanycase,whatmattersisnotsomuchtotalutility,butrathertheincrementofutilitywhenthequantityavailableofthecommodityincreases,namelytheÞnaldegreeofutility.Eachindividualsignalssuchamagnitudewithreadinesstopayforthecommodityitself.19Thisallowsustocomparethroughthemarketthevaluationsofagivenindividualfordifferentgoods,butalsoÐthroughtheamountofmoneyeachofthemiswillingtopayÐthoseofdifferentindividualsforthesamegood;however,thisfactisnotinitselfsufÞcienttoensurethepossibilityofasocialfeliciÞccalculus,sincenothingguaranteesthateveryindividualwillattributethesameutilitytoanygivenquantityofmoney.TheseaspectsareessentialforanunderstandingofthedifferencesbetweenJevonsÕsviewsandthoseoftheutilitariantraditiongoingfromBenthamtoJohnStuartMilldiscussedabove.JevonsbuiltaÔutilitarianÕeconomicsindirectoppositiontoRicardoÕsandMillÕsclassicalschool;indoingso,hereducedeconomicsciencetoatheoryofrationalchoice,underthepostulatethateachindividualisabletocomputeinaone-dimensionalspaceallconsequencesofanyaction,atleastwithintheeco-nomicsphere.ThusJevonsexplicitlypostulatedthepossibilityofafeliciÞc18InthisrespectJevons,implicitlyfocusingoncomplacibilitasandtotallyneglectingvirtu-ositas,differedfromalargepartoftheScholastictraditionwhichtookintoconsiderationbothaspects(cf.above,2.4)andfromauthorssuchasGaliani,whiletakingupBaileyÕsrelativism.19TheideathatindividualssignaltheirvaluationofthecommoditiesthroughthesumthattheyarereadytopayforthemhadalreadyappearedinVerriandinBentham:cf.Faucci1989,p.79.

290TheWealthofIdeascalculusforeachindividual.Atthesametime,inhismaincontributiontoeconomictheory,the1871volume,heexplicitlyandemphaticallydeniedthepossibilityofinterpersonalcomparisons.20Consequentialistethics,requiringinterpersonalcomparisons,wasthusmadetodisappear.EachindividualmayidentifyÔgoodÕinwhateverincreaseshisorherpersonalutility;butallthisiscompletelydifferentfromtheutilitarianethicsofBenthamandMill,wheresocial,notindividual,consequencesarewhatmatterforthemoralassessmentofanyaction.JevonsÕsdeÞnitionofeconomicsalsodifferedfromMillÕsideaofpoliti-caleconomy.Aswesawabove(8.9),MillconsideredpoliticaleconomyaslimitedtoaspeciÞcaspectofhumannature,i.e.thedesiretopossesswealth.Jevons,ontheotherhand,recallingacharacteristicallyMillianpointÐnamelythatÔthefeelingsofwhichamaniscapableareofvariousgradesÕÐlimitedeconomicstoaspeciÞcsubsetoffeelings,ÔthelowestrankoffeelingsÕ.Inthisway,accordingtoJevons,ÔThecalculusofutilityaimsatsupplyingtheordinarywantsofmanattheleastcostoflabour.Õ21ItisworthstressingthatthisdeÞnitionisonlyapparentlyobviousandunproblematic.Forinstance,itwouldrelegatemydemandforBachrecordingstothelowestrankoffeelings,exactlyonthesamelevelasmydemandforchocolate(both,recordingsandchocolate,beingpartofmyordinarywants);ontheotherhand,wereitnotso,economicswouldtakeintoaccountonlypartoftheconsumerÕsexpendituredecisions,anditwouldbeimpossibletodeÞneunivocallyabudgetconstraint.Infact,thereasonwhyJevonsfoundhimselfcompelledtogivesuchanobviouslycontrovertibledeÞnitionofeconomicsciencelayinthefactthatsuchadeÞnitionwasessentialforhiscrucialaim,theformulationofeconomicsasamathematicalscience.Infact,inJevonsÕsownwords,ÔItisclearthateconomics,ifitistobeascienceatall,mustbeamathematicalscience[…]ourtheorymustbemathematical,simplybecauseitdealswithquanti-ties.Õ22ItwasthiscrucialaimwhichledJevonstoassumehumanfeelings20NotevenMengerorWalras,consideredtogetherwithJevonsasthefathersofthemarginalistrevolution,resortedtointerpersonalcomparisons,eveniftheydidnotfeelcompelledtoexplicitlyrejectthem.Infact,whileinEnglanditwasimpossiblenottotakeBenthamiteutilitarianismintoaccount,therewashardlyanyneedforthisinFrance,andevenlessinAustria.21Jevons1871,pp.92Ð3.Bukharin1917,instead,maintainedthatmarginalisttheory,byattributingcentralimportancetoconsumerÕschoice,concernedthebehaviouroftheleisuredclassesmorethanthatofthemassofthepopulationwhich,livingatornearsimplesubsistencelevel,hasalargelyconstrainedconsumptionstructure.22Jevons1871,p.78;italicsintheoriginal.Asamatteroffactthelastsentenceshouldbeinverted:ÔourtheoryshoulddealwithquantitiesÐnamelywithvariablesdeÞnedinsuchawayastobeliabletobetreatedasone-dimensionalquantitiesÐbecauseonlyinthiswayareweabletoworkitoutinmathematicaltermsÕ.Wemayalsorecallherethattheuseofdifferentialcalculuswasbynomeansanabsolutenovelty;forinstance,it

Themarginalistrevolution:thesubjectivetheoryofvalue291asaone-dimensionalquantitativevariable:apointwhichwasstressedagainandagain.23Allthisinvolvedbothexplicitandimplicitshiftsinthewaytheecon-omywasviewedandintheconceptionofhumannature.Firstofall,thecoreofthetheoryconsistedintheanalysisofindividualchoicesbetweendifferentpleasures(consumption)andpains(labour);thefeelings(pref-erences)ofeachindividualhadtobeassumedasanindependentdatumoftheproblem.Onlyundertheseconditionscouldthesummationofindividualbehavioursconstituteatheoryofthewholeeconomy.Inotherterms,methodologicalindividualism24wasanecessaryrequisiteforthesubjectivetheoryofvalue.Buttheassumptionofindependenceofindivid-ualpreferenceswasinnowayjustiÞedbyJevons:itwassimplypostulated,asimplicitintheverystructureofhistheory.25Second,JevonsviewedeconomicsnotasthescienceofthewealthofnationsÐitsgrowth,itsdistributionamongthedifferentsocialclassesÐbutasaproblemconcerningthemaximumsatisfactionobtainablefromtheallocationofagivenamountofresources.InJevonsÕsownwordshadalreadybeenrecommendedÐevenifnotutilisedinpracticeÐbyMalthus,andhadsubsequentlybeenutilisedbyThomasPerronetThompson(1783Ð1869),BenthamÕsallyinthelaunchoftheWestminsterReview(Spiegel1971,pp.507Ð8).23Naturally,asnotedabove,utilitywasnotmeasureddirectly,butthroughitsmanifes-tationinindividualchoices.Thecoreoftheissuedoesnot,however,lieinthedirectmeasurabilityofutility,butratherinthefactthatitisconceived,asrecalledabove,asaone-dimensionalmagnitude.Recoursetoindirectmeasurementofutility,throughobservationofconsumerÕsbehaviour,raisesadifferentissue,concerningthecircularityofreasoning:cf.Roncaglia1975,pp.106Ð11.However,ifweacceptasensisticviewoftheindividual,andifweassumestabilityovertimeofconsumerÕspreferences,thechargeofcircularreasoningfallsasfarascomparativestaticanalysesareconcerned.Thisiswhyitisimportanttostressthelimitsoftheutilitarian-sensisticview,connectedtoaone-dimensionalrepre-sentationofhumannature.24ThereareanumberofdeÞnitionsofmethodologicalindividualism.(Foracriticalsurvey,cf.Donzelli1986,pp.33Ð113.)Herebymethodologicalindividualismwemeantheassumptionthatsocietyisnothingbutasumofindividuals,andthatthepreferencesofeveryindividualareindependentfromthoseofanyotherindividual,sothatwehavethethesisaccordingtowhichÔallsocialmacro-lawsarereducibletothetheoryofindividualbehavioursÕ(Donzelli1986,p.38).25JohnStuartMillÕsthesis,ontheneedtobuildanÔethologyÕinthesenseofascienceofthenationalcharacter(cf.above,8.9),implicitlypointedouthowfarfromobvi-ous(andhowalientotheclassicaleconomistsÕviewoftheworld)wastheassumptionofindependenceofindividualpreferences.ItcontradictstheideaofmanasaÔsocialanimalÕonwhich,forinstance,Smithreliedinhisethicsofsympathyandinhisanal-ysisoftheoriginsofthedivisionoflabour.Tointroducesuchanassumption,withoutanexplicitevaluationofitsfoundations,meansmeetinganeedimposedbythechosentheoreticalstructurewithoutconsideringthecostsitimpliesintermsofdistortionsintherepresentationofreality.Commonrecoursetothisprocedurewithinthemarginalistapproachshouldleadustopondertheshakyfoundationsofthemarginalisttheoreticalconstruction(especiallywhencontinuousconfrontationoftheoryandrealityisconsid-erednecessary,asindeeditwasbyJevons).

292TheWealthofIdeas(1871,p.254;italicsintheoriginal):ÔTheproblemofeconomicsmay[…]bestatedthus:Given,acertainpopulation,withvariousneedsandpowersofproduction,inpossessionofcertainlandsandothersourcesofmaterial:required,themodeofemployingtheirlabourwhichwillmaximizetheutilityoftheproduce.ÕThird,JevonsÕseconomicsappliedperfectrationalitytoanaspectofindividualbehaviour(identiÞcationofwhich,aswesawabove,isnotsosimple):ÔthelowestrankoffeelingsÕ.Notonlywaseachindividualisolatedfromalltheothers,interdependenceofpreferencesbeingruledout,butthisspeciÞcaspectwasalsoisolatedfromallotheraspectsofhumannature,andinparticularfromwhatisessentialincivilisedhumanbeings,theirverynatureassocialbeings.Jevons(ibid.,p.102)remarkedthatÔInthescienceofeconomicswetreatmennotastheyoughttobe,butastheyare.ÕHowever,thiswaspreciselythecrucialpointofdifference.TheScottishEnlightenmentÐthetradition,thatis,withinwhichSmithdevelopedhisnotionofpoliticaleconomyÐconsideredÔmenastheyareÕassomethingmorecomplexthanmeresensisticmachines,certainlyendowedwithnaturalproclivitiestosocialising;itwaspreciselybecauseofthis,aswesawabove,thatSmithwasabletofocusonself-interest,restrainedbytheÔmoralofsympathyÕ,ratherthanonsheerselÞshness,asamotivationdrivinghumanactions.Inotherwords,hisdecisiontoformulateeconomicsasamathemati-calsciencecompelledJevonstoredeÞneasmeasurablemagnitudesthemotivationsofhumanactions,atleastinsofaraschoicesofrationaleconomicagentswereconcerned.Inthisway,however,therichnessandsubtletyoftheSmithiannotionoftheeconomicsubjectweredrasticallyimpoverished,withtheriskofgrossmisunderstandingsofthewayhumansocietiesoperate.Inasense,insofarasitreliesonconceptualfounda-tionssimilartoJevonsÕs,itisthewholeofthemarginalisttraditionbasedontheviewofeconomicsasatheoryofrationalbehaviourthatmaybeconsideredasawronglineinthehistoryofeconomicthought:adeviationfromthelaboriousprogressofasocialsciencethatendeavourstotakeintoaccountthecomplexnatureofhumanbeingsandhumansocieties,forkingoffalongthepathofÔeconomicsÕbuiltonthemodelofphysi-calsciencesÐatthepriceofsubstitutingtherealworldwithaÞctitiousone-dimensionalpicture.5.RealcostandopportunitycostThesubjectivetheoryofvaluedevelopedbyJevonswasthusbasedonaspeciÞcreformulationofBenthamÕsÔcalculusofpleasuresandpainsÕ.Itwasatheoryofthechoicesoftheindividualeconomicagentconsideredin

Themarginalistrevolution:thesubjectivetheoryofvalue293isolation.PleasurewasidentiÞedwithconsumptionofeconomicgoods(inclusiveofservices),towhichapositiveutilitywasattributed.Themagnitudeofutilitydependedonthepreferencesoftheeconomicagentunderconsideration;foreachgood,itdecreasedwhenthequantityofthegoodconsumedincreased.Conversely,ÔpainÕwasrepresentedbylabour,towhichanegativeutilitywasthusattributed;labourisidentiÞedwithÔanypainfulexertionofmindorbodyundergonepartlyorwhollywithaviewtofuturegoodÕ(ibid.,p.189).Jevons,aswesawabove,developedthenotionoftheÔÞnaldegreeofutility(ordisutility)Õ,whichcorrespondstomarginalutility(ordisutility).Theexchangevalueofeachgoodwasthusequal,ontheonehand,toitsmarginalutility,andontheotherhand,tothemarginaldisutilityofthelabournecessarytoobtainit(evenindirectly,i.e.throughexchangewithagooddirectlyproducedbytheeconomicsubjectunderconsideration).Inthisway,foreachgoodthequantityproducedand/orconsumedwasdeterminedsimultaneouslywithitsexchangevalue.Underthesimplifyingassumptionthatproductionofeachgoodrequiredonlylabour,andintheabsenceofdifferenttemporalproÞlesofthelabourinputsrequiredtoobtainthedifferentcommodities,atÞrstsightthisapproachgavearesultanalogoustotheclassicaltheoryoflabourvalue.Infacteachindividualattributesthesamedisutilitytothelastdoseoflabouremployedintheproductionofeachcommodity;asaconsequence,theexchangeratiobetweendifferentcommoditiesisequaltotheratiobetweenthequantitiesoflabournecessarytoproduceeachofthem.Weshouldrecall,however,thateacheconomicsubjectwasseenasanisland:ÔlabourdiffersinÞnitelyÕ,Jevons(1871,p.187)said,betweenoneeconomicagentandanother,intermsofqualityandefÞciency;fur-thermore,differentindividualsmayhavedifferentevaluationsofthepainintrinsictothesamedoseoflabour.Forthesereasons,labourcannotbethecauseortheoriginofvalue.Alsowhenintroducingthenotionofcapital,Jevonswasinclinedtoclearlydistinguishitfromaccumulatedlabour.AccordingtoJevons,infact,capitalisnotaccumulatedlabour,astheclassicaleconomistscon-sideredit:Ôcapital[…]consistsmerelyintheaggregateofthosecommoditieswhicharerequiredforsustaininglabourersofanykindorclassengagedinworkÕ;thus,ÔCapitalsimplyallowsustoexpendlabourinadvanceÕ(ibid.,pp.226Ð7;italicsintheoriginal).JevonsintroduceshereadistinctionÔbetweentheamountofcapitalinvestedandtheamountofinvestmentofcapital.TheÞrstisaquantityofonedimensiononlyÐthequantityofcapital;thesec-ondisaquantityoftwodimensions,namely,thequantityofcapitalandthelengthoftimeduringwhichitremainsinvestedÕ(ibid.,p.229;italicsintheoriginal).AnotionofÔaveragetimeofinvestmentofthewhole

294TheWealthofIdeasamountÕ(ibid.,p.231)isthenobtainedasaratiobetweenthesecondandtheÞrstofthesetwoquantities.Thus,suchanotionforeshadowsB¬ohm-BawerkÕsaverageperiodofproduction(cf.below,11.4),ittoobeingconnectedbyaninverserelationshiptotherateofinterestinsuchawayastoprovidesomesortoftheoryforthedeterminationofademandforcapitalfunctionandhenceforthedeterminationoftheinterestrate.However,suchatheorycannotholdinaworldcharacterisedbyhetero-geneouscapitalgoods,Þxedcapitalandcompoundinterest.26Jevonsisapparentlyunawareofthesecomplications;hisargumentationscanonlyberigorouslyconstructedasreferringtoaone-commodityworld.Whatmustmatterforhim,itseems,isthathisnotionofcapitalwasdeÞnedinsuchawaythatitcouldbereferredtotheisolatedindividualaswellastosocietyasawhole.AccordingtoJevons(ibid.,p.229),indeed,divisionoflabourandexchangeswereÔirrelevantcomplicationsÕ,whichcouldnotsubstantiallymodifyhistheoryofvalue,basedonindividualchoices.Asfornaturalresources,thesewereconsideredanexternalconstraintontheconditionsinwhichthechoiceoftheeconomicsubjecttakesplace.TheirtreatmentfollowedthelineoftheÔRicardianÕtheoryofdifferentialrent.JevonsÕstheoryofvaluethuspresentedprofounddifferencesincompar-isontotheapproachofclassicaleconomistslikeSmith,RicardoorMarx,especiallybecauseitwasatheoryofindividualchoicesratherthanatheoryconcerningtheconnectionsamongdifferentsectorsofasocietybasedonthedivisionoflabour.Atthesametime,however,itdisplayedanimpor-tantanalogywiththelatter,aswellaswiththesubsequentMarshalliantheory,becauseitconnectedvaluetotheÔrealcostÕrequiredtoobtainagivencommodity,eveniftheÔrealcostÕwasmeantasdisutilityratherthanaslabourtime.6.PhilipHenryWicksteedandFrancisYsidroEdgeworthFollowingapathnoticeablydifferentfromMarshallÕs,frontaloppositiontotheclassicalapproachwastobedevelopedbyPhilipHenryWicksteed(1844Ð1927),describedbySraffa(1960,p.v),signiÞcantlyenough,asÔthepuristofmarginaltheoryÕ.AUnitarianministerbetween1867and1897,thenafreelancewriterandlecturer,WicksteedhadasolidclassiccultureandwasknownasascholarofDanteandThomasAquinas,GreektragedyandAristotle.InitiallyafollowerofHenryGeorgeÕslandnation-alisationschemes,onreadingJevonshebecameÔJevonsÕsonlydiscipleÕ26OnJevonsÕstheoryofcapitalanddistribution,andontheanalyticaldifÞcultiesintrinsictoit,cf.Steedman1972.

Themarginalistrevolution:thesubjectivetheoryofvalue295(Steedman1987,p.915).Herewewillbrießyrecallthreeaspectsofhiseconomiccontributions:hispurismwithinthemarginalistapproach,hismarginalisttheoryofdistributionandhiscritiqueofMarxÕstheory.First,WicksteedÔthepuristÕ:inhismaincontribution,the700pages-longbookonThecommonsenseofpoliticaleconomy(1910),hetooktoitslogicalconsequencethesubjectiveapproach,applyingittoallÞeldsofhumanactivityandconceivingthetheoryofvalueasoneofindividualchoices.Inotherterms,heconnectedvaluetotheÔopportunitycostÕofeachgood:namely,tothefactthat,inthepresenceofscarceresources,toobtainutilityalongacertainroad(byproducingandconsumingagivengood)impliesforgoingobtainingutilityinsomeotherway(producingandconsumingsomeothergood).Indeed,ÔÒcostofproductionÓ[…]issimplyandsolelyÒthemarginalsigniÞcanceofsomethingelseÓÕ(Wick-steed1910,p.382).Thus,thesupplycurveforanycommodityisinfactnothingelsebutareversedemandcurveÐthedemandcurveforthesetofallothercommodities.Alongtheselines,WicksteedexplicitlycriticisestheÔrealcostÕapproachproposedbyMarshallandhisschool:Ôutility[…]isthesoleandultimatedeterminantofallexchangevaluesÕ(ibid.,p.392).Interpersonalcomparisonsofutilityarerejected;WicksteedÕsleaningtowardsegalitarianismismoreamatterofethicsthanofeco-nomicanalysis.Second,thetheoryofdistribution:amongWicksteedÕsotherwritings,Anessayontheco-ordinationofthelawsofdistribution(1894)hasbeencon-sideredoneoftheÞrstorganicillustrationsofthemarginalisttheoryofthewagerate,theproÞtrateandrentbasedonthemarginalproductivityoftheÔfactorsofproductionÕ,labour,capitalandland.Wicksteedtookintoaccounttheissueofexhaustionoftheproduct,whichisonlyguaranteedunderconstantreturnstoscale(onthispoint,asonClarkÕsindependentcontribution,cf.below,13.7).LetusaddthatWicksteedÕsanalysisshouldbeconsideredanearlyexampleofpartialequilibriummarginalisttheory,sinceinputsuppliesaretakenasgiven(Steedman1992,p.35).Third,hiscritiqueofMarxÕstheoryofvalue(alreadyhintedatabove,9.9):inhisÞrstcontributiononeconomicissues,areviewofDasKapital(Wicksteed1884),heremarkedthatitisÔabstractutilityÕ,andnotÔabstractlabourÕ,thecommonelementforgoodswhicharetheobjectofexchangeacts,sincethesecanbebothreproducibleandnon-reproduciblegoods.Itisthenacomparisonof(marginal)ÔabstractutilitiesÕwhichdeterminesexchangeratiosbetweengoodsinexchange;inthecaseofreproduciblegoods,andwithsomeadditionalassumptions,exchangeratiosmayturnouttobeequaltotheratiooflabourvalues,butthisisduetothefactthatÔlabourwillbesoallocatedastoproducethosequanti-tiesofthecommoditieswhichimplymarginalutilitiesproportionaltothe

296TheWealthofIdeasgivenlabourcostsÕ(Steedman1987,p.916).ThiskindofallocationdoesnotholdinthecaseoftheproductionofÔlabour-forceÕ,sothatMarxÕstheoryofexploitationdoesnotholdeither.Anotherconvincedutilitarian,whoworkedalongsideJevonsinbuild-ingtheanalyticalfoundationsofthemarginalistapproach,wasFrancisYsidroEdgeworth(1845Ð1926),authorofavolumeofMathematicalpsy-chics(1881)andnumerousarticles,collectedinthreevolumesin1925underthetitleofPapersrelatingtopoliticaleconomy.HismaintheoreticalcontributionconcernedtheÔcontractcurveÕ,illustratedforthecaseoftwoindividualsandtwocommoditiesavailableingivenquantities,anddeÞnedasthesetofallocationsofthetwocommoditiesamongthetwoindividualswhichcouldnotbemodiÞedwithoutworseningtheconditionofatleastoneofthetwoindividuals.27EdgeworththusanticipatedthenotionofÔParetooptimalityÕ;furthermore,inbuildingthecontractcurveheutilisedcontourlinestorepresentpreferences,christeningthemwiththenamewhichhassincebecomefamiliar:ÔindifferencecurvesÕ.Withrespecttothesecurves,wealsoowetoEdgeworthexplicitintroductionoftheassumptionofconvexitytowardstheoriginoftheCartesianaxes(anddemonstrationthatthisassumption,whilestemmingfromthepos-tulateofdecreasingmarginalutility,isnotnecessarilyimplicitinit).InhisanalysisEdgeworthbeganwiththecaseofbilateralmonopolytogoontocompetition,anddemonstratedthattheindeterminacyofequilibriuminthecaseoftwoparticipantsintheexchangerecedeswhenthenumberofeconomicagentsparticipatingintheexchangeincreases.AsholderoftheDrummondchairatOxfordfrom1891to1922andaseditorandthenco-editor(withKeynes)oftheEconomicJournalsinceitsfoundationin1891uptohisdeath,Edgeworthplayedanimportantroleintheprofessionalisationofeconomicsandtherisetodominanceofthenewtheoriesofvalueanddistribution.However,theextremelyconvolutedstyleofhiswritings,togetherwithhisproverbialreservednessandmodesty,madehisroleappeardecidedlysubordinatetothatofAlfredMarshall,thegreatacademicleaderofEnglandinthosetimes,whomwewilldiscussbelow(ch.13).27ForillustrationofEdgeworthÕstheory,cf.Niehans1990,pp.279Ð86.

11TheAustrianschoolanditsneighbourhood1.CarlMenger1ThefounderoftheÔAustrianschoolÕwasborninPoland,thenpartoftheAustro-Hungarianempire,in1840.HeattendeduniversityinViennaandPrague,andwentontotakehisdoctorateinCracow.HisÞrstjobwasasajournalist,andby1871,whenhepublishedthebookheoweshisfameto,thePrinciplesofpoliticaleconomy,hehadbecomeacivilservant.Thankstothisbookhehadarapidacademiccareer,obtainingtheHabilitation(thequaliÞcationtoteach)andateachingappointment(Privatdozent),andby1873hewasalreadyprofessor.In1876Ð8hewasmadetutortoCrownPrinceRudolfofAustria,andfrom1878to1903heheldthechairofpoliticaleconomyattheUniversityofVienna.Untilhisdeath,in1921,heworkedonasecondeditionofhisPrinciples,whichwaspublishedposthumouslybyhissonKarlin1923.2ThePrinciplesofpoliticaleconomyarehardlywhatamodernreaderwouldexpectofakeytextforthemarginalistapproach,andthedif-ferencestoJevonsandWalrasaresigniÞcant.3Mengerhadstudiedlaw,which,inthecontinentalEuropeantradition,impliedanapproachwithastrongemphasisonhistoryandgreatpainstakenoverthedeÞnition/illustrationofconcepts,oftenprovingpedanticandprolix.MengerthusappearedquitedistantfromtheprojectÐsharedbyJevonsandWalrasÐtoconstructeconomictheoryasaquantitativescience,tobedevelopedinmathematicalterms.Notonlywashistextdevoidofmathematicalformu-las,butonvariousÐalbeitinformalÐoccasionsMengermadenosecret1RenewedinterestinMengeremergedrecently,thanksalsototheavailabilityofhispapers,depositedin1985atDukeUniversity:cf.Barnett1990.OnMenger,cf.Streissler1973,theessayscollectedinCaldwell1990,especiallytheessaybyStreissler1990a,Alter1990,andthebibliographygiventhere.2ThesecondeditiondiffersfromtheÞrstoneinimportantrespects;Iamawareofnosystematicanalysisofthechanges,whichmightproveveryinteresting.3Mengerhimselfwasawareofsuchdifferences:seehislettertoWalrasofFebruary1884,inWalras1965a,vol.2,pp.2Ð6.OnmanyaccountsMengerÕspupils,particularlyB¬ohm-Bawerk,appeartohavesigniÞcantlyreducedthedistancefromtheÔLausanneschoolÕ:seeB¬ohm-BawerkÕslettersinWalras1965a.297

298TheWealthofIdeasofhisprofoundscepticismregardingtheuseofmathematicaltools.4Hisaimwas,rather,toconstructatheorytranscendingsimpledescriptionofeconomicphenomenawhileretainingstronglinkswithempiricalreality.Itisworthnoting,alsointhelightofthedebateonmethodofthe1880s,thathisPrincipleshadbeendedicatedtoWilhelmRoscher(1817Ð94),oneoftheleadingexponentsoftheÔoldÕGermanhistoricalschool.Moreover,MengerÕssubjectivismintheÞeldofvaluetheory,unlikeJevonsÕs,owedlittleornothingtoutilitarianconcepts.Rather,thetraditionthatMengersettledintowasthatofAustro-Germanuniversities,whereasubjectiveapproachtoatheoryofvaluebasedoncomparisonbetweensupplyanddemand,valueinuseandscarcity,wasverymuchtherule.ThistraditionhaditsrootsinmedievalScholasticdoctrines(cf.above,2.4),andhaddominatedGermanuniversitiesintheÞftyyearsprecedingpublicationofMengerÕsbook,withKarlHeinrichRau(1792Ð1870)atHeidelberg,FriedrichB.W.Hermann(1795Ð1868)inMunich,andRoscherinLeipzig.5ThelatterÕstextbookonpoliticaleconomy,publishedin1854,wasthemostwidelyutilisedinGermanuniversities(withtwenty-sixeditionsupto1922)atthetimeMengerstartedhiscareer.TheapproachimpliedsystematicrejectionofRicardianlabour-valuetheory,butnotofthetheoryofdifferentialrentortheSmithiantheoryofthegrowthoftheÔwealthofnationsÕassociatedwiththedivisionoflabour.MengerÕsPrinciplesthusfollowedthetraditionofthegreatGermantextbooks,takingontheirstructure:extensivediscussionofgoodsandneedsleduptothetheoryofvalue,exchangeandprice,afterwhichattentionturnedtotopicssuchasdistribution,developmentandmoney.6Menger,too,openedhistextwithmeticulousillustrationofthefunda-mentalnotionsofgoodsandeconomicgoods.Theobjectiveofeconomictheorywas,heasserted,toanalysethecausalrelationsbetweengoodsandhumanvalues;signiÞcantly,whileJevonsstatedhisconcernforaspeciÞcaspectofhumanactivity,relatingtothesatisfactionofneedsofthelowestlevel(cf.above,10.4),andWalrasdeclaredhissubjectmattertobeaneconomiclifewhichÔbyitsverynature,isobviouslypassiveandlimits4MengerÕsdifÞdencetowardsmathematicswasmadeexplicitinan1889review(intheWienerZeitungof8March)ofaworkbyAuspitzandLieben,Untersuchungen¬uberdieTheoriedesPreises(1889),andmaybeascribedtohisadhesiontotheepistemologyofintuitionism:mathematics,beingadeductivescience,cannotcontributetoourunder-standingofeconomicphenomena.Cf.Alter1990,pp.15,85,91,95.5AswasshownbyStreissler1990a.6Streissler1990a,p.51,reconstructedthestructureofatypicalGermanmanualofthetime,andshowedthatthestructureofMarshallÕsPrinciplesofeconomicspracticallycoin-cideswithit.Curiously,anechoofthestructurecanstillbeperceivedtodayintheeconomicssyllabusesofItaliansecondary(technicalandprofessional)schools.

TheAustrianschoolanditsneighbourhood299itselftoadapttonaturalandsocialinßuencesactingoveritÕ,7MengerdeÞnedeconomicactivityasasearchforknowledgeandpower.ThiswasinfactoneofthemostinnovativeaspectsofMengerÕstext,markingarealdeparturefromtheprevioustradition.Weshallbereturn-ingtoitlateron.AnothersigniÞcantelementwashisinterestintheinter-relationsbetweenthedifferentgoodswithintheeconomicsystem,whichsawMengeradvancingbeyondthetraditionaltendency(againdatingbacktoScholasticthought)toconsidertheformationofvalue,orprice,ofeachgoodinisolation.Letusnowseetheplacetheseelementsfoundinhisargumentation.MengerÕssubjectivismwasindeedradical,hisanalysisstartingfromtheevaluationthateachindividualmakesofhisownsituation8Ðhencealsohismethodologicalindividualism.Thus,accordingtoMenger,valueisgivenbythewayhumanbeingsassessthevaryingimportanceoftheirvariousneeds,andthesuitabilityofthedifferentgoodstosatisfysuchneeds.ThevalueofeachgoodorservicewasdeducedfromtheagentÕsevaluationonitsÞtnesstosatisfysomeneed.9Moreprecisely,thedifferentneedswereclassiÞedinorderofimportance,anditwasassumedthattheintensityofeachprogressivelydecreasedwhenitwassatisÞed;acertaindegreeofsatisfactionhadtobereachedforthemostpressingneedbeforetacklingtheimmediatelysuccessiveoneinorderofimportance.107Atleast,thisiswhatSchumpeter,intheprefacetotheJapaneseeditionofhisTheoryofeconomicdevelopment,saidwasthecommonopinion,conÞrmedbyWalrasinaprivateconversationwithhim(Schumpeter1912,prefacetotheJapaneseedition,translatedintheItalian1971edition,p.xlvii).8Spiegel(1971,p.531)referredtoapossibleinßuenceofGermanidealism:whileitÔinterpretedthephenomenaoftheexternalworldascreationsofthehumanmindÕ,thesubjectivetheoryofvalueÔderivedeconomicvaluefrommanÕsstateofmindÕ.WeshouldalsorecallthattheindividualÕsevaluationstakeplaceinconditionsofuncertaintyand(severely)limitedknowledge:MengerÕsagentisquitedifferentinthisrespectfromthelatermainstreamnotionoftherationaleconomicagent.9LetusrecallthataccordingtoMengervaluehadtodowiththeessence,andpricewiththephenomenicmanifestation,ofeconomicactivity:adistinctionwhichhadsomeafÞnitywithMarxÕs,andwhichwasconverselyabsentfromWalrasÕsFrenchapproachorfromtheAnglo-SaxonlinefollowedbyJevonsorMarshall.10Incontrasttowhathappensinthecanonicalmarginalisttheoryoftheconsumer,wheresubstitutabilityamonggoodsplaysacentralrole,Mengerdidnotadmitsubstitutabilityamongneeds(thatis,thepossibilitythatalowerdegreeofsatisfactionofaneedbecompensatedbyahigherdegreeofsatisfactionofsomeotherneed,leavingthesituationoftheconsumerunchanged).AccordingtoAlter1990,ch.3,thisfactdeterminesalexi-cographicorderingofpreferences,whichinturngivesrisetoinsurmountabledifÞcultiesfortheÔtransformationofvaluesintopricesÕintheframeworkofMengerÕstheory(thatis,fortransitionfromatheorytakingthestandpointoftheeconomicagentÐhisevaluationofneedsandoftheÞtnessofgoodstosatisfythemÐtoatheorytakingthestandpointofthescientist,whotriestounderstandthefunctioningoftheeconomicsystemandthus,amongotherthings,theexchangeratiosbetweendifferentgoods).

300TheWealthofIdeasThedeterminationofvaluethenrequiredthat,alongwiththevalueinuseofthegoods,theirscarcitybetakenintoaccount.Scarcitydeter-minedthemeasureinwhichneedscouldbesatisÞed,andtheirevaluationdidnotthereforeconcerntheabsoluteimportanceofeachneed,butitsimportanceÔatthemarginÕ.Thisevaluationwasmadedirectlyinthecaseofconsumptiongoods(ÔgoodsoftheÞrstorderÕ)andindirectlyinthecaseofproductiongoods(Ôgoodsofthesecond,third,etc.orderÕ).Inthelattercase,infact,themeansofproductionwasÔimputedÕwithpartofthevaluethattheproducedgoodheldfortheconsumer,thispor-tionbeingcomputedinproportionto(theentrepreneursÕevaluationof)thecontributionmadebythegoodorservicetotheproductiveprocess(hencethenameÔimputationtheoryÕ).11Clearly,thiswasaviewoftheeconomicsystemthatattributedtheroleofprimummovenstotheconsumer.Theideaoftheconsumerassovereignhadatthesametimeanormativeandadescriptivecontent,thusimplyingajustiÞcationforeconomicliberalism,inthesenseofÔleavingittothemarketÕ.12ThesubjectiveviewofvalueinuseproposedbyMengerdepartedfromthedominantlinefollowedbyGermaneconomistsofthetime,seekingobjectivefoundationsforthemeasurementofusevalues.TouseBernardinefromSienaÕsterminology(cf.above,2.5),wemightsaythatMengerfocusedonthegoodsÕcomplacibilitas(thatis,ontheircorrespon-dencetotheindividualusersÕpreferences),whiletheGermantraditionofthetimelookedtotheirvirtuositas(capacitytosatisfyhumanneeds).Infact,Mengersoughtacompromisebetweenthesetwoaspectsbasedonthesimultaneouspresenceoftwoelements:thesubjectiveevaluationofownneedsonthepartofeachindividual,andtheobjectivecapac-ityofthegoodstosatisfysuchneeds.Asitturnedout,itwas,however,thesubjectiveelementthatprevailed.13Finally,weshouldstressthat,possiblyinordertomarkhisdistancingfromutilitarianism,Menger11Heretoo,throughentrepreneursÕevaluationsontheprospectiveroleofinputs,thesub-jectivistperspectiveisreafÞrmed.Asaconsequence,somecommentatorsargue,atleastinitsMengerianformulationÔtheAustrianversionofmarginalismisnoteasilycapturedbyequilibriumconstructionsÕ(Horwitz2003,p.269).Theanalyticalstructureofthesubjectiveapproach,basedonutilityandscarcity,needstheequilibriumnotionandattributestoitacentralroleÐaswillbeshownbysubsequentdevelopmentsevenwithintheAustrianschool,inparticularwithB¬ohm-Bawerk.12ForevaluationofMengerÕseconomicliberalism,hislecturestoCrownPrinceRudolf,nowdepositedamonghispapersatDukeUniversity,areuseful.Cf.Streissler1990b,1994.Mengerstressedamongotherthingsthenegativeeffectsofpublicinterventiononthespiritofinitiativeandself-sufÞciencyofeconomicagents.13Despitetheintuitiveconnectionbetweenneedsandtheusevaluesofgoods,MengerÕssubjectivismdistinguisheshisapproachfromthemoderntheoryofconsumptionbasedonthedemandforcharacteristics,developedbyLancaster1971.

TheAustrianschoolanditsneighbourhood301avoidedthetermÔutilityÕ,preferringtospeakoftheÔimportanceofsatisfactionsÕ.InhisanalysisofthevalueofexchangeÐwhich,aspointedoutabove,remainedonadiscursivelevelÐMengerstartedfromthecaseoftwogoodsandtwopartiestotheexchange,orbilateralmonopoly.14Inthiscasethereisarangeofvaluescompatiblewithrealisationoftheactofexchangecomingbetweenthetwoextremesatwhichoneofthetwopartieslosesinterestintheexchange.Ingeneral,then,Mengersawtheexchangeasamatterofunequalvalues15implyinganadvantageforbothparticipants.Mengeroutlined,butdidnotfullydevelop,generalisationofthisanal-ysistocasesofmorethantwogoodsandtwopartiestotheexchange.Infact,hisanalysiswasseriouslyßawedbyhisrefusaltoapplymathematicaltools,fallingfarshortoftheanalysesproducedbyotherauthorsofthetime,orevenofearliertimes.Hisoriginalcontributionistobefoundelsewhere,intheattempttodelineateaconceptualframeworksuchaswouldallowthetheoreticiantokeepaccountofcrucialaspectsoftherealworld.Amongsuchaspects,acentralrolewasoccupiedbythelimitsofhumanknowledgeandtheuncertaintyconsequentiallysurroundingthedecisionsofeconomicagents.Moreover,Mengerstressedtheroleofthemarket(andingeneralofeconomicinterrelations)infavouringsubjectiveevaluationsofthesituationandthediffusionoffactualdata.However,itproveddifÞculttorelatethesedatatomathematicalanalysesofvaluewithinthesubjectiveapproach,basedonarestrictiveviewofhomooeconomicusandthetechniquesofconstrainedmaximisation.Asaconsequence,elementsofconceptualanalysiscentraltoMengerÕscontri-butionweretacitlydisregardedintheÔmarginalistvulgataÕwhichcametodominateuniversitiesworldwidefromtheearlydecadesofthetwentiethcentury.UnlikeJevonsorWalras,asmentionedabove,Mengerdidnotassumeutilityfunctionstobemaximisedunderbudgetconstraints;valuedidnotdependonobjectiveelementsorthesystematic,sufÞcientlystable,preferencesofeconomicagents:rather,itdependedonthesubjective14TheroleattributedbyMengerinhisanalysistothemonopolisticmarketformcontrastswiththedominanceofperfectcompetitionintheanalysesbyhispupils,WieserandB¬ohm-Bawerk,whocamecloserinthisrespecttotheapproachesoftheFrenchandAnglo-Saxonmarginalisttheoreticians.15Herethedifferencesurfacedwiththeclassicalapproach,whichexpressedwithvaluetheÔdifÞcultyofproductionÕ,andthusconsideredexchangeofequalvaluestheruleincompetitiveconditions.MarxinparticularinsistedonthefactthatexchangeofequalvaluescorrespondstotheÔcriterionofjusticeÕofacapitalisticsociety.Theideaoftheexchangeofunequalvalueshas,inanycase,animportanttraditionwithinthesubjectivistapproachtovalue,goingbackasfarastheScholasticperiodandClassicalantiquity.

302TheWealthofIdeasevaluationspeoplemadeoftheirneedsandthewaytosatisfythem,andsuchevaluationscouldchangeinunexpectedways.16Althoughhedevelopedasubjectiveviewofvalue,MengerappearedmoreinterestedinÔdynamicÕaspects(inthegenericmeaningofchange,andnotasinmoderngrowththeory),likethestudyofhowgoodstoutcourtbecomeeconomicgoods,therelatedissueoftheoriginaldevelopmentofprivatepropertyand,aboveall,theactivewayeconomicagentssetouttoincreasetheirknowledgeandconsequentlymodifytheirpreferences.Inthiscon-text,Mengerstressedtheelementsofinequality,irreversibilityandgainsfromexchange.Wemightsay,infact,thatwhileheappliedthenotionofequilibriumtothechoicesoftheindividualeconomicagent,theambitinwhicheconomicactivitytookplace(limitedknowledge,learning)ren-deredthecoordinationofsuchchoicesaverycomplexprocessindeed,sothatthenotionofequilibriumproveddifÞculttoapplytotheeconomicsystemasawhole.Similarly,Mengerstressedtheexistenceoftransactioncosts,practicallyignoredinthetraditionoftheLausanneschool,andthusthetheoreti-calandnotonlypracticalimportanceofelementssuchasknowledgeanddistance.Hencetheroleattributedtotheintermediaries,whohelptheeconomicagentstowardsfullerknowledgeandbetterorganisationofthemarket,andtheroleattributedtomoney,consideredthemosteasilytradableofallcommodities.FromhereweÞnallycometoMengerÕscon-ceptionoftheprocessofcivilisationitself,identiÞedwiththereductionofignoranceanddevelopmentofinstitutionsthathelphumanbeingsgettogripswithanuncertainfuture.Institutionssuchasmoney,butalsothemarketandthedivisionoflabour,wereexplainedÐinaccordancewithmethodologicalindividualismÐasundesiredeffectsofindividualunco-ordinatedchoices,which,however,inthecourseoftimearemodiÞedasaconsequenceoflearningprocessesinresponsetotheexperiencegradu-allyacquired.Onthewhole,Mengerhadanoptimisticviewofeconomicprogress,decidedlyclosertoSmiththantoMalthusÕsEssayonpopulation;asinSmith,progresswasrelatedtoimprovementsinthedivisionoflabourandtocapitalaccumulation.1716ClosertothecanonicalrepresentationofthemarginalistapproachweÞndanotherGermanauthor,HansK.E.vonMangoldt(1824Ð68),withhis1863universitytextbook:Streissler(1990a,pp.53Ð5)recallshistheoryofprices,Ôfullofdemandandsupplydia-grams,diminishingmarginalutilityasareasonforthefallingdemandcurve,substitutionandcomplementarityofcommodities,andevenadiscussionofthequestionwhethermarketequilibriumwillbeuniqueÕ.17MengermadereferencetoMalthuswithregardtothenotionofeconomicgoodandvaluetheory,butnottohisÔprincipleofpopulationÕ.MengerÕstheoryofeconomicprogresswasillustratedin6ofch.IVofhisPrinciples,2ndedn.Alongwithimprovementintech-nologicalknowledge,Mengerrepeatedlystressedasafactorforprogressimprovement

TheAustrianschoolanditsneighbourhood3032.TheÔMethodenstreitÕHistoricismiscommonlyseenasrebellionagainsttherationalismoftheEnlightenment,andhadmuchtodowiththethennewbornnationalisticspiritparticularlystronginGermany.Indeed,byextollingthespeciÞcnatureofeachconcretehistoricalsituation,historicismopposeduniver-salism,ortheclaimthatitispossibletoderive,fromafewgeneralprinci-ples,rulesendowedwithvalidityatalltimesandinallplaces.Outstand-ingamongthefathersofGermanhistoricismwasthephilosopherGeorgWilhelmFriedricHegel(1770Ð1831),whileinthespeciÞcallyeconomicÞeld,inthesamegenerationasHegel,wemaymentionAdamM¬uller(1779Ð1829),afolloweroftheBritishToryEdmundBurke(1729Ð97)andsupporterofanÔeconomicromanticismÕthatcalledforrevivalofthecorporativestateandothermedievalinstitutions,butalsoadvocatedtheabsolutestate.NotmuchyoungerwasFriedrichList,whoseeconomicnationalismmeantamongotherthingsthedefenceofcustomsduties(aswesawabove,in7.6)asameanstohelpinfantindustriesincountrieslaggingbehindintheprocessofindustrialisation.TheÔoldGermanhistoricalschoolÕßourishedinthedecadeof1843Ð53,whenthemajorcontributionsbyRoscher,BrunoHildebrand(1812Ð78)andKarlKnies(1821Ð98)werepublished.Roscher,aprofes-sorattheUniversityofLeipzigforaperiodofforty-sixyearsand,aswehaveseen,authorofaninßuentialtextbook,deÞnedpoliticaleconomyasthesciencewhichstudiesthenaturallawsofeconomicdevelopment,withoutimplyingoppositiontotheapproachofclassicaleconomistslikeAdamSmith.HildebrandandKnies,activeliberals,bothdriventoexileinSwitzerlandforafewyears,weresubsequentlyprofessorsrespectivelyintheUniversityofJenaandtheUniversitiesofFreiburgandHeidel-berg.Supportersofstatisticalenquiry,theyconsideredtheÔeconomiclawsÕdeducedfromempiricalenquirytobehistoricallyrelative.Aspointedoutabove,Mengersawnooppositionbetweenhistheoret-icalcontributionandtheapproachoftheÔoldÕGermanhistoricalschool.Totheeyesofacontemporaryeconomist,indeed,theverystructureofMengerÕsPrinciplesmayappeartobepermeatedwithhistoricism.How-ever,withtransitiontoanewgenerationmoreradicalviewsemerged.TheÔnewhistoricalschoolÕledbyGustavvonSchmoller(1837Ð1917),whodominatedtheGermanacademicscenefromhischairinBerlinintheknowledgeofneedsandhowtheeconomicgoodsavailablecansatisfythem.TheÔprincipleofthemarginalproductivityofcapitalÕwhichMengerreferredtoattheendofthechaptermentionedabovemaybeinterpretedasanaxiominthetheoryofchoice:inthepresenceofapositiveinterestrate,amoreÔindirectÕtechniquemustbemoreproductive,otherwiseitwouldnotbeutilised(cf.Streissler1973,p.170).

304TheWealthofIdeas(heldfrom1882untilretirementin1913),wascharacterisedbyamoredecidedoppositiontoabstracttheoreticaldeductions.Furthermore,thepossibilityofdistinctionbetweenpoliticaleconomyandpolitics,lawsandinstitutions,andcustoms,wasdenied.18Followersofthenewhistoricalschoollookedonpoliticaleconomyasanessentiallyempiricalscience.Aprioriassumptionsanddeductiverea-soningweretoberejected,untiladegreeofknowledgewasreachedsufÞ-cienttoconstituteasolidbasisforthegeneralisationsthroughwhichtheabstractassumptionswereobtainedtoconstitutethenecessarystartingpointforeconomictheory.ThusnoteventheÔnewGermanhistoricalschoolÕrejectedapriorithedeductivetechniquesofeconomictheory.ThethesisdefendedwithÞercecertaintywasthatabstracttheoryhadÐintheconcretesituationofthetimeÐinsufÞcientfoundations,andwasthereforeatotteringbuilding,toescapefrombeforeitcollapsed.Theaimofthehistoricalschoolwaspreciselytoprovidesuchfoundationsthroughsystematicanalysisbasedoncoordinatedempiricalinvestiga-tions.Tothisend,in1873theÔVereinf¬urSozialpolitikÕwasfounded,andworkpromptlybeganonthesystematiccollectionofdataonthemostdiverseaspectsofeconomicreality.19Moreover,theÔVereinÕgeneratedamovementtowardssocialreformpolicieswhichwaschristenedÔsocialismofthechairÕÐasortofÔsocialismfromaboveÕ,wherebythehighbureau-cracyoftheHohenzollernempire,ChancellorBismarckinparticular,triedtoappeasetheworkingclasses,thusisolatingtherisingbourgeoisie,18Inthisrespect,theGermanhistoricalschoolexertedsigniÞcantinßuenceontheso-calledinstitutionalistschool,stillalivetoday,aboveallintheUnitedStates,whereitsmainrepresentativewasThornsteinVeblen(cf.below,13.8).Amongthecontempo-rariesofRoscherÕsÞrstGermanhistoricalschoolinEnglandwereRichardJonesandCliffeLeslie,alreadyreferredtoabove.TothemweshouldaddtheIrisheconomistJohnK.Ingram(1823Ð1907),whoseAhistoryofpoliticaleconomy(1888)wastranslatedintovariouslanguages.Moregenerally,theBritishcultureofthetimerespondedtotheinßuenceofthebiologicalevolutionismofCharlesDarwin(1809Ð82;hisOriginofspecieswaspublishedin1859)anditsextensiontohumansocietybytheindividualistphilosopherHerbertSpencer(1820Ð1903).InItaly,extremeeconomicliberalssuchasFrancescoFerrara(1810Ð1900;cf.Faucci1995)werefollowedbythesupportersofalessrigidapproach(suchasAugustoGraziani,1865Ð1944),butthisopposition,ratherthanmirroringthecontrastbetweenMengerandSchmoller,resentedtheinßuenceofFrenchandAnglo-Saxonculture,ontheonehand,withreferencetoAdamSmithandthestudyofSayÕstext,andontheotherhandtheinßuenceoftheGermanlawschooland,intheeconomicÞeld,ofRoscherÕsmoderatehistoricism.19Schumpeter(1954,pp.803Ð4)attributedimportancetoanumberofempiricalstudiescarriedoutintheÔVereinÕ,althoughcriticisingtheiranti-theoreticalattitude.OutsidetheÔVereinÕ,wemayclassifyasbelongingtothesameculturalframeworktheinvestigationsbyErnstEngel(1821Ð96),directorofthePrussianstatisticalinstitute,intothedifferencesinconsumptionstructuresatdifferentincomelevels(theso-calledÔEngelÕslawÕ,oneofthestrongestempiricalregularities,whichstatedthattheshareoffoodconsumptioninafamilyÕstotalexpendituredecreaseswhenincomeincreases).

TheAustrianschoolanditsneighbourhood305byadoptionofsocialinsurancepolicieswhichinfactrepresentedtheÞrstexperimentofaÔwelfarestateÕ.20In1883MengerpublishedEnquiriesonthemethodofeconomicscience,areviewofSchmoller,andin1884apamphlet,TheerrorsofhistoricisminGermanpoliticaleconomy,writtenintheformofsixteenletterstoafriend.Theseworksmarkedthebeginningofaharshclash,perhapstheÞrstclashbetweenrivalacademicschoolsinwhichtheideologicalconßictwasexacerbatedbythestruggleforbaronialpowerwithinuniversities.21InaclashofthekinditwasnotenoughtopersuadereadersthatoneÕsownthesesweresound,butitwasalsonecessarytoshowtheerroneousnessÐindeedthetotalabsurdityÐoftherivalÕstheses.Thisimpliedstretching,oftenactuallydistorting,theopponentÕsviewswhileillustratingthem,searchingouttheweakpointsratherthanaddressingandassimilatingthepointsofstrength,andtheveryreasonfortheexistenceoftherivalapproach.IntheMethodenstreitnoneoftheparticipantswasimmunefromthesedefects,andthedefeatofthehistoricalschoolintherhetoricalcon-frontationformanyyearsobscuredtheimportanceofanapproachthattiedintheoreticalworkwithhistoricalresearch,whichMengerhimselfhadendeavouredtopractise.Mengerdistinguishedthreecomponentsofpoliticaleconomy:thehistorical-statisticalaspect,theoryandeconomicpolicy.22Theoryinpar-ticularwasattributedwithaspecialrole,andMengerproposedacausal-geneticapproach,whichconsistedinstartingfromthesimplestelementstoarriveatenquiryintothecompositelaws.Thuspoliticaleconomyarrivedatexactlaws,buttheyonlyconcernedasubsetofhumanactions;MengerinsistedinparticularonthefactthatthenotionofeconomicmanwasaÞctitiousconstruction.Hetoo,however,stressedtheimpor-tanceofacloseconnectionbetweentheoryandreality,guaranteedbythefactthattheassumptionsatthebasisofthetheorywereconsidereddataknownfromdirectexperience,andhencetruewithnoneedforempiricalveriÞcation:forMengertheintuitionistitwasindeedtheveryessenceofeconomicrealitythatmanifesteditselfdirectlyintheeconomistsÕreßec-tions,fromwhichhededucedthenatureandcharacteristicsofeconomicphenomena.2320Cf.Maddison1984.21Ithasbeenmaintained(forinstancebyAlter1990,pp.83Ð4)thatMengerwasirritatedbywhatheconsideredafailuretorecognisethevalueofhisworkonthepartofRoscherandhisschool.However,briefandsuperÞcialastheymaybe,RoscherÕsreferencestoMengerÕsPrinciplescanbeconsideredneithermistakennormalicious.22Asomewhatsimilardistinctionbetweenthecomponentsofeconomicresearchispro-posedbyaheterodoxdiscipleoftheAustrianschool,Schumpeter,intheÞrstchapterofhisHistoryofeconomicanalysis(Schumpeter1954,pp.12Ð24).23OnMengerÕsintuitionism,cf.Alter1990,pp.91ff.

306TheWealthofIdeasTheviewoftheeconomicsystemthusproposedbyMengerwasnotthatofastaticequilibriumbetweensupplyanddemand.WhatMengerdescribedwasthedevelopmentofanorganicorderasaprocessofdis-coveryandaccumulationofnewknowledgethroughimitation,motivatedbyeconomicinterest:anintrinsicallydynamicview,imbuedwithhis-toricism.Oppositiontothehistoricalschooldidnotrevolvearoundanaxiomatictheorylikegeneraleconomicequilibriumasanalternativetoahistoricalapproach,butratherthepossibilityofutilisinganalyticreason-ingtobuildatheoreticalstructuredeclaredlyopentoanevolutionary,dynamicview.ItisthismethodologicalapproachthathelpsustoevaluatetheresultsreachedbytheAustrianschool.Asamatteroffact,whileinprinciplewecannotbutagreewithMengerÕsposition(oncepurgedofrhetoricalovertones)onmethod,andhencetheessential,centralroleofanalyticreasoningineconomictheory,perplexitiesariseÐasweshallseeinmoredetailbelowÐoverthecompatibilitybetweenadynamic,explicitlyevolu-tionary,approachandthemarginalistanalyticstructureonwhichitrests,basedasitwasonthenotion(whichatthetimehadalreadyenjoyedalongtradition)ofequilibriumbetweendemandandsupply.Theveryproblemoftensionbetweenthestageoftheformationofconceptsandthestageofmodel-buildingwhichcharacterisedtheAustrianschool,fromMengertoHayek,arose,asweshallsee,inthecaseofMarshall.Thetensionbetweenadynamicviewoftheeconomyandtheanalyticstructurewas,bycontrast,tolerablewithintheclassicalapproach,wherethenotionofequilibriumwaslessrelevantandwasinanycasebasednotonthecondi-tionofequalitybetweensupplyanddemandbut,rather,ontheconditionofauniformrateofproÞtsinthedifferentsectorsasaconsequenceoftheÔcompetitionofcapitalsÕ.3.MaxWeberTheÔdebateonmethodÕalsoservestopromptafew,briefremarksonsomedevelopmentsnowconsideredexternaltotheÞeldofeconomics,butwhichwereoriginallyconsideredpartoftheeconomistsÕresearchwork.Amongthese,24themostimportantisundoubtedlyrepresented24Letusrecallinthiscontextatleastthreenames.GeorgSimmel(1858Ð1918)studiedthesocialimplicationsofthemonetaryeconomy,amongwhichhestresseddevelopmentofindividualfreedom.WernerSombart(1863Ð1941),professorinBreslawandtheninBerlin,studiedthedevelopmentofcapitalismasbasedonthespiritofenterprise,andanticipatedsomeWeberianthesesconcerningmaturecapitalismandthetransitiontosocialism;healsostressedtheinßuenceofProtestantism,butonworkersÕdisciplineratherthanonentrepreneurs.ArthurSpiethoff(1873Ð1957),professorinBonnfrom

TheAustrianschoolanditsneighbourhood307byMaxWeber.Indeed,whileWeberisnowconsideredthemostfamousamongthesociologists,ifnotthefounderofsociologyasascience(arolecommonlyattributedtoComte),hewasinfacttheholderofachairinpoliticaleconomy,andwasonmanyaccountsclosertotheeconomistsoftheAustrianschoolthantothoseofthehistoricalschool.MaxWeber(1864Ð1920)wasprofessorofpoliticaleconomyÞrstatFreiburgandthenatHeidelberg,andwasconcernedamongotherthingswithstrictlyeconomicissues(suchasthefoundationsofthemarginal-isttheoryofvalue,inareviewdated1908ofabookbyLujoBrentano,1844Ð1931).Healsotookpartinresearchprojectsonagriculturallabourandonthestockexchange.However,hismainworkremainsEconomyandsociety,publishedposthumouslyin1922,whilehisProtestantethicandthespiritofcapitalism(1904Ð5)isalsowidelyknown.25Thecommonthemeofthesewritingsisenquiryintothefactorsthatdeterminetheoriginanddominanceofcertaineconomicbehaviouralpatterns,thusnavigat-ingbetweensociologyandpoliticaleconomyinanareanowcommonlyattributedtotheÞeldofeconomicsociology.WeberisconsideredÔtheMarxofthebourgeoisieÕ:likeMarx,hefocusedoninterpretationofthecapitalisticmodeofproductionanditsprocessofevolution,butunlikeMarx,heheldthatinthehistoricalpro-cessofdevelopmentthemaincausallinkdidnotgofromthematerialconditionsofeconomicreproductiontothesphereofinstitutionsandculture,butratherintheoppositedirection.Thushetriedtodelineatesomegeneralideasontherelationshipsbetweenreligion,thepoliticalandlegalset-up,differentformsoforganisationofeconomicandsociallife.Oneoftheideasconcernedthetransitionfromamarket,competitivecapitalismtoaregulatedcapitalism.Inotherterms,Webersawintheevolutionofcapitalismagiganticprocessofrationalisationconcerningnotonlyeconomicactivitybutsocietyasawhole,onthisbasisdevelop-inghisforecastofaprogressivebureaucratisationofthestateorganisationandtheproductiveprocess,withthegrowthofmiddleranksofclerksandtechniciansÐaforecastthatattributedcrucialimportancetothemiddleclasses,thuscontrastingwiththeprocessofproletarianisationheraldedbyMarx.Theriseofthebureaucracy,withintheÞrmaswithinthestate,1918to1939,wastheauthorofresearchesonthebusinesscyclesandaboveallofthenotionofÔeconomicstylesÕ,eachcharacterisingaspeciÞchistoricalepochandeachrequiringaseparateÔhistoricaltheoryÕ,withthesetofallsuchhistoricaltheoriesconsti-tutinggeneraleconomictheory.25AcriticaleditionofWeberÕswritingsisbeingpublishedinmanyvolumessince1984asMaxWeberGesamtausgabe,withthepublisherJ.C.B.Mohr(PaulSiebeck)ofT¬ubingen.Inparticular,muchnewmaterial(andareorganisationofalreadypublishedmaterial)isbeingmadeavailableinthecriticaleditionofWirtschaftundGesellschaft(Economyandsociety),insixvolumes,threeofwhichhaveappearedbetween1999and2001.

308TheWealthofIdeasimpliesaweakeningofthedynamicroleplayedintheinitialstagebyentrepreneurs,withtheirattitudetowardsrisk-takingandchange(inno-vations)andtowardspersonalresponsibility.Ontheoriginsofcapitalism,WeberalsofollowedaroutedifferentfromMarx,maintainingthatacru-cialrolewastobeattributedtotheassertion,withProtestantism,ofaspeciÞcculturefavourabletoconcreteengagementinsociety(againsttheasceticattitudesofthemedievalCatholicChurchandtheCounter-Reformation).26ForeshadowingSchumpeter(cf.below,15.4),Weberconsideredasworrisometheadventofsocialism(intheMarxianvari-etyofnationalisedmeansofproductionandcentralplanning),sinceitimpliesadrasticincreaseinbureaucratisation,withtheaccompanyingoutcomesofeconomicstagnationandlimitstoindividualliberty.WeberÕsmethodÐwhich,incomparisonwithMarx,distancedhimfromtheBritishclassicaleconomists,andparticularlyfromRicardo,showingtheinßuenceoftheGermanhistorical-juridicaltraditionÐwasbasedonthedeÞnitionofÔidealtypesÕ,orcategoriesabstractedfromcon-cretehistoricalevolution.Conceptualisationwasthedominantphaseinthisapproach,whileconstructionofabstractmodelsbasedonthesecat-egorieswasconductedwithoutrecoursetomathematicaltools,inoppo-sitiontothetrendthencomingtodominatethevariouscurrentsofthemarginalistapproach(althoughlessmarkedlythanelsewherewithintheAustrianschoolÐtheschoolwithwhichWeberwasinclosestcontact).Weberalsofavouredwidepicturesofreality,whereapluralityofinßu-encesonsocialphenomenaandreciprocalrelationsbetweenthemareconsidered.4.EugenvonB¬ohm-BawerkAmongthemostdirectfollowersandcollaboratorsofCarlMenger,weÞndFriedrichvonWieser(1851Ð1926)andEugenvonB¬ohm-Bawerk26InthelineofWeber,cf.Tawney1926.OnMarxÕsideas,againconcerningthetran-sitionfromfeudalismtocapitalism,cf.Dobb1946;however,theissuegaverisetoheatedcontroversiesintheMarxianÞeld:cf.Dobbetal.1954;Brenner1978andthebibliographygiventhere.ForapositionsimilartoWeberÕs,inthattheimportanceoftheculturaldebatefortheevolutionofpoliticalandeconomicinstitutionsisstressed,butdifferentwithrespecttothethesisproposed,sincethedrivingroleisattributedtoScholasticthoughtratherthantoProtestantism,cf.Schumpeter1954,pp.78Ð82,and,morerecently,Chafuen1986.ImportantcriticaldiscussionofWeberÕsandTawneyÕsideasisofferedbyViner(1978,pp.151Ð92),whopointsoutthatvariousauthorsbeforeWeberhadalreadyconnectedthebirthofcapitalismwithProtestantism,andinpartic-ularwiththeroleitattributestodirectstudyoftheBiblebythefaithful(incontrasttothehierarchicalorganisationoftheCatholicChurch),andhencetoeducationandindi-vidualthinking;WeberÕsdistinctivethesisistheimportanceattributedtothedoctrineofpredestinationandtotheideathatsuccessinbusinessisasigndistinguishingtheelect.

TheAustrianschoolanditsneighbourhood309(1851Ð1914),whowentonfrombeingfellow-studentstobecomebrothers-in-law.AsubsequentgenerationincludedLudwigvonMises(1881Ð1973),originatorofthetheoryofÔforcedsavingÕandsigniÞ-cantdebateonthesustainabilityofaplannedeconomy,27andJosephSchumpeter.Thelatterwillbediscussedlateron(ch.15),whileFriedrichvonHayek(1899Ð1992)willbethesubjectoftheÞnalsectionofthischapter.WieserisgenerallyrecognisedastheÞrsttohaveusedthetermÔmarginalutilityÕ(Grenznutzen),utilisedinhisworkontheOriginandfun-damentallawsofeconomicvalue(1884).InthisworkWieserusedthetheoryofimputationtodeterminethevalueofthemeansofproduction.Onthisbasis,heinterpretedthecostofproductionasasacriÞceoftheutilitywhichcouldhavebeenobtainedthroughadifferentuseofthefactorsofproduction(withatheoryanalogoustotheopportunity-costtheorydevelopedinthesameyearsinEnglandbyWicksteed,butdifferingfromitinthesubjectivenatureoftheopportunitycosts,sincethesearederivedfromentrepreneursÕevaluationsratherthanfromobjectivetechnologicaldata).AmongWieserÕsotherwritings,Naturalvalue(1889)proposedapplicationofthemarginalistapproachtotheÞeldofpublicÞnance;hisTheoryofthesocialeconomy(1914)wasasystematiceconomicstreatise,whichenjoyedwidecirculationandexertedgreatinßuence,becomingthemainpointofreferencefortheteachingofthedoctrinesoftheAustrianschool;Þnally,Thelawofpower(1926)wasasociologicalwork.In1903WieserwasMengerÕssuccessortotheeconomicschairattheUniversityofVienna.B¬ohm-BawerkwasbyfarsuperiortobothMengerandWieserinana-lyticalpowers.HewasapupiloftheeconomistsoftheÞrstGermanhistoricalschool(aftergraduation,hestudiedfortwoyearsatHeidelbergwithKarlKnies,atLeipzigwithRoscher,andatJenawithHildebrand),tobecomeprofessorofpoliticaleconomyatInnsbruckfrom1880to1889.ThetwovolumesofKapitalundKapitalzins(Capitalandinterest,1884and1889)belongedtothisperiod.Subsequentlyhewentontoimpor-tantpostsintheAustro-Hungarianadministration,thriceasministerofÞnance(1893,1896Ð7,1900Ð4),eventuallycausingagovernmentcrisiswhenheresignedinprotestagainstadecisionbyParliamentforasharpincreaseinmilitaryexpenditure.InthesameyearB¬ohm-BawerkjoinedforceswithWieserasprofessorofpoliticaleconomyattheUniversityofViennaonbeingappointedtoachairinstitutedspeciallyforhim.27Cf.Mises1912and1920respectively.Seealso,onthiseconomistÕspersonalityandthought,theextensiveintroductionandthebiographicandbibliographicnotestothe1999ItalianeditionofMises1912,editedbyRiccardoBelloÞore.

310TheWealthofIdeasHisfameasaneconomistderivesmainlyfromhiswritingsoftheInns-bruckperiod,andinparticularhisextensiveworkonThepositivetheoryofcapital(1889),whereB¬ohm-Bawerkdevelopedanoriginaltheoryofinter-est,andthensetouttobringtheproblemofaccumulationwithintheAustriantheoryofvalue.28ThekeynotionforB¬ohm-BawerkÕstheoreticalconstructionwasthatoftheaverageperiodofproduction,whichwillnowbebrießyillustrated.TheAustrianeconomisttookupideasalreadylongpresentinthetheoret-icaldebate,likethenotionofabstinenceproposedbySeniorandrevivedinamodiÞedformatthetimebyMarshallasÔwaitingÕ.B¬ohm-Bawerkthusconsideredtherateofinterestasthepricewhichcompensatedforthewaitingintrinsictorecoursetomoreindirectbutmorefruitfulmethodsofproduction.Inotherwords,considerablecostisinvolvedinbuildingmachinery(andmachinerytoproducemachinery)tobeutilisedintheplaceofrudimentarytools,becausethereisalongerintervaloftimebetweenthemomenttheworkisperformedandthemomentwhentheÞnalproductisobtained,butproductionistherebyincreased.29Inordertomeasurethecapitalisticintensityofproductionprocesses,B¬ohm-Bawerkproposedreferencetotheaverageperiodofproduction,orinotherwordsanaverageofalltheintervalsoftimeduringwhichthehoursoflabourexpendedtoobtainacertainproductareimmobilised.Thusboththehoursoflabourdirectlyemployedintheproductionofthecommodityunderconsiderationandthoseindirectlyemployedfortheproductionoftherequiredmeansofproduction,andofthemeansofproductionofsuchmeansofproduction,aretakenintoconsideration.Theresultwasaseriesofdatedquantitiesoflabour;whichwasthenreducedtoasinglemagnitude,aweightedaverageofthedifferentinter-valsoftime,withweightsproportionaltothehoursoflabourimmobilisedduringthedifferentintervalsoftime.Forexample,iftoobtain100litresofwineanhouroflabourperformedtenyearsagoisnecessary,togetherwithanhourperformedÞveyearsagoandanhouronedayago,theÔaverageperiodofproductionÕprovesequaltoÞveyears,andthisaver-ageperiodofproductionconstitutesthequantityoftime-capitalutilisedintheproductiveprocesstogetherwithagivenquantityoflabour-time(threehoursalltogether,inourexample).28OnB¬ohm-BawerkÕslifeandthoughtcf.Hennings1997andtheextensivebibliographygiventhere.29Wethushavetwoelementswhich,accordingtoB¬ohm-BawerkÕstheory,concurindeter-miningtherateofinterest:ontheonehand,apsychologicalelement,namelytheten-dencyofhumanbeingstoover-estimatetheutilityofpresentgoodscomparedtothatofgoodsavailableinthefuture(andinparalleltoover-estimatethedisutilityofapresentcostcomparedtoafutureone);ontheotherhand,aÔtechnologicalÕelement,namelythehigherproductivityofindirectmethodsofproduction.

TheAustrianschoolanditsneighbourhood311Astheoverallquantityoflabouremployedincreases,theamountofwagespaidincreases;equally,whenthecapital-time(namelytheaverageperiodofproduction)increases,thepaymentofinterestalsoincreases.Moreover,whenconfrontedwithanincreaseintheunitwage(thatis,inthepriceoflabour),Þrmstendtoreducethequantityoflabourutilised;equally,accordingtoB¬ohm-Bawerk,whentherateofinterest(thatis,thepriceofÔcapitalÕ)decreases,Þrmstendtoutiliseagreateramountoftime-capital,lengtheningthedurationoftheproductiveprocesses.Moreprecisely,applyingthepostulateofdecreasingmarginalproductivity,wemaysaythatwhenconfrontedwithareductionintherateofinterest,theaverageperiodofproductionislengtheneduptothepointatwhichthemarginalproductivityofafurtherlengtheningoftheintegratedpro-ductiveprocesshascomedowntothenew,lower,leveloftheinterestrate.Thistheorywaslessofanapproximationthanthesimpletheoryoflabourvalue,whichcompletelyignoredthemagnitudeoftheintervalsoftimeduringwhichthequantitiesoflabourexpendedremainimmobilised,butitwasstillanapproximation.Infact,itfailedtotakethephenomenonofcompoundinterestintoaccount;thefactisthatthecumulatedinterestonanhouroflabourperformedtenyearsagoisfargreaterthantheinterestontenhoursoflabouroneyearago;norisitpossibletoredeÞnetheweightsinordertotakeaccountofcompoundinterest,sincetheÔaverageperiodofproductionÕwouldthusprovenolongerindependentofincomedistribution,anditwouldnolongerbepossibletoutiliseittodeterminethevalueofadistributivevariablesuchastherateofinterest.Asweshallsee,B¬ohm-BawerkÕstheorywastakenupagainintheAustrianschoolbyHayekandearlieron,attheverybeginningsoftheSwedishschool,byWicksell.However,withintheambitofawidelydeÞnedAustrianschoolitwascriticisedbySchumpeter,whileWicksellhimself,inthecourseofhisinvestigations,appearedincreasinglydissat-isÞedwiththesolutionproposedbytheInnsbruckprofessor.B¬ohm-BawerkÕscontributiontothedevelopmentoftheAustrianschoolwascrucial:bothpositively,insofarasitallowedforMengerÕsorigi-nalformulationtobeembodiedinanextensiveand,indeed,fascinatinganalyticalconstruction,includingthatessentialphenomenonofmod-erncapitalisteconomiesrepresentedbytheaccumulationofcapital;andnegatively,becauseofthelimitsdisplayedbytheanalyticalconstruction,whichobviouslyonlybecomeevidentwhenweproceedfromrepresen-tationoftheconceptualpicturetothestageofanalyticaltheory.30Even30Itisworthrecallingthat,accordingtoSchumpeter1954,p.847n.,theshakynatureofthefoundationsofB¬ohm-BawerkÕstheoreticalbuildinghadalreadybeenperceivedby

312TheWealthofIdeastoday,however,thelimitsoftheAustrianapproachareoftenignored:circumventingthedifÞcultiesthatB¬ohm-BawerkÕscontributioncameupagainstalsomeansglossingoverthenecessaryanalyticalspeciÞcationofanapproachwhichotherwiseremainssuspendedintheair.But,asweshallsee,SraffaÕs1960bookshowedthatasolutiontotheseanalyticaldifÞcultiesalongthelinesindicatedbyB¬ohm-Bawerkhimself,latertakenupbyWicksellandthenbyHayek,issimplyimpossible5.KnutWicksellandtheSwedishschoolSwedishKnutWicksellwascontemporarywithB¬ohm-BawerkandWieser,likethembornin1851.However,hiscareerasaneconomistbeganlater:whileforB¬ohm-Bawerkuniversityteachingprecededabril-liantcareerinpublicadministration,inthecaseofWicksellteaching(andresearchintheÞeldofpureeconomictheory)followedastageoflivelyactivityasaneo-Malthusianpolemicist,freelancelecturerandjournalist.WicksellÕsfameamonghiscontemporariesderivedaboveallfromhisroleasaradicalopponentoftheprevailingmoralbeliefs,fromhisrepeatedchallengestothetraditionalideasoffamily,religion,motherlandandstateauthority.Hisprovocativeattitudesmadeithardforhimtoembarkonanacademiccareer,arousingwidespreadhostilityandevenlandedhiminprisonÐattheripeageofÞftyÐonchargesofoffenceagainstthestatereligion.31Hisinterestineconomicissuesconcentratedforalongtimeonthepopulationproblem.Wicksellwasapassionateneo-Malthusian,accom-panyingstudyofthesubjectwithintensepropagandaactivity.HisstudiesineconomictheorywereatÞrstcollateraltothisinterest,andwereseri-ouslytackledonlywhen,in1887,thirty-six-year-oldWicksellgainedascholarshipabroad.HewasthusabletostudyattheBritishMuseuminLondon,andtoattendlecturesbyKnappandBrentanoatStrasbourg,byMengeratVienna(wherehestudiedamongotherthingsB¬ohm-BawerkÕsbook)andbyWagnerinBerlin.In1889hemarriedaNorwegianlawstu-dent,AnnaBrugge.In1890healsobeganseekingemploymentwithsomeSwedishuniversity(Stockholm,Uppsala,Lund)aseconomicslecturer,Menger,whoconsideredthetheoryofcapitalbasedontheaverageperiodofproductionasÔoneofthegreatesterrorsevercommittedÕ.InparticularMengerwasaversetorecoursetoaggregateconcepts,especiallyasfarascapitalwasconcerned(cf.Streissler1973,p.166).31TheseaspectsofhislifedominatethefascinatingbiographybyGûardlund1956.Wicksellthusconstitutesclearproofoftheerroneousnessofthethesis,typicaloftheMarxiantradition,ofanoppositionbetweenapoliticallyprogressiveclassicalapproachandapoliticallyconservativemarginalistapproach.However,Wicksellisnoisolatedexceptioninthisrespect:recallforinstanceWalrasÕssocialreformism,withhissupportforlandnationalisation,andtheBritishFabians.Onthisissue,cf.Steedman1995.

TheAustrianschoolanditsneighbourhood313butsucceededingettingaprovisionalappointmentasprofessoratLundonlyin1899,havingsatisÞedthelegalrequirementofalawdegreeandovercomethehostilityoftheconservativeacademicenvironment.Onlyin1905didhebecomefullprofessor,afterÞercecontroversy.HediedinStockholmin1926.HismainworksineconomictheorywereasmallbookonValue,capitalandrentdated1893,anessayonInterestandpricesdated1898,anarticleonÔMarginalproductivityasthebasisfordistributionineconomicsÕdated1900,andthetwovolumesofLecturesonpoliticaleconomy(volume1,Theory,1901,andvolume2,Money,1906,translatedintoEnglishin1934Ð5).TheEnglisheditionoftheLectures,editedbyLionelRobbins,alsocollectedthemainarticlesofthesameperiod,amongwhichareaworkdated1919criticisingCasselÕstheories32andanimportantworkincapitaltheorydated1923,intheformofacommentaryonanessaybyAckermann.OtherimportantcontributionsbytheSwedisheconomistwereonthetheoryofpublicÞnance,buttheyarebeyondourscopehere.Wicksellmadetwomajorcontributionstoeconomictheory.Firstly,inthe1893essayonValue,capitalandrentWickselldevelopedamarginal-isttheoryofincomedistributionbetweencapital,labourandlandbasedontheirrespectivemarginalproductivities,whichcameoutafewyearsbeforeWicksteedÕs(cf.above,10.6).Inthiswork,andintheÞrstvolumeoftheLectures,Wicksellutilisedthetheoryoftheaverageperiodofpro-ductiondevelopedbyB¬ohm-Bawerk.However,havinginitiallyacceptedit,heeventuallytookacertaindistancefromitandsetouttodevelopitinsuchawayastotakeintoaccounttheheterogeneityofthemeansofproduction.Thus,inessence,Wicksellwaveredbetweenanaggregatenotionofcapitalandadisaggregatednotion,whichheadoptedwhen32GustavCassel(1866Ð1945),professoratStockholm,atypicallordofacademia,egocen-tricandpresumptuous,WicksellÕsrivalandevenmorediehardconservative,isknownaboveallforhissimpliÞedversionofWalrasiantheory,theTheoryofsocialeconomy,pub-lishedinGermanin1918andinEnglishin1923.ItwasthankstothemediationofthisworkthatWalrasianideasfoundcirculationintheGermanandAnglo-Saxoncultures(thetranslationbyJaff«eofWalrasÕsbook,Elementsofpureeconomics,appearedonlyin1954).Casselisalsoknownforhiscontributionstothetheoryofinternationaleconomicrelations,suchasthePPP(purchasingpowerparity)theory,accordingtowhich,inthepresenceoffreeinternationaltradeofgoods,exchangeratesaresetatalevelsuchastoguaranteetheparityofpurchasingpowerinthedifferentcountries,giventheinternalpricelevel(thatis,tendollarsbuythesameamountofgoodsinItaly,Germany,Franceorinanyothercountry:ifthisdidnothold,anoutßowofgoodsfromcountrieswithrelativelylowpricestowardscountrieswithrelativelyhighpriceswouldtakeplace,andtheconsequentdisequilibriainthebalanceoftradewouldbringaboutreadjustmentoftheexchangerates).Thetheorybecametheobjectofmuchtheoreticaldebate,failingtostanduptothenumerousempiricalveriÞcationswhich,rather,appeartoconÞrmthetyp-icallyKeynesianthesisthatÞnancialßowsdominateovercommercialßowsinthedeter-minationofexchangerates,causingnon-transitorydeviationsfrompurchasingpowerparities.

314TheWealthofIdeasidentifyingcapitalwiththeentiretemporalstructureofthedirectandindirectlabourßowsnecessarytoobtainagivenproduct.33Secondly,withintheframeworkofthemonetarytheoryillustratedinthe1898essayandre-elaboratedinthesecondvolumeoftheLectures,Wickselldevelopedadistinctionbetweenthemoneyinterestrateandthenaturalinterestrate.ThelatterwasdeterminedbytheÔrealÕvariableswhichconcurtodetermineequilibriumfortheeconomicsystem;moreprecisely,itcorrespondedtothemarginalproductivityofÔcapitalÕ,asindi-catedbythemarginalisttheoryofincomedistribution.Themoneyrateofinterestwas,instead,determinedonthemoneymarkets,withsomedegreeofautonomywithrespecttothenaturalrate.Therelationshipbetweenmoneyandnaturalrateofinterestwasthenutilisedtoexplainthecyclicaloscillationsoftheeconomyandtheinßationaryordeßation-arypressuresonthegenerallevelofprices.Wheneverthemoneyrateofinterestislowerthanthenaturalone,entrepreneursÞnditadvantageoustotakeoutloansandinvest,thusgivingrisetoinßationarypressure;con-versely,wheneverthemoneyrateofinterestishigherthanthenaturalrate,investmentsarediscouragedanddeßationarypressureisgenerated.34Thistheorytakesitsplaceinacurrentofmonetaryexplanationsofthecycleandinßationthattriedtohaveitbothways,ontheonehandsafeguardingthemarginalisttheoryofvalueanddistribution,intermsofwhichtodeterminetheequilibriumvaluesforpricesanddistribu-tivevariables,andontheotherhandrecognisingafactobvioustoanyempiricaleconomist,namelytheexistenceofÔdisequilibriaÕandofacer-taininßuencewhichmonetaryvicissitudeshaveonthetrendsfollowedbyrealvariables.WicksellÕsapproachwastakenupanddevelopedbyanumberofeconomists,includingHayek.Theso-calledSwedishschool(ErikLindhal,1891Ð1960;GunnarMyrdal,1898Ð1987,Nobelprizein1974;BertilOhlin,1899Ð1979)emergedinthelate1920sdevelopingvariousaspectsofWicksellÕstheory,butaboveall,incontrastwithKeynesÕsanalysis,takinguponceagainthetoolofsequentialanalysis(alreadypresentintheAustriantradition,andlaterre-embracedinEnglandbyHicks).3533ForillustrationandcriticismofWicksellÕstheoryofcapital,cf.Garegnani1960,pp.123Ð85.34Inhistheoryonthese(inßationaryanddeßationary)cumulativeprocessesWicksellassumedthatnochangestookplaceinproductiontechniques;asaconsequence,neitherincomedistributionnorproductionlevelsorrelativepricescanchange,andthedisequi-libriacanonlytranslateintochangesinthemonetaryvariables,orinotherwordsthepricelevel.Onthispoint,andontheambiguitiesoftheWickselliandeÞnitionofthenaturalinterestrate,cf.Donzelli1988,pp.67Ð71.35ForillustrationofWicksellÕsmonetarytheoryandthedebateitaroused,cf.Chiodi1983.OntherelationsbetweentheSwedishschool,theAustrianschool,HayekandHicks,cf.Donzelli1988andthebibliographygiventhere.ForillustrationofthereasonswhyKeynesrejectedsequentialanalysis,cf.below,14.6.

TheAustrianschoolanditsneighbourhood315InItaly,elementsofWicksellÕsmonetarytheorywereutilisedbyMarcoFanno(1878Ð1965)inaworkpublishedin1912,Lebancheeilmercatomonetario(Banksandthemoneymarket).Fanno,however,criticisedWicksellÕsassumptionofcompletelyendogenousmoney,characterisedbysupplytotallyelastictodemand.Withthisandotherwritings,amongwhichwasacontribution(inGerman)toavolumeeditedbyHayek,Fannoobtainedinternationalfame;healsoproducedvariousimportanttheoreticalcontributions,especiallyintheÞeldoftradecycletheory,fol-lowinganapproachsimilartoHayekÕs,whichweconsiderinthenextsection.SufÞceitheretoaddthattheapproachtookaccountoftheactiveroleplayedbyÞnancialphenomenawhileavoidingcriticisingthemarginalisttheoryoflongrunrealequilibrium.366.FriedrichvonHayekFriedrichvonHayek(1899Ð1992),winneroftheNobelprizeineco-nomicsin1974,ispossiblybetterknownforhisextremeeconomicliberalismthanforhistheoreticalcontributionstoeconomics.However,inthe1930sheappearedtomanyasthechampionofthecontinentalschool,apointofreferenceofgreattheoreticalstrengthtosetagainsttheÔCambridgeschoolÕforthosewhodidnotsharethepoliticalimplicationsofKeynesiantheory.Wemaydistinguishfourcomponentsinhisthought:anindividualisticmethodology;aconceptualapproachwhichtookupanddevelopedthatoftheAustrianschool,inparticulartheelementsofuncertaintyandlearn-ingmentionedinourdiscussionofMenger;atheoreticalapproachbasedonB¬ohm-BawerkÕstheoryofcapitalandWicksellÕstheoryofmoney;andcontributionstothepoliticalandsocialtheoryofeconomicliberalism,opposingthecollectivisticpropensitieswhich,manyheld,characterisednotonlySovietplanningbutalsoRooseveltÕsNewDealandKeynesianinterventionism.OurmaininteresthereisintheÞrstthreeofthesecom-ponents,anddiscussingthemweshallseehowthedifÞcultiesHayekcameupagainstintheÞeldofpuretheoryledhimtoaninterestingrevisionoftheconceptualfoundationsoftraditionalmarginalistanalysis,inparticularasfarasthenotionofequilibriumwasconcerned.ApupilofWieserandMisesattheUniversityofViennaaftertheFirstWorldWar,in1927HayekwasmadetheÞrstdirectorofthenewbornAustrianinstituteforthestudyofthetradecycle.37In1931,afteraseriesofconferencesonthetheoryofthetradecyclewhichattractedwidespread36OnFanno,cf.RealfonzoandGraziani1992,includingthebiographicalnote,listofwritingsandbibliographygiventhere.37The¬OsterreichischeKonjunkturforschungsinstitutwasfoundedonvonMisesÕsinitia-tive,inordertoproposeanapproachbasedonintegrationbetweentheoryandempirical

316TheWealthofIdeasattention,HayekmovedtotheLondonSchoolofEconomics,ontheinvitationofhisfriendLionelRobbins.Likehim,HayekwasalsoareÞnedscholarofthehistoryofeconomicthought.38AftertheSecondWorldWar,hemovedtoChicagoin1950,andreturnedtoEurope(atÞrstFreiburg,inGermany,thenSalzburg,inAustria)in1962.Aprovisionalbibliographyofhiswritings(inGray1984)included18books,25pamphlets,16booksaseditororauthoroftheintroduction,and235articles.39Aneditionofhiswritings,whichwilleventuallyruntonineteenvolumes,hasbeencomingoutoverthelastfewyears.40Methodologicalindividualism,i.e.theideathatthefunctioningofaneconomicsystemmustbeexplainedstartingfromthechoicesoftheindi-vidualsmakingupthesystem,wasalreadypresentinMengerandconsti-tutedadominanttraditionwithinthedifferentcurrentsofthemarginalistapproach.ForHayek,asformanyotherauthorssharinghisapproach,thiswasnotonlyaruleofmethod,butalsoaveritablepoliticaldogma,giventheconnectionbetweenholism(namelytheideathatsocialaggre-gatesshouldbestudiedindependentlyofthebehaviouroftheindividualsmakingthemup)andpoliticalorganicism(thestate,thecommunity,isÔmoreÕthantheindividualsmakingitup)whichisatthebasisofdictato-rialregimessuchasnazismorStalinistcommunism.41Thebehaviourofindividualsexpressesitselfthroughactionswhich,inHayekÕsview,stemfromrationallyselectedplansofaction.Method-ologicalindividualismthusdictatedthatthetheoryofthebehaviouroftheeconomicsystembebasedonconsiderationofplansofactionofalltheagentsinthesystem.Hencethecentralroleofthenotionofequilib-rium,whichidentiÞeswithinthesetofsuchplansofactionsthosethatanalysisinthestudyofthetradecycle,againstthepurelyempiricistapproachoftheNationalBureauofEconomicResearchatNewYork,whichfocusedonthesearchforregularitiesinthebehaviouroftheeconomy.38AcollectionofhiswritingsonthehistoryofeconomicthoughtisinHayek1991.39Hayekwasaneconomistwithanexceptionalculturalbackground.Viennainthe1920swasinthisrespectauniquemeltingpot:KonradLorenztheethologistwasaplaymateininfancy,thephilosopherLudwigWittgensteinwasarelativeandcomrade-in-armsinthelastyearoftheFirstWorldWar,thephysicistErwinSchr¬odingerafamilyfriend,andwemightgoon.40EditedbyW.W.BartleyIII,ThecollectedworksofF.A.HayekisbeingpublishedbytheUniversityofChicagoPress.Uptonoweightvolumeshaveappeared,plusaspecialvolumeincludingalengthy,livelyinterviewwithHayek,whereherecountsmuchofhislife(Hayek,1994).41AnimportantÔpoliticalÕcritiqueofholism,fromPlatoandAristotletoMarx,waspro-videdbyHayekÕsfriend,KarlPopper,inTheopensocietyanditsenemies,1945.However,wecanfullysharePopperÕscritiqueoftotalitarianismanditsculturalrootswithoutnec-essarilyacceptingtheidentiÞcationbetweenpoliticalindividualism,namelythedefenceofindividualfreedominthepoliticalsphere,andmethodologicalindividualism.ThisdistinctionwasclearlystatedbyanotherrepresentativeofAustrianeconomicculture,Schumpeter:cf.below,15.2.

TheAustrianschoolanditsneighbourhood317arecompatibleamongthemselvesandwiththegivenconditionsinwhicheconomicactivitytakesplace(technology,endowmentsofresourcesofeachagent).42Giventhelimitstotheknowledgeofeconomicagents,itisrealisticallyimpossibleforexanteplanningtoensurethecoordinationofindividualplansofaction.Coordinationisentrustedtothemarket,whichoperatesasanadjustmentmechanismensuringequilibrium.AtypicalfeatureofMengerÕsview,asofHayekÕs,isthatsubjectiveknowledgewasincludedamongthevariablesundergoingadjustmentpro-cessesinducedbymarketoperation,alongwithpricesandquantitiesproducedandexchanged.Moreover,ashebecameawareoftheunsolvedproblemsinthetheoryofvalueanddistributionhehadadopted,Hayekgraduallyattributedgrowingimportancetotheroleofthemarketasaninstrumentofdiffusionofinformationandadjustmentofindividualknowledge.43Thesearestimulatingideas,andtheyfascinatedanum-berofcontemporaryeconomists.However,theproposalofinterestingconceptsshouldbeaccompaniedbydemonstrationoftheiranalyticalfecundity,andthedemonstrationshouldhaveincluded,givenHayekÕsviews,atheoryofequilibrium(or,inotherterms,atheoryofvalue,dis-tribution,employmentandthechoiceoftechniques)suchastoprovetheequilibratingefÞcacyofmarketmechanisms.ItwastothisÞeldofresearchthatHayekdedicatedtheÞrstdecadesofhislongactivity.HayektookupfromB¬ohm-Bawerktheideaofcapitalasaßowofdatedlabourquantities.Investmentandproductiondecisionsthushaveeffectinaperiodsubsequenttotheperiodofadoption(herethesequentialframeworkoftheAustrianapproachreappeared,asdevelopedespeciallybytheSwedishschool),andproblemsofintertemporalcoordinationofdecisionsarise.ThesubjectofHayekÕsanalysiswasthustheemergenceofaspontaneousorderfromthedecisionsofeconomicagentscoordinated,inamarketeconomy,bytheinvisiblehandofcompetition.44Hayekcon-sideredthedifferentobstaclestotheemergenceofsuchaspontaneous42ItmaybeusefultostressthatthenotionofequilibriumproposedbyHayekdifferedfromthetraditionalmarginalistconceptbasedonequalitybetweensupplyanddemand.Thiswasanimportantconceptualshift,whichhasfailedtoattracttheattentionitdeserves.Moreover,Hayekstressedthatequilibriumrelationsdonotstemfromobjectivedata,butfromtheagentsÕsubjectiveevaluationswhichdeterminetheirplansandtheiractions,andthatsuchevaluationsareformedinanuncertainworldandunderconditionsoflimitedknowledge.43Moreover,asHayekrecalled,themarketembodiesinitscustomarywaysoffunctioningimportantelementsofÔtacitknowledgeÕ.44Donzelli1988,pp.37ff.,stressesthatthenotionofÔspontaneousorderÕ,presentinembryoinHayekÕsearlywritings,cametotheforeÐtotheextentofsubstitutingthetraditionalnotionofequilibriumÐwiththeconclusionofthedebateoncapitaltheory(hencebeginningwithHayek1941).WiththisnotionHayekreferredÔtoastructureofrelationsorasystemofinter-individualconnectionswhichdisplayarelativestabilityorpersistenceÕ(Donzelli1988,p.38).

318TheWealthofIdeasorder,particularlyscarcityofknowledge,butmaintainedthatamarketeconomyissuperiortoaplannedeconomypreciselybecausetheinfor-mationneededinamarketeconomyisfar,farlessthantheinformationnecessary(andcertainlynotavailable)toaplannedeconomy.45HayekÕspoliticalwritingsalsoinsistedontheseaspects.Hemaintainedthesuperiorityofeconomicliberalismincomparisonnotonlywithcen-tralisedplanningbutalsowithmixedeconomies(suchasRooseveltÕsNewDeal),whichimplyactivestateinterventionineconomiclife.ThesewritingsÐmuchmorethanhistextsoneconomictheoryÐespeciallyTheroadtoserfdompublishedin1944(whichsoldhundredsofthou-sandsofcopies,thankspartlyalsotoacondensedReaderÕsDigestversion,andwastranslatedintomorethantwentylanguages)madeHayekoneofthemostfamouspoliticalscientistsofthetwentiethcentury.Forourpurposes,therearetwoaspectsofthisseriesofwritingstonote.Firstly,eveninworksaimingatthegeneralpublicratherthanspecialists,HayekretainedanddivulgedthemainelementsoftheÔvisionÕoftheAustrianschool:uncertainty,economicactivityasquestforpowerderivingfromknowledgeÐanapproachthatsawtheanalyticalnotionofequilibriumfusewiththenotionofspontaneousorder,andthatofferedcharacterisa-tionoftheeconomicagentfarmorecomplexthantheone-dimensionalviewofBenthamiteutilitarianismwhichledtothenotionofhomooeco-nomicus.Secondly,inthepoliticalwritingstheideaofthespontaneousorderemergingfromthefunctioningofthemarketwastransformedfromananalyticalresulttobeprovedintoasimpleassumptionorpostulate.ThelatterpointbringsusbacktotheÞeldofeconomictheory.HereHayekÕscontributionshaddwindledbythebeginningofthe1940swhen,aftertheunfortunatecontroversywithSraffaandKeynesintheearly1930s,Hayekseemedstuckintheblindalleyhehadendedupinwithhistheory,asÞnallywitnessedbyKaldorÕsscathingattack.4645Thecontroversyonthevitalityofaplannedeconomy,thepossibilityofwhichhadbeenshownbyEnricoBarone(cf.below,12.3)asearlyas1908intheframeworkofageneraleconomicequilibriumtheory,wasrevivedbyLudwigvonMises(1920),whoappearsnottohavetakenaccountoftheansweralreadyprovidedbyBarone.Hayek,instead,insistedontheimpossibilityofobtainingthenecessaryinformationinpractice.OskarLange(1904Ð65)answeredtheminafamousarticleof1936Ð7,proposingatrialanderrorapproachtotheplanningprocess,whichembodieselementsofaÔsocialistmarketÕ.AdifferentanswerwasofferedbyMauriceDobb(1900Ð76),aBritishMarxist,whomaintainedinaseriesofwritings(forinstanceDobb1955)thesuperiorityofplannedeconomiesnotinsofarasresourceallocationisconcerned,butintermsoftheexantecoordinationofinvestments.46Kaldor1942discussedtheevolutionofHayekÕstheoryinthedecadefollowingpublica-tionofPricesandproduction(1931),uptoThepuretheoryofcapital(1941),andshowedhowthedifÞcultiesHayekhadmetwithfromthebeginning,andwhichhadbeentheobjectofSraffaÕscriticismsin1932,foundnosolutionwiththevariationsonthethemeHayekwentthroughinlateryears.

TheAustrianschoolanditsneighbourhood319InordertoillustrateHayekÕstheoreticalviewsletustakealookatPricesandproduction(1931),aslimvolumecollectinglecturesgiventheprevi-ousyearattheLondonSchoolofEconomics,whichhadarousedwideinterest.HereHayekpresentedatheorythathehadgraduallydevisedthroughaseriesofpreviouswritings,atheorythatÐaswesawaboveinconnectionwithWicksellÐcombinedthemarginalistfoundationsofarealequilibriumofpricesandquantitieswiththerecognitionofshortrundisequilibriaconnectedtoessentiallymonetaryphenomena.Asfarasthemarginalistfoundationswereconcerned,HayekdrewinparticularonthenotionoftheaverageperiodofproductionproposedbyB¬ohm-Bawerk,graftingontoittheWicksellianmechanismoftherelationshipbetweennaturalandmoneyinterestrate,togetherwiththetheoryofforcedsavingproposedbyMisesin1912andalsoutilisedbySchumpeter(1912)inhistheoryofthetradecycle.47Inshort,themechanismdescribedbyHayekwentthus:whenthenat-uralrateofinterestishigherthanthemoneyrate,entrepreneursareinducedtoaskforbankloansinordertoenactinvestmentexpendi-turesabovetheequilibriumlevel.SincethestartingsituationisÐbytheverydeÞnitionofequilibriumÐcharacterisedbythefullutilisationofresources,theadditionalinvestmentscanonlybemadethroughtheincreaseinpricesbroughtaboutbytheexcessdemandÞnancedbybankloans;inßationdeprivesconsumersofpurchasingpower,whileentrepreneursÞndadvantageinitgiventhetimelagbetweenacquisi-tionofthemeansofproductionandsaleoftheproduct.Furthermore,theadditionaldemandforinvestmentgoodsgeneratesanincreaseintheirrelativepricesascomparedwithconsumptiongoods;thisinturncorrespondstoanincreaseintherealwagerate,whichenhancestheadvantageofÔdeepeningÕofthetechnique,orinotherwordslength-eningtheaverageperiodofproduction.Theseelementsconstitutetheascendingstageofthetradecycle.However,theincreasedincomesoftheproductivefactorsaretransformedintogreaterdemandforconsump-tiongoods;therelativepricesofthesegoodsincrease,andtherealwageratedecreases.Thusitbecomesmoreadvantageoustoshortentheaver-ageperiodofproduction,andthecapitalgoodscharacterisedbyhigherdurationloseinvalue.Hencethedescendingphaseofthetradecycle.Giventhesequenceofcauseandeffectlinkagesdeterminingthelatterstage,apolicyinsupportofdemandforconsumptiongoodsasproposedinunder-consumptiontheories(whichHayektooktoincludeKeynesÕs47Schumpeter1954,pp.723Ð4,makingreferencetoHayek,attributedWicksellwiththetheoryofforcedsavings,whilepointingtoBenthamandaboveallThornton(1802)asprecursors;Hayekhimself(1931,pp.18Ð19)alsolookedbacktoMalthus.

320TheWealthofIdeastheory)provescounterproductive.AccordingtoHayek,infact,thecapi-talaccumulatedintheascendingstageofthetradecycle(correspondingtoforcedsaving)iseconomicallydestroyedinthedescendingstage,sothattheeconomicsystemreturnstoitsoriginalequilibrium.HayekÕstheoryclearlyconstitutedastepforwardfromWicksellsinceitovercamethedichotomybetweenrealandmonetaryfactors,whileHayekÕsanalysisconsideredchangesintechnique,incomedistributionandrelativeprices.ThusitappearedthemostsolidalternativetotheKeynesianresearchprogramme.SowecometoSraffaÕsreaction(probablypromptedbyKeyneshim-self).InaweightyreviewofPricesandproductionpublishedintheEco-nomicJournalin1932,SraffaattackedthefoundationsoftheanalyticalediÞcebuiltbyHayek(and,beforehim,byWicksell)andshowedthenon-existenceofaÔnaturalrateofinterestÕ:inaworldinwhichthestruc-tureofrelativepriceschangesovertime,thereareasmanyÔnaturalratesofinterestÕastherearecommodities(and,foreachcommodity,asmanyintervalsoftimeareconsidered).AccordingtoSraffa,Hayekhadnotfullyunderstoodthedifferencebetweenamonetaryandabarterecon-omy,sothatthemonetaryfactorsprovedsuperimposedontherealones,andanyassumptionofaninßuenceexercisedbythelatteroverthefor-merclashedwiththetheoryofvaluedevelopedwithreferencetoarealeconomy,withitssimultaneousdeterminationofequilibriumpricesandquantities,techniquesanddistributivevariables.48HayekÕsresponse(1932)wasfeeble.Asamatteroffact,theimpactofSraffaÕscriticismwasmoregeneral,concerningtheimpossibilityofreconcilingtheinßuenceofmonetaryfactorsoverrealvariableswithinthetradecyclewithacceptanceofamarginalisttheoryofvaluefortheÔrealÕequilibrium:atheorywhichimpliedaclear-cutdichotomybetweenrealandmonetaryfactors.ThusSraffaÕscontroversywithHayektookoncrucialimportanceforsubsequentdevelopmentsineconomicthe-ory.WiththepublicationofSraffaÕsbookin1960theÞnalblowwasdeliveredtothefoundationsofthenotionoftheaverageperiodofpro-duction,andHayekÕsapproachlostevenitsinitialappearanceofsolidity.However,somenewdirectionsinHayekÕsworkconcerningsequentialanalysisandthequestionofintertemporalconsistencymaybeseenasseminalcontributionstotheoriginofmodernresearchcurrentsfocusing48KeynesÕssupportforSraffainthefaceofHayekÕsreaction,preciselyonthispoint,wasrevealing.HayekconcludedhisreplybystatingthatSraffaÔhasunderstoodMr.KeynesÕtheoryevenlessthanhehasmyownÕ(Hayek1932,p.249);takingadvantageofhispositionaseditoroftheEconomicJournal,Keynesaddedasharpfootnote:ÔWithProf.HayekÕspermissionIshouldliketosaythat,tothebestofmycomprehension,Mr.SraffahasunderstoodmytheoryaccuratelyÕ(ibid.).

TheAustrianschoolanditsneighbourhood321onthesequentialanalysisofdisequilibria,temporaryequilibriumandgeneralintertemporalequilibrium.49OnvariousoccasionsHayektookupfromMengerideasaboutthefunc-tioningoftheeconomicsystemdepartingfromthetraditionalmarginal-istones,andworkedonthem.Inparticular,theactofchoiceperformedbytheeconomicagentwasconceivedasanexperimentinconditionsofuncertainty,theresultofwhichmodiÞesexpectationsandtheinitialknowledge,aspartofacontinuousprocess.Indeed,competitionwasconceivedasadynamicprocesswhichfavoursthediffusionofinforma-tionandemergenceoftacitknowledgeembodiedinrulesofconduct,asaprocessofdiscovery.DifferinginthisrespectfromtheFrenchandAnglo-Saxonmarginalistapproach,thenotionofequilibriumthuslostitstraditionalroleofanalyticalreferencecentraltointerpretationofthefunctioningoftheeconomy.Inconclusion,tosumupHayekÕsachievementwemaydistinguishonceagainbetweentheinterestthatliesinhisconceptualrepresentationofthemarketeconomyandthelimitstohisanalyticalconstruction.Thesuc-cessofHayekÕspoliticalwritingsmayperhapsbeaccountedfornotonlybytheircloseaccordwiththeculturalclimateoftheColdWarperiod,butinparticularbythelineimpliedbymanyaspectsofhisconceptualrepresentation,aswellasreßectinghisownchoiceÐfollowedbymanyÐtoleaveasidethemostcontroversialaspectsofhisstrictlyeconomicthe-oryinpresentinghispoliticalideasontheroleofthemarket.AsfortheelementsofHayekÕsÔvisionÕwhicharousedthewidestinterestincontem-porarydebateÐsuchastheroleattributedtoeconomicagentsÕlearningwhenconfrontedwiththemarketÕsresponsestotheiractionsÐincor-poratingtheminacoherentbodyofeconomictheorystillremainsachallengewhichshouldbetackledonnewfoundations.5049InparticularwemaycreditHayekwiththeanalysisofintertemporalequilibriums,Hicks1939withtheanalysisoftemporaryequilibriums,andLindahlandtheotherrepresen-tativesoftheSwedishschoolwiththesequentialanalysisofdisequilibria.Hayek,inanycase,adheredtoastationaryviewofequilibrium.Cf.Milgate1979;Donzelli1988.50Infact,itisquitedifÞculttogiveaprecisecharacterisationtotheÔAustrianschoolÕinthesecondhalfofthetwentiethcentury:cf.BoettkeandLeeson2003.

12Generaleconomicequilibrium1.TheinvisiblehandofthemarketAmongcontemporaryeconomiststheideaiswidespreadthatgeneraleconomicequilibriumtheoryistobeidentiÞedwiththeorytoutcourt,andistobetakenasayardstickbywhichanyothertheorycanbeconsideredasaparticularcase.1Toanyonesharingthisviewpoint,thehistoryofeconomicthoughtappearsasthepathofprogressivedevelop-mentandconsolidationofthistheory.Alongthisroute,ininterpretingclassicaleconomiststheeconomicissuetheydealtwithisidentiÞedinthefunctioningoftheÔinvisiblehandofthemarketÕ.ThelatterwouldensurenotsimplyasufÞcientlyregularworkingoftheeconomybut,morethanthis,asystematictendencytowardsanequilibriumwithper-fectequalitybetweensupplyanddemandforeachcommodity(marketclearing),eveninthepresenceofmanycommoditiesandmanyeconomicagents.Asamatteroffact,suchanextremeideacannotbeattributedtotheeconomistsoftheclassicalperiod;itwasoriginallydevelopedbyonlyoneoftheÔschoolsÕwhichconcurredintheso-calledmarginalistrevolution,theÔLausanneschoolÕ,foundedbyL«eonWalras.Inordertoclarifythispoint,letusÞrstconsiderwhichelementsentertheviewoftheeconomicsystemunderlyingthegeneraleconomicequilibriumapproach;weshallthenseewhethertheseelementswerepresentamongclassicaleconomistsorintheothermarginalistÔschoolsÕ.AswillemergeclearlywhenweconsiderWalrasandhisfollowersingreaterdetail,twoelementsaboveallshouldbeconsideredessential:theideaofgeneralinterdependenceamongallthepartsthatcomposeaneco-nomicsystem,andtheideaofthemarketasanequilibratingmechanismbetweensupplyanddemand.Sidebysidewiththesetwocrucialelements,1Recentlythisideaappearssomewhatindecline,duetoincreasingfragmentationofeco-nomicresearch,increasinglyacceptedasafact,forwhichnoexplanationisattempted.Cf.below,chs.17and18.322

Generaleconomicequilibrium323andinpartstemmingfromthem,weÞndaspeciÞcviewoftheeconomicproblem(asaproblemofoptimalallocationofscarceresources)andoftheeconomicagent(thehomooeconomicus).Wehavealreadyseenthateachofthesetwocrucialelementswaspresentinthehistoryofeconomicthoughtandamongeconomistscon-temporarywithWalras.However,thismayhappeninacontextquitedifferentfromtheWalrasianone.Thustheideaofinterrelationsamongthedifferentpartsthatcomposeaneconomicsystemwasatthecen-treofQuesnayÕsanalysis,withhistableau«economique.Hisimmediateprecursor,Cantillon,thoughwithoutdevelopingaformalmodel,alsoproposedarepresentationoftheeconomicsystembasedoninterdepen-denciesbetweensocialclasses,economicsectorsandterritorialzones(countryside,villages,cities).Subsequently,wemayrecallthesimpleandexpandedreproductionschemesdevelopedbyMarxinvolume2ofCapital(which,however,appearedonlyin1885,afterthepublicationofWalrasÕsmainwork).Morerecently,theideaofageneralinterdepen-denceinproduction,amongthesectorsinwhichaneconomybasedonthedivisionoflabourissubdivided,wasatthecentreofLeontiefÕsinput-outputtables.Noneoftheseanalyticalcontributions,however,included,orimposedasalogicalnecessity,amechanismofadjustmentofpricesandquantitiesbasedonthereactionsofagentsinthemarkettodis-equilibriabetweensupplyanddemand.Furthermore,theseanalyticalcontributionsallfocusedattentiononinterdependenciesamongsectorsinproduction,whileinterdependence(substitutability)inconsumptionchoiceswasnotconsidered,oranyhowremainedinthebackground.Theroleofdemandandsupplyindeterminingthepriceofagood(andbehindititsvalue,interpretedastheexpressionofthegoodÕsscarcityincomparisontotheutilityattributedtoitbyeconomicagents)wasconverselyatthecentreofawidespreadtraditionofeconomicthinking,whichinrepresentingtheworkingofthemarketinitiallytookasidealreferencepointsmedievalfairs,thenstockexchanges,bothconsideredinstitutionswhichensureameetingplace,intimeandspace,forbuyersandsellers.However,weshouldbehard-pressedtoÞndinthewritingsofGalianianintegrationofthetwoaspectswhichinhisexpositionremainedseparate:ontheoneside,theout-lineofasubjectivetheoryofvalue;ontheother,theideaofageneralinterrelationamongthevariouspartsoftheeconomicsystem.Analo-gously,theFrencheconomistsCournotandDupuit,unanimouslycon-sideredasprecursorsofthemarginalistapproach(cf.above,10.2),totallyoverlookedeconomicinterdependencies,withonefocusingontheequilibriumoftheÞrmandtheotherontheevaluationofpublic

324TheWealthofIdeasworks.2JevonsÕsutilitarianapproachalsofocusedontheanalysisofindi-vidualbehaviour,withthecomparisonbetweendisutility(labour)andutility(consumption),whileinterrelationsamongdifferenteconomicagentsinthemarketconstitutedasuperstructureinmanyrespectsonlyoutlinedcursorily.SomewhatlaterMarshall,thoughtakingintoaccountWalrasÕswork,demonstratedÐasweshallseeinthenextchapterÐhispreferenceforÔshortcausalchainsÕ,hencethemethodofanalysisofpar-tialequilibrium,incomparisontogeneraleconomicequilibriumanalysis,whichheconsideredtooabstract.Ifwetakeallthisintoaccount,wearebetterabletounderstandthemajordistortionofthosewhoviewevenclassicaleconomistsasprecur-sorsoftheanalysisofgeneraleconomicequilibrium.3Therearethreeaspectstowhichreferenceisusuallymadeindoingthis:thenotionsoftheÔinvisiblehandofthemarketÕ,ofcompetition,andofÔconvergenceÕofmarketpricestowardsnaturalprices.Brießyrecallingwhatwehavealreadyseenabove(inparticularinch.5),wemaystressthatnoneoftheseelementsimpliesasubjectiveviewofvalueorthechoiceofthemedievalfair(orofthestockexchange)asparadigmforrepresentingtheworkingoftheeconomy.Inparticular,theideaoftheconvergenceofmar-ketpricestowardsnaturalpricesdidnotimply,forclassicaleconomistssuchasSmithorRicardo,theideaofmarketpricesastheoreticalvari-ablesunivocallydeterminedbyanapparatusofdemandandsupplycurves(northeideathatitispossibletodeÞneÐandconsiderasagivendatumforthetreatmentofthetheoreticalproblemÐsufÞcientlypreciseandstablerelationsconnectingquantitiesdemandedandsuppliedtoprices,northeideathatsuchrelationscanbededucedasrepresentingeconomicagentsÕbehaviour).Thesamemaybesaidforthethesisofthetendency2WalrasanyhowrecognisedthatitwasCournot(cf.forinstancetheletterof20March1874,n.253,inWalras,1965a,vol.1,pp.363Ð7)whohadthemeritofmaintainingthateconomistsmustworkwithmathematicaltools:accordingtoWalrasaswellasJevons(butnotMengerorMarshall),thiswasadecisivepointofdistinctionoftheÔnewschoolÕfromclassicalpoliticaleconomyinitswiderdeÞnitionanditsvariedprogenies,fromSmithtoJohnStuartMill,fromSaytotheÔsocialistsofthechairÕ.CournotÕsinßuencewasespeciallyimportantforÔtheideathatapplicationofmathematicstoeconomicsshouldnotregardnumericalcalculations,buttheapplicationoffunctionalanalysisinordertodeducetheoremsofageneralnatureÕ(IngraoandIsrael1987,p.91).Obviously,asfarasthemathematisationofeconomicswasconcerned,theinßuenceofmathematicalphysicsdevelopedinNewtonÕswakeisessential,asstressedbyIngraoandIsrael(ibid.,pp.33ff.)amongstothers.Inthiscontext,IngraoandIsrael(ibid.,pp.38Ð40)alsostresstheNewtonianderivationofthenotionofequilibriumofsocialforcesintroducedbyMontesquieu(1689Ð1755).OnDupuitandCournotasprecursorsofWalras,cf.IngraoandIsrael(ibid.,pp.72Ð5).Ontheroleofphysicsasaparadigmaticmodelforeconomictheorycf.Mirowski1989.3Cf.forinstanceHollander1973onSmith;Hollander1979onRicardo;Morishima1973onMarx.

Generaleconomicequilibrium325toauniformrateofproÞtsthroughwhichSmithÕsorRicardoÕsÔcom-petitionofcapitalsÕwasexpressed,basedonthefreedomofmovementofcapitalamongdifferentsectorsoftheeconomy.Finally,thenotionoftheÔinvisiblehandÕwasoriginallyusedbySmithindifferentcontexts;ingeneral,wecanattributetohimtheideathatindividualactionsdrivenbypersonalinterestmayhavepositiveeffectsonsociety:athesistypicalofeighteenth-centuryEnlightenmentoptimism,whichinSmithreferredamongotherthingstothegoodfunctioningofaneconomicsysteminwhichindividualsaredrivenbypersonalinterest;butwemostcertainlycannotattributetohimtheideaoftheoptimalityofacompetitivemarketbasedonthemechanismofdemandandsupply.4Inconclusion,wemustrecognisethattheideaofaneconomicsystemdrivenbythetendencyofallitspartstowardsequilibriumbetweensupplyanddemand(marketclearing)issimplyoneoftheviewpointsonwhichwecanbuildaÔsystemofconceptsÕofpoliticaleconomy,onthebasisofwhichwecanthenconstructtheoriesandmodels.5ThehistoryofthisspeciÞcapproachisconsideredinthischapter.Firstofall,weshallconsiderWalrasÕs(2)andParetoÕs(3)contributions,thatis,theLausanneschoolinwhatwemaycalltheheroicstageofthegeneraleconomicequilibriumapproach.ThegenerationfollowingPareto,butstillwithintheheroicstage,includedtheUnitedStateseconomistIrvingFisher(4).ThenwepassontotheÔcriticalstageÕ,whenitwasrealisedthatequalitybetweennumberofequationsandnumberofunknownsisnotsufÞcientforensuringexistenceofeconomicallymeaningfulsolutions(whichinthemindsofthefoundersofthisapproachalsomeantstablesolutions).TheredeÞnitionoftheanalyticalmodelwhichtookplaceinthisstageÐbrießyillustratedin5Ðimpliesaconsiderablereductionintheheuristicvalueofgeneraleconomicequilibriumtheory.However,fromherethestorywentontoanewheroic,orrathertotalitarian,stage:generaleconomicequilibriumanalysiswasidentiÞedwiththeprojectofanaxiomaticeconomicscience.WhenoneforgetsthespeciÞcnatureoftheconceptualsystemonwhichitisbuilt,theaxiomaticmodelofgeneralequilibrium,discussedin6,naturallybecomestheall-inclusivereference4OntheuseoftheexpressionÔinvisiblehandofthemarketÕonthepartofSmith,cf.above,5.6.Letusalsorecall,anticipatingwhatwillbeillustratedbelowinthischapter,thatthethesisofthere-equilibratingcapacityofthemarketcameoutdecidedlyweakened,ifnotrejected,bytheenquiriesonstabilityofgeneraleconomicequilibriummodels.5Fecundityofthisviewpointfortheinterpretationoftheworkingofeconomicsystems,incomparisonwithotherviewpoints,shouldthenbejudgedonthebasisofthegreaterorlessersuccessoftheresearchprogrammeswhichoriginatefromthem.Inthisrespect,wecannotcertainlyconsiderasatriumphtheoutcomesoftheattemptstoconnectthesubjectivetheoryofvalueandtheideaofgeneralinterdependencewithintheeconomy:cf.below,12.7and17.2,andch.18.

326TheWealthofIdeastheory,fromwhichanytheoreticalanalysisofspeciÞcissuesshouldstem,atleastinprinciple.Theanalyticalrigourofthemodelisfascinating,butobscuresitsbasiclimitsasinterpretationoftheactualeconomy.Inparticular,theveryworkofstrengtheningtheanalyticalstructureandextendingthebasicmodelleadstoleavingasidetheideaoftheÔinvisiblehandofthemarketÕwherethelongpathofgeneraleconomicequilibriumtheoryhadstarted.2.L«eonWalrasThegeneraleconomicequilibriumapproach,insofarasitimpliedtheinsertionofthemechanismofsupplyanddemandinacontextofgeneralinterdependenciesinproductionasinconsumption,arosewithWalras.Naturally,thisdoesnotmeanthattherewerenoprecursors.WemayrecallinparticularTurgot(cf.above,4.7),especiallyforthemetaphorswithwhichheconnectedeconomicequilibriumtotheequilibriumofforcesintheÞeldofmechanics.WeshouldalsomentionAchylleNicholasIsnard(1749Ð1803),authorofaTrait«edesrichesses(Treatiseofwealth,1781)presentinWalrasÕslibrary,andauthorofatheoryofrelativepricesbasedonasystemofsimultaneousequationsofexchange.Isnardstressedthefactthattherequirementofequalitybetweenthenumberofindepen-dentequationsandnumberofunknownsmadeitnecessarytochooseastandardofmeasure,thuslimitingthepriceunknownstorelativeprices.6IsnardÕsinßuencewas,however,mediatedbythatofWalrasÕsmainprecursor,hisownfather,AntoineAugusteWalras(1801Ð66),authorofanumberofeconomicwritingsamongwhichDelanaturedelarichesseetdelÕoriginedelavaleur(Aboutthenatureofwealthandtheoriginofvalue,1831)andTh«eoriedelarichessesocialeour«esum«edesprincipesfonda-mentauxdelÕ«economiepolitique(Atheoryofsocialwealthorsummaryofthefundamentalprinciplesofpoliticaleconomy,1849),andsupporterofthethesisthatvaluestemsfromscarcity(or,inotherwords,thatsocial6OnIsnard,cf.IngraoandIsrael1987,pp.61Ð6,andthebibliographyquotedthere.AmongWalrasÕsprecursors,IngraoandIsrael(ibid.,pp.66Ð72)alsorecallNicolas-FranücoisCanard(1750Ð1838),mathematicianbytrainingandwinnerofanInstitutdeFranceprizeforawork(Canard1801)inwhichmarginalanalysiswasusedforanalysisofeconomicequilibrium,anotionconsideredclosetothatofmechanicalequilibrium;inrelationtoitCanardalsoconsideredtheadjustmentprocess.Walras(likeCournot)mightnothavequotedCanardbecauseofÔresentment[…]fortheobscurehighschoolmathteacherwhohadobtainedtherecognitionconstantlydeniedtothembytheprestigiousscientiÞcinstitutionÕ(IngraoandIsrael1987,p.67).Jaff«e1983,pp.297Ð9,alsorecalledJeanJacquesBurlamaqui(1697Ð1748),professoroflawinGeneva,widelyquotedinthewritingsofWalrasÕsfather;butatthesametimestressedthelimitsofalltheseanticipations(includingthosebyTurgot,CondillacandNassauSenior)incomparisontoarigorousformulationofthemarginalutilityprinciple.

Generaleconomicequilibrium327wealthisthesumofthegoodswhicharesimultaneouslyusefulandavail-ableinlimitedquantity).WalrasÕsfatherdeveloped,amongotherthings,someoftheconceptslaterusedbyhisson,suchasthatofthestandardofmeasure,7thedistinctionbetweencapitalgoodsandtheirservices,andthedistinctionbetweencapitalistandentrepreneur.Thecapitalististheownerofcapitalgoods;theentrepreneuroperatesasanintermediarybetweenthemarketofproductivefactorsandthatofproducts,buyingtheservicesoffactorsofproduction,coordinatingtheirutilisation,andsell-ingtheproductthusobtained(aviewoftheentrepreneurwhichWalrasseniortookoverfromSay).8Apartfromhisfather,themainprecursorsforthedevelopmentoftheWalrasiantheoryofgeneraleconomicequilibriumaretobefoundinacompletelydifferentÞeldofresearch,namelyphysics,inparticularmechanics,withitstheoryofstaticequilibrium.Wellrecognisedistheimportance,inL«eonÕsstudies,ofthetext«El«ementsdestatique(1803)bythephysicistLouisPoinsot.9Fromfathertoson.MarieEspritL«eonWalras,oneofthebest-knownandleastwidelyreadeconomistsofalltimes,wasbornon16Decem-ber1834atEvreuxinFrance,anddiedon5January1910atClarensinSwitzerland.10Hisfatherputhimdownfortherenowned«Ecolepolytech-nique,butL«eonfailedtogainadmission(duetoshortcomingsinmath-ematics,itseems),andregisteredatthe«Ecoledesmines.Quitesoon,however,heabandonedhisstudiesinengineeringtodedicatehimselftoliteratureandjournalism;hepublishedanovel(FrancisSauveur,1858),workedontheJournaldes«EconomistesandLaPresse,wasaclerkwiththerailways,co-editorwithL«eonSayofacooperativistreview,LeTravail(1866Ð8),administratorofacooperativebank(whichwentbankruptin1868),andapaidlecturer.Finally,aftermanyfailedattemptsinFrance,in1870heobtainedapositionasateacherattheAcademy(thenUniversity)ofLausanneinSwitzerlandandthefollowingyearhewasnominatedtothechairofpoliticaleconomy.Marriedin1869afteralongperiodofcohabitationfromwhichtwodaughterswereborn,Walrashadtoundertakevariousadditionaljobs(collaborationwithjournalsand7Thenumeraireisthecommoditychosenasstandardofmeasureforprices.ThetermÔmoneyÕdesignatesthemeansofexchange;itmaybethesamecommoditychosenasnumeraire,oradifferentcommodity,orinconvertiblepapermoney.8OntheinßuenceofWalrasÕsfather,cf.forinstanceHowey1989,pp.28Ð32.Howeystressed,however,thattheproblemtackledbyWalrasÕsfatheristhatofthecauseofvalue,notthatofthedeterminationofrelativepricesorthatoftheallocativeroleofprices.9OnPoinsotÕsinßuence,cf.Walker1996,pp.4and36.WalrasusedtheeightheditionofPoinsotÕstext,publishedin1842.10OnhislifeseetheÔNoticeautobiographiqueÕwrittenin1909(Walras1965b).

328TheWealthofIdeasencyclopaedias,consultancywithaninsuranceÞrm)inordertoaddtohismeagresalaryasprofessorduringthelongillnessofhisÞrstwife,whodiedin1879.FiveyearslaterWalrasmarriedagain,Þnallyreachingasoundeconomicposition;butonlyin1892,thankstoaninheritancefromhismother,washeabletopaybackthedebtscontractedtoÞnancepubli-cationofhiswritings.11Atthesametime,agedonlyÞfty-eight,Walrasresignedfromhischairbothbecausehefelttiredandtoconcentrateonresearch;hefavouredParetoÕsnominationashissuccessor.L«eonÕsmainworkwerethe«El«ementsdÕ«economiepolitiquepure(1874;sec-ondpart,1877;fourthedition,1900;theeditioncommonlyusedtodayisJaff«eÕs1954EnglishtranslationoftheÔdeÞnitiveÕFrencheditionof1926,whichinmanyimportantaspectsisquitedifferentfromtheÞrst).12TheoriginalresearchprogrammeoftheFrencheconomistentailedtwoothervolumesafterthatdealingwithpuretheory:oneconcerningappliedeco-nomicsandtheotheronsocialeconomy.Intheirplace,wehavetwocollectionsofessays:the«EtudesdÕ«economiesociale(1896)andthe«EtudesdÕ«economiepolitiqueappliqu«ee(1898).13Theoriginalworkplanderivedfromadistinction,intheÞeldofeco-nomicphenomena,between(a)theÔlawsofexchangeÕ,assimilatedtonaturallawssimilartothosestudiedbyphysicsevenifconcernedwithÔfactsofhumanityÕratherthanwithÔnaturalfactsÕ,whichwerethesub-jectofpureeconomics;(b)theproductionofwealth(divisionoflabour,industrialorganisation),whichwasthesubjectofappliedeconomics;and(c)problemsofdistribution,involvingalsoethicalissues,whichwerethesubjectofsocialeconomics.ThethreeÞeldsinwhichtheeconomistÕsworkwerethussubdividedimplythreedifferentkindsofanalyticalwork,withdifferentlevelsofabstractionanddifferentconnectionswithotherÞeldsofresearch:greaterproximitytonaturalsciencesandparticularlytophysicsforpureeconomics,tosocialsciencesforappliedeconomics,and11In1901,Walrasestimatedhehadspent50,000francs,morethantentimeshishighestannualsalary,forthediffusionofhistheories:cf.Walras1965a,vol.3,p.187.12Thedifferencesbetweenthevariouseditionsofthe«El«ementsarevigorouslystressedbyWalker1996,avolumewhichdrawswithrevisionsonaseriesofarticlesonWalrasoriginallypublishedbetween1984and1994.InthedevelopmentofWalrasÕsthought,WalkerdistinguishesaÞrstcreativestage(1872Ð7),amaturestage(from1878tothemiddleofthe1890s,whichincludesthesecondandthirdeditionofthe«El«ements,1889and1896respectively)andÞnallyastageofdecline(whichincludesthefourtheditionof1900andtheÔdeÞnitiveÕeditionof1926).WalkerremarksthatonlyinthislatterstagedidWalrasintroducetheso-calledwrittenpledges;theFrenchtermusedbyWalraswasbons;Jaff«eÕsEnglishtranslationusesticketsandtheItalianonebyA.Bagiottibuoni,withsomeimprecision;onthemeaningoftheFrenchtermcf.Walker1996,p.331.Writtenpledgesareimportantinsofarastheyallowavoidingdisequilibriumproductiondecision.13ForabibliographyofWalrasÕswritings,cf.Walker1987.PublicationofacompleteeditionoftheeconomicwritingsofAugusteandL«eonWalrasisunderway,infourteenvolumes,withthepublisherEconomicaofParis;vol.8(1988)isacriticaleditionofthe«El«ementswhichindicatesthevariantsbetweensuccessiveeditions.

Generaleconomicequilibrium329tophilosophyforsocialeconomics.Paralleltothistripartition,amongotherthings,wasthedistinctionbetweenthetheoreticalassumptionofabsolutefreecompetition,thecompetitiveconditionsofrealmarketsand,Þnally,theÔprincipleÕoffreecompetition(meantnotonlyasinclusiveofthetheoreticaloptimalityofperfectcompetition,butalsoofitsconcreterealisationanditsequity).IntheÔdeÞnitiveÕedition,the«El«ementsweredividedintothreeparts.AfteranintroductorypartonthedeÞnitionofpoliticaleconomyandsocialeconomy,wehaveastep-by-stepsequence:parttwoconcernsthetheoryofexchangebetweentwocommodities,14partthreeextendsanal-ysistothecaseofmorecommodities;subsequentlyweÞndproduction(partfour),accumulationandcredit(partÞve),money(partsix),growthandthecritiqueofprevioustheories(inparticular,theÔEnglishÕtheoryÐthatis,RicardoÕsandJohnStuartMillÕsÐconcerningprice,rent,wagesandinterest:partseven),monopolyandtaxes(parteight).Underlyingthisconstructtherewasastylisedrepresentationofthemarketeconomy,whichassumedtheParisBourseasarchetype(alreadystudiedinWalras1867,andthenagaininWalras1880,wherehestressedinparticulartheabsenceofexchangesatnon-equilibriumprices).Thetraditionofcontinentalstockexchanges,whichuptoafewyearsbeforehaddifferedfromthatofAnglo-Saxonones,wasbasedonanauctioneerwhowastocalloutinsuccessionthevariousstocks,proposingapriceforeachofthemandascertainingthecorrespondingdemandandsupply.Thepricewasthenadjusted,increasingitwhendemandwashigherthansupplyandreducingitintheoppositecase.Suchanadjustmentprocesscontinueduntilanequilibriumwasreachedbetweensupplyanddemand;actualexchangesonlytookplacewhenthissituationwasreached.1514UnlikewhatNiehans1990,p.211,maintains,thisisnotapartialequilibriumanalysis,butageneralequilibriumanalysisreferredtoanover-simpliÞedsystem.15Anglo-Saxonstockexchangesareinsteadbasedoncontinuoustrading,amodeofopera-tionrecentlyadoptedbycontinentalstockexchangesaswell(theItalianstockexchangeconvertedtoitbetween1992and1993),andwhichaswewillseeconstitutedthetermofreferenceforMarshallÕstheoryasforthatofHicks.Anyhow,weshouldstressthatintheframeworkofWalrasÕstheoryexchangesonlytookplaceoncethepriceswhichensureequilibriumbetweendemandandsupplysimultaneouslyonallmarketswerereached;sincedemandfunctionsdependonthepricesofallgoodssimultaneously(whilewithinthemodelofpureexchangetheavailablequantitiesofthevariousgoodsaregivendataoftheproblem),wecannotconsidertheequilibriumpriceofacommoditytohavebeenreachedsimplybecauseequalitybetweendemandandsupplyforthatcommodityhasbeenestablished,ifequilibriumhasnotbeenestablishedforallothercommoditiesaswell.PassingoverthesedifÞculties,Walker1996repeatedlystressesthewealthofdetailswhichWalrasprovidedonthemarketmechanismsconsideredinhisanalysis,especiallyincomparisontothequicktreatmentMarshallgaveoftheÔcornmarketÕinhisPrinciplesandtothetotallyabstractnature(inthesenseofabsenceofanyreferencetotheconcreteworld)ofmoderngeneraleconomicequilibriumaxiomatictheory.

330TheWealthofIdeasTheworkingofthestockexchangewastakenasthearchetypeofthefreelycompetitivemarket,whichaccordingtoWalrasconstitutedatthesametimeananalyticalassumptionandanormativeidealwhoseoptimalityhadtobedemonstrated.16Thereisatensionbetweentheinter-pretativeandthenormativesideinWalrasÕsanalysis(asinmostofthoseofhisfollowers).Somereadingsofhisworkfocusononeaspectalone,thussacriÞcingtheother.ThemajorityofWalrasÕsinterpreters,how-ever,takeamiddlepathbetweenthetwoextremes,withonlydifferencesofemphasisontherelativeimportanceofnormativeandinterpretativeanalysis.17LetustrytoprovideasketchyrepresentationofWalrasÕsanalysis;indoingso,however,ÞdelitytoWalrasÕstextisinsomerespectssacriÞcedtosimplicityofexposition.18Asfarasthemodelofpureexchangeisconcerned,thedataoftheprob-lemconsistinthenumberofcommoditiesandofeconomicagents,intheirpreferencesandintheendowmentsofeachcommodityforeachagent.Preferencesareexpressedbyindividualdemandfunctionsforthedifferentgoods,whichWalrasderivedfromutilityfunctions.19For16Onthepoliticalplane,Walraswasaprogressivethinker,whoproposedcooperativismratherthanclassstruggleandpursuedidealsofsocialjustice,forexamplewiththeproposaltonationaliselandandattributerenttothestate.OntherelationshipbetweencompetitionandtheroleofthestateinWalras,cf.IngraoandRanchetti1996,p.284.17Thus,forinstance,Jaff«estressedthenormativeaspect(seetheessayscollectedinJaff«e1983),whileSchumpeter1954,Morishima1977andWalker1996,pp.31Ð52,focusedattentiononthedescriptivenatureofWalrasÕsanalysis.Thesedifferencesalsoextendtotheanalysisoftöatonnement,interpretedalternativelyeither(withgreatcaution)asanessentiallyatemporalconstructorasanalyticalrepresentationofarealprocess;thelatterinterpretationpossiblyundervalues(orleavesaside)theanalyticaldifÞcultieswhichappearalongthisroad.IfwebearinmindsuchdifÞculties,ofwhichWalraswasnotcompletelyunaware,wecanhypothesiseathirdinterpretation,intermediatebetweentheÞrsttwo:namely,thatWalrashadstartedfromtheanalysisofrealprocesses,andhadthenshiftedgradually(andpartially)inthedirectionofana-temporalconstruct.18ThisisanywaytrueforpracticallyallillustrationsofWalrasiantheory,manyofwhicharemainlyconcernedwithbuildingabridgebetweenitandsubsequenttheoreticaldevel-opments.Amongthese,weshouldrecallatleasttheimportantwritingsbyNapoleoni1965andMorishima1977.19Withthehelp,inthisrespect,ofacolleagueoftheAcad«emiedeLausanne,AntoinePaulPiccard:cf.Walras1965a,vol.1,pp.309Ð11,andJaff«e1983,pp.303Ð4.Walrasconsid-eredutilityasmeasurable:apointonwhichhissuccessorParetodifferedfromhim.HealsoassumedÔthattheutilityaconsumerderivesfromanycommodityisindependentoftheamountheorsheconsumesofothercommoditiesÕ(Walker2003,p.279).Howey1989,p.38,anyhow,stressedWalrasÕstendencytopassasmuchaspossibleovertheproblemofthemeasurabilityofutility.IngraoandIsrael1987stressthatforWalrasÔwhilenotnumericallymeasurable,ÒsatisfactionÓisaquantitativemagnitudeÕ(ibid.,p.157;cf.alsop.147andpp.166Ð8,wherethedistinctiondrawnbyWalrasbetweenÔphysicaldataÕandÔpsychicdataÕisrecalled;tothisdistinctionÐor,better,tothedistinctionÔbetweenexternalfactsandintimatefactsÕÐIngraoandRanchetti,1996,pp.306ff.,connectthatÔbetweenanalyticalapplicationandnumericalapplicationofmathematicsÕ;

Generaleconomicequilibrium331eachindividualwethenhaveabudgetconstraint,whichensuresequalitybetweenthevalueofgoodsheorshedemandsandtheresourcesheorshecommands.TheequilibriumsolutionfortherelativepricesofthedifferentcommoditiesandforthequantitiesofeachofthemacquiredandsoldbyeachindividualisdeÞnedbothanalytically,asasolutiontoasystemofequations,andthroughtheillustrationofanadjustmentpro-cess(töatonnement)whichismeantasanidealisedrepresentationofwhattakesplaceinrealityundercompetitiveconditions.20Accordingtosuchaprocess,thesystembeginswithaninitialpricecri«eauhazard(givenatrandombytheauctioneer);thenthecorrespondinglevelsofdemandandsupplyarecompared,andtheÔcriedoutÕpriceischangeduntilanequilibriumisreached;onlythendoexchangestakeplace.21Theanalyticalmodelissimple.Firstofall,ashintedabove,foreachindividualwehaveasmanydemandfunctionsastherearecommodities;eachfunctionexpressesthedemandofthatindividualforthatcommod-ityasafunctionofthepriceofthecommodityitselfandofallotherpricesÐwhichareunknownstobedeterminedÐinadditiontotheinitialendowmentsofthedifferentcommoditieswhichtheindividualcommands(andwhich,multipliedbytheirprices,determinetheindivid-ualÕsdisposableincome).Thesefunctionsarebyassumptionindepen-dentandremainunchangedinthecourseoftheprocessofadjustmenttoequilibrium;moreover,thequantitydemandeddecreaseswhenthepriceofthecommodityunderconsiderationincreases,allothervariablesremainingunchanged.Foreachcommodity,thedemandfunctionsofthedifferentindividualsareaddedup;wethusarriveatdeÞningaggregatedemandfunctions,oneforeachcommodity.TotheindividualÕsbudgettheyalsostressthatWalrasalwaysappearedhostiletotheapplicationofnumericalcom-putationinpureeconomics,hencetoBenthamiteutilitarianism,whileinthewakeofDescarteshebelievedmathematicstoconstitutethenecessaryformofanytruescien-tiÞcknowledge).AclearergraspofthelimitsofthecardinalnotionofutilityÐIngraoandRanchetti1996,pp.310Ð14,noticeÐwasproposedbythefamousmathematicianJules-HenriPoincar«e(1856Ð1912),inalettertoWalras(ItaliantranslationinIngraoandRanchetti1996,pp.336Ð7)ofSeptember1901;Poincar«einparticularÔidentiÞesthetwofundamentalpostulatesofWalrasÕseconomictheory[…]intheassumptionsofperfectlyselÞshbehaviourandofperfectforesight,andconcludes:ÒTheÞrstassumptionmaybeadmittedonlyasaÞrstapproximation,butthesecondpossiblycallsforsomereservationsÓÕ(IngraoandRanchetti1996,p.312).20CompetitionishereidentiÞedwithabsenceofobstaclesorfrictionstotheßowofordersofpurchaseorsalethatconvergeonthemarket:cf.Jaff«e1983,p.291.21ThetraditionalinterpretationattributestoanÔauctioneerÕresponsibilityforindicatingtheinitialpriceandforchangingit;Walker(1996,pp.55Ð7,82Ð9,263Ð7)maintainsthatinWalrasÕsopinionallprofessionalagentsinanauthorisedmarketmayassumethisrole,exchangingoraloptions(promises)tosellorpurchaseincasethepriceÔcriedÕbytheauctioneeristheequilibriumone(asalreadyhinted,writtenpledgeswereintroducedonlyinthefourtheditionof1900).

332TheWealthofIdeasconstraintstherecorrespondsasystemofequationsexpressingtheaggre-gateequilibriumconditions:thatis,foreachcommoditythequantitydemandedissetequaltothequantitysupplied.Wethushavetwogroupsofequations:thedemandfunctionsandtheconditionsofequilibrium;ineachofthetwogroups,thenumberofequationsisequaltothenumberofcommodities.ÔWalrasÕslawÕthenremindsusthatoneoftheseequationscanbededucedfromtheothers(namelythatifn-1marketsareinequi-librium,thesamenecessarilyholdstrueforthen-thmarket).Iftherearencommodities,hence,theindependentequationsare2n-1.Wethenhaveanumberofindependentequationsequaltothenumberofunknownstobedetermined(then-1relativeprices,thatis,thepricesofthevariouscommoditiesintermsofoneofthemchosenasstandardofmeasure,andthenquantitiesofthedifferentcommoditiesdemandedinthesystemasawhole).Obviously,oncepricesaredetermined,thequantitiesofeachcommodityacquiredorsoldbyeachindividualarealsodeterminedonthebasisoftheindividualdemandfunctions.Theresult,analogoustothatpublishedthreeyearsearlierbyMengerandJevons,isthatthepricesofthevariouscommoditiesareproportionaltotheirraret«es,ormarginalutilities.Walraswasawareofthefactthatsimpleequalitybetweennumberofequationsandnumberofunknownsdidnotensurebyitselfeconomi-callymeaningfulsolutionsforthevariablestobedetermined;thisessen-tialfunctionwasinfactimplicitlyattributedtotheillustrationofthetöatonnementprocesswhichpurportedtoensurethestabilityofequilib-rium.Inthecaseofpureexchange,asinthefollowingstepsinwhichgraduallyexchangeandproduction,accumulationandmoneywerecon-sidered,theanalysisofstabilitywasanintegralpartofWalrasiantheory:inWalrasÕsopinion,asforalltheotherfoundersofthemarginalistapproach,anunstableequilibriumdidnotconstituteanacceptablesolutiontotheproblemofrepresentingtheworkingofthemarkets.Ineachcasethentheanalysisofequilibriumandofitsstabilitywasfollowedbycomparativestaticsanalysis,aimedatidentifyingwhathappenswhensomedataoftheproblemÐtheinitialendowmentofsomecommodity,orconsumersÕpreferencesÐchange.22Inthecaseofthemodelofproductionandexchange,eachindividualhasathisorherdisposalgivenendowmentsofwhatwemaycallcapitalgoodsat22Analysisofstability,andingeneralofdisequilibriaprocesses,isessentialaccordingtoWalras.Onthispointcf.forinstanceWalker1996,pp.26Ð7,263,271Ð2.IngraoandRanchetti1996,p.281,alsostressthataccordingtoWalrasconvergencetowardsequi-libriumtakesplacewithextremerapidity.Walker1996,p.67,showsthatWalras,afterdeclaringhimselfÔcertainÕofconvergencein1874,followinganepistolarydiscussionwithWicksteedin1889shiftedtoconsiderconvergenceonlyÔlikelyÕ.

Generaleconomicequilibrium333large:land,capitalgoodsintherealsense,personalcapitalgoods(skills).Moreovertheproductionfunctionsareknown,whichexpressthequanti-tiesproducedofthedifferentcommoditiesasincreasingfunctionsofthequantitiesusedoftheservicesofthevariousproductivefactors.Initially,forthesakeofsimplicity,suchfunctionsarebasedontheassumptionofÞxedtechnicalcoefÞcients,whichimpliesabsenceofsubstitutabil-ityamongdifferentfactorsofproductionandconstantreturnstoscale.Sidebysidewiththemarketsforcommoditieswenowhavethemarketsforservicesofproductivefactors,whichareÔhiredÕbytheirownerstoentrepreneurs.Theroleofthelatteristoacquiresuchservices,organisetheproductiveprocessandsellthecommoditiesproduced.CompetitionensuresthatentrepreneursdonotobtainanyproÞt,apartfromtheÔwageofdirectionÕwhichisincludedinthecostsofproduction.23Wethushaveanewgroupofequations,asmanyastherearecom-modities,whichensuresforeachconsumptiongoodequalitybetweenitscostofproductionandproductvalue.Moreover,wehaveagroupofdemandfunctionsfortheservicesofcapitalgoods,asmanyastherearecapitalgoods;thedemandforeachservicecorrespondstothequantityofitemployedintheproductiveprocessesonthewhole,andisthere-foreexpressedasafunctionoftechnology(moreprecisely,oftechnicalcoefÞcientsofproduction)andoflevelsofproductionofdifferentcon-sumptiongoods.Anothergroupofequations(onceagainasmanyastherearecapitalgoods)expressestheequilibriumconditionforthemarketsfortheservicesofcapitalgoodsasequalitybetweenquantitydemandedandquantityavailableforeachservice.24Theadditionalequationscorrespondinnumbertotheadditionalunknowns:thepricesoftheservicesofcapi-talgoods,intermsofthecommoditychosenasstandardofmeasure,thequantitiesdemandedforeachservice,andthequantitiesproducedofthedifferentconsumptiongoods.Theprocessofadjustmenttoequilibrium,ortöatonnement,isinthiscaseobviouslymuchmorecomplexthaninthecaseofthemodelofpureexchange.Walrastriedtooutlinewithprecisionthedifferentaspectsofthisprocess,andinsubsequenteditionsofthe«El«ementshisanalysisunder-wentimportantchanges.Thus,forinstance,thethirdedition(1896)envisagesexchangesoftheservicesofcapitalgoodsevenatpricesdifferentfromtheequilibriumones:productionmaytakeplaceindisequilibrium,23OntheroleofentrepreneursinWalrasÕsmodel,cf.Walker1996,pp.280Ð7.24Letusrecallthatinthemodelofproductionandexchangethereisnoproductionofnewcapitalgoods,whichareassumedtolastforeverandtohaveanefÞciencyinde-pendentoftheirage.LetusalsorecallthatinWalrasianterminologycapitalgoodsincludebothcapitalgoodsproperlycalled,landandpersonalcapitalgoods(workingabilities).

334TheWealthofIdeaswithpriceandaveragecostwhichmaydifferfromoneanother,gen-eratingproÞtsorlossesforthedifferentÞrms,whichasaconsequenceexpandorcontract,enterorexitthemarket,eveniftheendowmentofthedifferentcapitalgoodsremainsconstant.25ProbablyitwaspreciselyinordertoovercometheshortcomingsthatsuchasolutionpresentedwhenmovingontothemodelwithaccumulationthatWalraswasinducedtointroducethemechanismoftheÔwrittenpledgesÕinthefourtheditionof1900.However,thismechanism,apartfrombeingdecidedlylessrealistic,sinceitexcludedanytransactionoutsidethesituationoffullequilibrium,createdmoreproblemsthanitsolved.26Walrasthentackledthethirdmodel,withaccumulationandcredit.Inotherwords,hemovedontothecaseinwhichcapitalgoodsmaybeproducedaswell,hencetotheissueofcapitalaccumulation.Itwasinthisstage,beforemoneywastakenintoaccount,thattheproblemofcreditwasintroduced:wearethusconfrontedwithdemandandsupplyofcreditinrealterms,thatis,intermsofthecommoditychosenasstandardofmeasure.Inordertodealwiththisproblem,WalrasintroducedacommodityE(«epargne,thatissavings),whichhasthecharacteristicofyieldinganannualperpetuityequaltoaunitofthecommoditychosenasstandard,andwhichthushasapriceequaltotheinverseoftherateofinterest.Thiscommodityisdemandedbythosewhodesiretoinvestinthepurchaseofnewcapitalgoods(theentrepreneurs),andissuppliedbythosewhodecidetosave(thecapitalists).Demandandsupplyofthiscommoditythusdepend,ontheonehand,onthepreferencesofeconomicagentsforcurrentconsumptionoverfutureconsumptionand,ontheother,onthereturnoninvestmentinnewcapitalgoods.TheconditionofequalitybetweendemandandsupplyofthecommodityEconstitutesanadditionalequation,whichcorrespondstotheadditionalunknownrepresentedbythepriceofthecommodityE(orbyitsinverse,therateofinterest).25Cf.Walker1996,pp.129Ð54.Absenceofmarketsforcapitalgoods(inadditiontothemarketsfortheirservices),aswellasabsenceofsavingsandaccumulation,areneces-saryinordertoavoidcontradictionsinthisanalyticalrepresentationoftheadjustmentprocess,especiallysoastoavoidtheequilibriumvaluesofthevariablesturningouttodependonthepathofadjustmentfollowedbypricesofservicesofcapitalgoods(Walker1996,p.153).26Cf.Walker1996,pp.321Ð95.WalkerconsidersthemodelofthefourthandÞftheditionsofthe«El«ementsdecidedlyinferiortothatofthethirdedition,undervaluingthelimitsofthelatter,recalledinthepreviousnote.HemoreoverstressesthattheeconomistsofthegenerationimmediatelysubsequenttothatofWalras,particularlyParetoandEdgeworth,usedasreferencemainlythemodelofthethirdedition,whilethemodelwiththewrittenpledgesacquiredadominantroleonlyinthesubsequentstageofaxiomaticgeneralequi-libriumtheory;EdgeworthisalsooneoftheÞrstauthorstostresstheproblemsofpathdependencyimplicitintherepresentationofadynamicmodelallowingforexchangesalsooutsideofthefullequilibriumsituation.OnthedebatebetweenWalrasandEdge-worthonthispoint,cf.Walker1996,pp.302Ð15.

Generaleconomicequilibrium335Inequilibrium,moreover,thesupplypriceofthecapitalgoodswhichareproduced(whichisgivenbytheircostofproduction)mustbeequaltotheirdemandprice,whichcorrespondstotheirnetreturn,discountedonthebasisoftherateofinterestimplicitinthepriceofthecommodityE.Alternatively,itispossibletodeÞne,foreachcapitalgood,arateofreturn,whichisgivenbythenetincome(equaltogrossincome,namelytothepriceoftheserviceofthecapitalgoodunderconsideration,lessthecostsforamortisationandinsurance)dividedbythepriceofthecapitalgood.Investmentindifferentcapitalgoodsmustyieldthesamerateofreturn,inturnequaltotherateofinterestwhichbringstoequilibriumdemandandsupplyofthecommodityE,namelysavings.Furthermore,foreachcapitalgoodinequilibriumdemandmustequalsupply.Ifintheinitialsituationacapitalgoodyieldsahigherrateofreturnthanthatofothercapitalgoods,itprovesproÞtabletoincreaseitsproduction,henceitssupply.Thisbringsaboutareductioninitsprice,uptothepointatwhichitsrateofreturnhasdecreasedtothesamelevelastheratesofreturnofothercapitalgoods.Conversely,thosecapitalgoodsforwhichthedemandpriceturnsouttobelowerthanthesupplypricewillnotbeproduced,andtheirpricewillbeequaltothepresentvalueoftherentsexpectedfromsaleoftheirservices.27Thismodeltoounderwentmajorchanges,withmoredetailedanalysisinthetransitionfromtheÞrsttothesecondandthirdedition,andwithadditionalmodiÞcationsinthefourthandÞftheditions.Moneywasintroducedinafourthstageofanalysisasabridgerequiredbyeconomicagentstocrossthetimeintervalsbetweenoutlaysandtak-ings.Moneywasthusconsideredoneofthetwokindsofcirculatingcapital,sidebysidewithnon-durablemeansofproduction.Netdemandformoneybalancesdependedontheleveloftheinterestratewhichrep-resentedtheiropportunity-cost.28Inthisstageofdevelopmentofhistheorytoo,Walrasstucktotheassumptionofabsenceofuncertaintyinequilibriumstates.Asaconsequence,WalrasÕsmonetarytheorydidnotlenditselftoanalysingthetradecycleasasequenceofdisequilib-riawithitsorigininthemonetaryphenomena:akindofanalysiswhichcharacterisedtheoraltraditionofMarshallÕsCambridgeandthentheworksofMarshallÕspupils,aswellastheAustrianschoolwithMisesandSchumpeter,andlaterwithHayek.Onthewhole,aninsurmountable27Onthismodel,alreadycriticisedbyBortkiewiczandEdgeworth(cf.Walker1996,pp.211Ð34),therehasbeeninItalyaninterestinginterpretative-theoreticaldebate,withcontributionsbyPierangeloGaregnani,AugustoGraziani,DomenicoTosato,EnricoZaghiniandothers.Foranoverviewofthisdebateandthebibliographicalreferences,cf.Tiberi1969.28Alsothediscussionofmoneyunderwentdrasticchangesinthetransitionfromthethirdtothefourtheditionsofthe«El«ements;foranillustrationofthetwostages,cf.Walker1996,pp.235Ð55andpp.399Ð419respectively.

336TheWealthofIdeascontradictionarisesbetweenthestaticnatureofWalrasiangeneraleco-nomicequilibriumanalysisandtheattempttoallowforanotionofmoneywhichissomethingdifferentandwiderthanasimplestandardofmea-sure.29Itisworthstressingthatthisisnotasecondaryaspect:asamatteroffact,itbringssharplyintofocustheheuristiclimitsoftheWalrasianapproachandofthewholelineofresearchoriginatingfromit.DespitemanyyearsÕworkdevotedbyWalrastocompletingandreÞn-inghisgreattheoreticalediÞce,evenapartfromtheissuesconcerningthedeÞnitionoftheinstitutionalassetsandthebehavioursunderlyingthefor-malsystemsofequations,30variouscrucialproblemsremainedunsolved.TheseconcernednotonlythedifÞcultiesWalrasmetinwhatforhimwereonlysuccessiveapproximations,theintroductionofaccumulationandmoney.Asweshallseeinthenextsections,crucialanalyticalissuesremainedopen:demonstrationoftheexistence,uniquenessandstabilityofthesolutions.Indeed,inhisattemptsinthisdirectionWalrasappearedtoconfoundthequestionsofexistenceanduniquenessofequilibrium.Overall,Walrasbuilttheconceptualandanalyticalfoundationsofgeneraleconomicequilibriumtheory,butdidnotsucceedinevenprovisionallybringinghisanalysistoaclose.Thistaskwasattemptedbysuccessivegenerationsofscholars.How-ever,asweshallsee,theresultswillbesomewayfromthehopesthathadnurturedWalrasÕsefforts:neitherstability,noruniquenessofgeneraleco-nomicequilibrium,notevenforthesimplestmodelofpureexchange,canbeprovedundersufÞcientlygeneralconditions.31Giventheobjectiveshehadsetforhimself,wemightsaythat,despitethesophisticationofmanylatercontributions,ifWalrashadknownthisoutcome,hewouldhavehadtoconsiderthathehadlosthiswagerbystartingthenewresearchstreamcentredongeneraleconomicequilibrium.3.VilfredoParetoandtheLausanneschoolWhenhewithdrewfromtheLausannechairin1892,Walrasensuredthataforty-Þve-year-oldengineer,VilfredoPareto,wasnominatedinhisplace.BorninParisin1848,thesonofaGenoanmarquisinexileasafol-lowerofMazzini,ParetostudiedengineeringatTurinUniversity,wherehegraduatedin1870.Subsequentlyheworkedasarailwayengineerand29AnaccurateanalyticalreconstructionofWalrasÕs(andParetoÕs)attemptstointroducemoneyingeneraleconomicequilibriumtheoryandtheirfailureisprovidedbyBridel1997.30ThisisanaspectrepeatedlyconsideredbyWalker1996.31Uniquenessofequilibriumisimportantinordertomaintainthegeneralvalidityofcomparativestaticanalyses,otherwiselimitedtoalimitedcontouroftheequilibriumsolution.

Generaleconomicequilibrium337thenasassistantdirectorandgeneraldirectoroftheFerriereItalianeinFlorence.Compelledtoresignin1890whenthecompanyunderwentacrisis,hebegantakinganinterestineconomicsbyreadingthePrin-cipiidieconomiapurabyPantaleoni,andthenWalrasÕswritings;onlyin1892didhepublishhisÞrstarticlesintheGiornaledeglieconomisti.Activ-ityasafull-timescholaronlybeganwiththeLausanneappointment.In1896Ð7,collectingandexpandinghislectures,hepublished,intwovol-umes,theCoursdÕ«economiepolitique,largelydevotedtoeruditedigressionswhichforeshadowedhissociologywritings,whileonlytheÞrstpartwasdevotedtoanillustrationofWalrasÕstheory.HismainworkinourÞeldistheManualedieconomiapolitica(1906),inparticularthemathematicalappendixtothe1909Frenchedition.Theotherbest-knownwritingscon-cernsociology:Lessyst`emessocialistesdated1901Ð2,andthetwovolumesoftheTrattatodisociologiageneraledated1916.32Greatlyenrichedbyaninheritancein1898,ParetomarriedacountessofRussianoriginsayearlater,onlytobedesertedtwoyearslaterwhensheranawaywiththeiryoungcook.TheLausanneprofessorthenmovedtoC«elignyinSwitzerlandandin1907resignedfromhischair,livinginisolationuptohisdeathin1923.33HehadjustbeenappointedsenatorbyMussolini,butthoughhisopinionshadbecomeincreasinglyconservativewithage,hewastoomuchofanaristocrattoaccepttroopingwiththefascistherd.Onlytwodaysbeforehisdeathhemarriedthecompanionofthelastseventeenyearsofhislife,theyoungParisianJeanneR«egis,treatedforalongtimemoreasagovernessthanasawife.Hiscontributionstoeconomictheoryessentially,butnotexclusively,consistedintheableapplicationofmathematicaltoolstothegeneraleconomicequilibriumapproachdevelopedbyWalras.34Intermediate32ParetoÕsOeuvrescompl`eteshavebeenpublishedinthirtyvolumes,editedbyBusino(1964Ð89).AbibliographyofPareto,preparedbyGabrieleDeRosa,hasbeenpublishedasanappendixtoPareto1960,vol.3,pp.471Ð542.ParetoÕscorrespondenceÞllsÞvevolumes:Pareto1960,3vols.(hiscorrespondencewithPantaleoni)andPareto1973,2vols.,whichincludesacarefulchronologicalbibliography(ibid.,vol.1,pp.101Ð43).33AnotherItalian,PasqualeBoninsegni(1869Ð1939)succeededhimontheLausannechair.Amongthe(rare)followersofthegeneraleconomicequilibriumapproachinitsinitialstages,letusrecalltheÞrstFrenchdiscipleofWalras,AlbertAupetit(1876Ð1943);andtheItalianEnricoBarone(1859Ð1924),knownforhis1908articleontheÔMinistrodellapianiÞcazionenellostatocollettivistaÕ(Theministryofplanninginthecollectiviststate),butalsoresponsibleforintroducingtheanalyticaltooloftheÔbudgetlineÕ(Spiegel1971,p.557)andunsuccessfulsupporterofareconciliationbetweenWalrasandParetowhosince1893hadcomeintoconßictonpoliticalandmethodologicalÐratherthantheoreticalÐissues(ParetoÕsextremeliberalism).34InthisÞeldParetomainlydevelopedcomparativestaticanalysisandwithhimÔfortheÞrsttime,theslopeofthedemandcurvewasderivedfromthecharacteristicsoftheutilityfunctionÕ(Niehans1990,p.266).ParetowasalsotheÞrsteconomisttostudythe(semi-centennial)ÔlongwavesÕ,christenedbySchumpeterÔKondratieffcyclesÕ:cf.SylosLabini1950.

338TheWealthofIdeasbetweeneconomicsandsociologywasthewidelyknownÔParetoÕslawÕconcerningpersonalincomedistribution.TheÔlawÕ(Pareto1896)wassummarisedinafamousformula:logN=logA−logxwhereNisthenumberoffamilieswithanincomeatleastequaltox,Aisaparameterindicatingthesizeofthepopulation,isanestimatedparam-eter,generallyequalto1.5.Theapparentapplicabilityofthisformulatodifferentpopulationsanddifferentepochsseemstoindicateindepen-denceofincomedistributionfromhistoricalandsocialvicissitudes.Amoralteachingseemsimplicitinthis,analogoustothatdrawnfromtheMalthusianÔpopulationlawÕ:policiesaimedatimprovingthelivingcon-ditionsofthepoorclassesareuseless,sincetheycannotmodifyanincomedistributionwhichisaÔlawofnatureÕ,dependingasitdoesÐaccordingtoParetoÐoninnatedifferencesofpersonalabilities,distributedcasuallyamongthepopulation.Itisimportanttorecallthistheorynotonlyforthefortuneithad,givingrisetoasigniÞcantstreamofresearch,35butalsoinordertostresstheimportancethattheeconomistandsociolo-gistParetoattributedtotheexperimentalmethodofnaturalsciences,inparticularofphysicstowhichhereferredonmorethanoneoccasion,inoppositiontotheÔhumanitariansociologiesÕofComte,Spencerandmanyothers.36ThemainanalyticalcontributionsconnectedtothenameofParetoaretheabandonmentofthecardinalnotionofutilityinfavourofanordi-nalnotion,andthenotionoftheÔParetooptimumÕ.Whilethecardinalutilitynotionassumedutilityasaquantitative,measurable,magnitude,ÔordinalutilityÕonlyimpliedanorderingoftheeconomicagentÕsprefer-ences,suchastoberepresentedbyaseriesofindifferencecurves.Forpairsofgoods,37eachsuchcurveindicatesthelocusofallcombinationsofquantitiesconsumedofthetwogoodsconsideredequivalentbythe35Onthisthemecf.Corsi1995.36OnthesethemesParetoalsohad,in1900Ð1,apolemicwithBenedettoCroce,conductedthroughcontributionstotheGiornaledeglieconomisti.CrocemaintainedthatÔeconomicsdoesnotknowthingsandphysicalobjects,butonlyactionsÕ,namelychoices,factsÔof(positiveornegative)valuationÕ;therefore,pureeconomicscannotbeassimilatedtorationalmechanics,asParetotriedtodo.ThelatteransweredbycorrectingCroceÕsvariousterminologicalinaccuracies;healsorecalledthathehadstartedfromtheutil-itarianprinciple,butthenhadreplaceditwiththefactofchoice,afterhavingrealisedthatnobodywasabletomeasureapleasure:followingthedeductivemethodhehadthenconstruedonthebasisofafewprinciplesapuretheory.ParetoequatedCroceÕspositiontothatofPlatonicideas,andconcludedthepolemicbystating:ÔIamnotanenemyofmetaphysics,butdonotunderstanditandhencedonotargueaboutit.ÕCf.ÔLapolemicaCroce-ParetoÕ,inPareto1960,vol.2,pp.391Ð3.37Forngoods,wehaveindifferencesurfaceswithdimensionn-1,inthen-dimensionalspaceofcommodities.

Generaleconomicequilibrium339consumer.Inotherterms,thecurveindicatesbyhowmuchconsump-tionofoneofthetwogoodsshouldincreaseinordertocompensateagivenreductionintheconsumptionoftheothergood.Actuallytherewereprecursorsforbothnotions:IrvingFisherfortheordinalnotionofutility,andFrancisYsidroEdgeworth,withhisÔcontractcurveÕ,forthenotionoftheÔParetooptimumÕ;ParetoreturnedthefavourbychristeningÔEdgeworthboxÕananalyticaltooldevelopedbyhimself,whichEdgeworthhadneverused.38IntheCours(1896Ð7)ParetoproposedthetermÔscienceofophelimityÕ(derivedfromtheGreek,andindicatingtheabilityofagoodtosatisfyneeds)todesignatethesubjectivetheoryofvalue.InthiswayParetowantedtostressÐpossiblyinMengerÕswakeÐthathistheorydidnotdealwithavalueinuseconsideredasanintrinsicpropertyoftheeco-nomicgood,butratherwithasubjectiveevaluationoftheresultsofgivenactionsintheframeworkofapuretheoryofrationalagentsÕchoice(inthesenseofthehomooeconomicus,theanalyticalroleofwhichwasassim-ilatedtothatofthematerialpointinmechanics).39However,onlyinthe1906ManualedoweÞndasystematicillustrationofgeneraleco-nomicequilibriumtheory,onthelinesofarationalmechanicstextbook.Around1898,Paretoabandonedtheideaofmeasurableutility(cardi-nalutility).Takingonthenotionofindifferencecurves,introducedbyEdgeworthin1881,ParetofulÞlleddecisivestepstowardsconstructionofacompleteanalyticalsystem,inparticularbyoutliningthosewhichwerelatercalledthefundamentaltheoremsofwelfareeconomics,aimedtoprovetheoptimalityofthemarketeconomyinconditionsofperfectcompetition.4038Cf.Niehans1990,p.265.39Cf.Donzelli1997.Abandonmentofthenotionofcardinalutility(ÔthehedonisticassumptionÕ)wasamanifestationofParetoÕsanti-metaphysicaltendency;withhisordinalnotionofutility,hethoughthewasabletofocusattentiononÔthematerialfactofchoiceÕ.Cf.Tarascio1973,pp.145Ð51.Tarascio(ibid.,p.156)alsorecallsParetoÕsdistinctionbetweenutility(usedinthepsychologicalÞeldtoindicatethesatisfactionstemmingfromeconomicandnon-economicsourcesalike)andophelimity(usedineconomictheorytodesignatethesatisfactionsstemmingexclusivelyfromeconomicsources).40LaterdevelopmentsincludeSlutskyÕsfamous1915article,followedbyHicksandAllen1934,providingallthemainelementsofademandtheorybasedonindifferencecurves,andshowingthatitdoesnotimplymeasurabilityofutility.SamuelsonÕs1938theoryofÔrevealedpreferencesÕsoughttoindicatehowconsumersÕpreferencescouldbederivedfromobservationofconsumersÕbehaviour,soastoprovideanÔoperationalÕtheoryofdemand;thisimplied,ofcourse,astrongassumptionofstabilityovertimeofconsumersÕpreferences,sothatdifferentobservationsofthebehaviourofaconsumercouldbeinterpretedasstemmingfromthesameÔmapofpreferencesÕ.Ontheempiricalside,Schultz1938analysedconsumptionofagriculturalgoods;amongotherthings,hetriedtotesttheassumptionofrationalbehaviour,buttheresultswerenotpositive;ingeneral,ÔtheprojectofestablishingquantitativedemandrelationsappearedunsuccessfulÕ(Backhouse2003,p.313).Onthestoryofdemandtheoryupto1950cf.Stigler1950.

340TheWealthofIdeasThenotionofÔParetooptimumÕdesignatesasituation(moreprecisely,aspeciÞcutilisationoftheinitialendowmentofresources)suchthatitcannotbemodiÞedinordertoimprovethepositionofsomeeconomicagentwithoutworseningthepositionofatleastoneothereconomicagent.Paretodemonstratedthatcompetitiveequilibriumcorrespondstoanoptimuminthissense.Naturally,givenamultiplicityofcompetitiveequilibriums,henceamultiplicityofParetooptimums,acriterionwouldbenecessaryforinter-personalcomparisonsinordertolocateanabsoluteoptimum.Moreover,thesubsequentdebate,uptotheworksofArrowandDebreuillustratedbelow(6),pointedouttheconditionsrequiredforthevalidityofthetwoÔfundamentaltheoremsofwelfareeconomicsÕ.Suchtheorems,specifyingtheconnectionParetoestablishedbetweencompetitiveequilibriumandoptimalpositionoftheeconomy,stated(a)thateachcompetitiveequilib-riumisPareto-optimal;and(b)thateachParetooptimumcorrespondstoacompetitiveequilibrium.Amongtheassumptionsusedtoprovethetwotheorems,letusrecallabsenceofexternalities,completenessofmarkets,perfectinformationandforesight;thesecondtheoremmoreoverrequiresabsenceofincreasingreturnstoscale.ThedebateonParetooptimality(orefÞciency)constitutedfordecadesthecentralcoreofso-calledwelfareeconomics.However,thesedevelopmentsmainlyconcernedthestageofconstruc-tionofanaxiomatictheoryofgeneraleconomicequilibrium(cf.below,6).AsfarasParetoisconcerned,wemaystressasaconclusionthat,likeWalras,alsohissuccessortotheLausannechairdidnotsucceedinfulÞllingthecrucialstepswithrespecttothedecisiveissuesofexistence,uniquenessandstabilityofgeneraleconomicequilibrium.Perhapsitwasthisoutcome,hisincreasingawarenessofthelimitsofpureeconomictheoryÐlimitswhichgrewmoreevidentthemorerigorousthetheorybecameÐthatdecisivelyshiftedParetoÕsintereststowardssociology.4.IrvingFisherAmongtheÞrstAmericaneconomistsofinternationalfame,weÞndbotharepresentativeoftheMarshallianapproachdominatinginEngland(JohnBatesClark,whomwewilldiscussbelow,in13.7),andarep-resentativeofthemathematicalorientationtypicaloftheFrenchÐItalianschoolofgeneraleconomicequilibrium,IrvingFisher(1867Ð1947).Thelatterhadamathematicaltraining;graduallyhisinterestsmovedtowardseconomics,andthisintellectualpathwasfavouredbytheconnectionsheestablishedwhen,afterhismarriage,hespentayeartravellingthrough-outEurope.HisÞrstworksconcernedapplicationofmathematicstothe

Generaleconomicequilibrium341economictheoryofvalue(asinhisdissertationof1892onMathematicalinvestigationsinthetheoryofvalueandprices,reprintedin1925).41Grad-ually,hispassionforsocialandpoliticalthemesgrew,andFisherbecameanardentsupporterofmonetarystability(developinginthiscontexthistheoryofindexnumbersandbecoming,in1930,theÞrstpresidentoftheEconometricSociety)andofmanyothercauses,fromEsperantotodefenceoftheenvironment.InthetheoreticalÞeld,Fishercontributedondifferentfronts.Firstofall,hedevelopedananalysisbasedonthedistinctionbetweenstocksandßows,andproposedadeÞnitionofincomeconnectedtotheßowsofservicesandwhichexcludedsavings.Thisledhimtosup-portthethesis(whichdatesbacktoWilliamPetty,andwhichinItalywastoÞndasupporterinLuigiEinaudi)ofataxationfocusedonexpenditure.Secondly,thoughusingforthesakeofexpositionacardinalnotionofutility(withthenameofutilsforunitsofutility),FisheranticipatedParetoinproposingatheoryofconsumerequilibriumbasedontheordi-nalnotionofutility,remarkingthattolocatetheequilibriumpositionwhatmattersisonlytheshapeoftheindifferencecurves(atool,aswassaidabove,alreadyutilisedbyEdgeworth).Inthiscontext,itseemsthatFisherwastheÞrsttouseÔthefamiliargraphoftheconvexindifferencecurvesintersectedbythebudgetlineÕ.42Thirdly,Fisherdevelopedatheoryoftherateofinterestintheframe-workofamodelofgeneraleconomicequilibrium,deducingitfromthecomparisonbetweentherateofintertemporalpreferenceofeconomicagentsandthemarginalrateoftemporalsubstitutionontheproductionside.Inthisframework,Fisherproposedtheideaofasystemofinterestrates,asmanyastherearecommodities,connectedamongthemselvesandtothemonetaryinterestratebyexpectedchangesinrelativeprices:aviewlaterdevelopedinanoriginalwaybySraffa(1932)inhispolemicwithHayek,andbyKeynesinchapter17oftheGeneraltheory,butwhichatthesametimeforeshadowedthemodelsofintertemporalgeneralequi-libriumoftheArrowÐDebreutype.Finally,thebestknownofFisherÕscontributionsistheso-calledequa-tionofexchanges,orFisherequation,whichconstitutedthefoundationofthemodernquantitytheoryofmoney:MV=PQ,whereMisthesup-plyofmoney,Vthevelocityofcirculation(thatis,thenumberoftimesinwhichmoneychangeshandwithinaunitintervaloftime),whilePQ41WeshouldstressthatwiththeseworksFisheropposedthethendominantorientationofAmericaneconomists,amongwhomhistoricismandinstitutionalismprevailed,charac-terisingforinstancethebirthin1885oftheAmericanEconomicAssociation.42Niehans1990,p.273.

342TheWealthofIdeasdesignatesthevalue(equaltopricePmultipliedbyquantityQ)ofthecommoditiesexchangedduringthesameunitintervaloftime.Writtenintermsofßowsoftransactions(withadifferenceinthisrespectrelativetotheÔCambridge(orMarshallÕs)equationÕ,asweshallseein13.5),thisequationisbyitselfanidentitywhichsaysthatmoneyßowsgoingfromonehandtoanotherhavethesamevalueastheßowsofgoodsandserviceswhichmoveintheoppositedirection.Inordertotransformthisidentityintoatheoreticalrelationconnectingthepriceleveltothemoneysupply,threeassumptionsarethennecessary:independenceofthevelocityofcirculationandofthevolumeofexchangesfromtheamountofmoneyincirculation,anddependenceofthislatteronthedecisionsofmonetaryauthorities.TheAmericaneconomistthusworkedÔatthefrontierÕinvariousareasofresearch;inparticular,confrontedwiththeincreasinguseofmathe-maticsinpureeconomics,histrainingasamathematicianallowedhimtoformulatewitharigour,precisionandcompletenessunusualatthetimeanumberofelementsofthetheoreticalconstructionnowprevailinginuniversitytextbooksallovertheworld.5.Thedebateonexistence,uniquenessandstabilityofequilibriumWalras,thefounderofgeneraleconomicequilibriumtheory,attributedgreatimportancetostability.Indeed,heconsideredanalysisofstabil-ityanessentialpartoftheveryanalysisofequilibrium;furthermore,intheabsenceofstability,evencomparativestaticanalysis,towhichhealsoattributedgreatimportance,43wouldprovemeaningless.How-ever,asrecalledabove,simpleequalitybetweennumberofindependentequationsandnumberofunknownsisnotbyitselfsufÞcienttoguar-anteetheexistenceofeconomicallymeaningfulsolutions(thatis,non-negativesolutions,forpricesaswellasforquantities),evenlesstheiruniquenessandstability.Generationsofmathematicaleconomiststack-ledthesethemes,andthedebatestillgoeson.Thedebatereachedaclimaxintheearly1930sinVienna.ParetohadrephrasedtheWalrasiantheoryintermswhichcouldbedirectlyusedbyprofessionalmathematicians.44AschematicpresentationoftheWalrasiantheory,widelyknowninGerman-speakingcountries,wasthatoftheSwedeGustavCassel(1866Ð1945):ittoobroughttoattentiontheprob-lemsleftunsolvedaftertheÞrstÞftyyearsofworkongeneraleconomic43AslaterdidSchumpeter,whowentasfarastoconsiderittherealfulcrumofgeneraleconomicequilibriumtheory:cf.below,15.2.44Inparticular,ParetoutilisedtheHessiandeterminant.

Generaleconomicequilibrium343equilibrium.45Simultaneously,withintheAustrianschool,vonWieserÕsformulationofimputationtheory(cf.above,11.4)re-proposed,thoughinadifferentcontext,theproblemofthesolutionofsystemsofeconomicequations.DebateonthemathematicalaspectsofgeneralequilibriumtheorywasalsoinßuencedbytheaxiomaticprogrammethatwithinthemathematicalÞeldwasferventlypursuedbyDavidHilbert(1862Ð1943).Themathe-maticallanguage,fromatooltobeutilisedwithinspeciÞctheoriesworkedoutbyeconomistsaswellasbyphysicistsorbyappliedscientistsinsomebranchofknowledge,becametheunifyingelementofthedifferentthe-ories,whichwereconceivedmoreasabstractformalstructuresthanasrepresentationsoftheworld.AmongHilbertÕspupilsweÞndJohnvonNeumann(1903Ð57),whocontributedtothedebateongeneralequilibriumnotonlywithimportantresults,butalsoandmainlybyfavouringtheacquisitionineconomictheoryofthelanguageoftopology,towhichhehadrecourseinhisproofs,usinginparticularBrouwerÕs(ortheÔÞxedpointÕ)theorem.InVienna,themostactivecaucusofdiscussiononthethemesofgen-eraleconomicequilibriumwastheseminarorganisedbyKarlMenger(1902Ð85),mathematician,sonoftheeconomistCarlwhohadfoundedtheAustrianschool.InsufÞciencyofthemereequalitybetweennumberofequationsandnumberofunknownshadbeenstressedinaseriesofcontributionsbyHansNeisser(1932),FriedrichZeuthen(1933)andHeinrichvonStackelberg(1933),afterRemak(1929)hadrecalledthatineconomicsonlynon-negativesolutionscanbeacceptedasmeaningful.SpurredbythebankerKarlSchlesinger,anactiveparticipantatMengerÕsseminars,aninitialsolutiontotheproblemofexistenceofequilibriumwasofferedbyAbrahamWald(1902Ð50).Alltheseworksusedthedis-tinctionbetweenfreegoods(thatis,goodsavailableinaquantitysuperiortothatdemandedatanynon-negativeprice),thepriceofwhichiszero,andeconomicalgoods,forwhichequalitybetweendemandandsupplyisreachedincorrespondencewithapositiveprice.ThetrickconsistedinreplacingtheequalitiesoftheWalrasianequationswithfeebleinequal-ities,soastodetermineendogenouslywhichgoodsarefreeandwhicharenotfree,whichgoodsareproducedandwhicharenotproduced.Wald(1936)wentsofarastodemonstratetheexistenceandunique-ness(butnotstability)ofequilibrium;however,thisresultwasobtainedthroughrecoursetotherestrictiveassumption,whichcannotbejustiÞed45CasselsimpliÞedWalrasÕstheorybyassumingasgiventheindividualdemandfunctions,thusgivinguptheirderivationfromutilityfunctions;healsoassumedÞxedcoefÞcientsofproduction.

344TheWealthofIdeasatthelevelofeconomicinterpretation,thatfortheeconomyasawholetheso-calledfeebleaxiomofrevealedpreferencesholds,concerningthenon-contradictorynatureofindividualchoices.46Immediatelyafterthis,in1937,inanessayoriginallypresentedatPrincetonin1932,vonNeumannprovidedadecisivecontributionwithhisfamousmodelofbalancedgrowth.Thismodelwasformulatedintermsofinequalities:foreachgood,thequantitysuppliedmustbegreaterthanorequaltothequantitydemanded;moreover,thepricemustbelowerthanorequaltoproductioncosts.Asaconsequence,somegoodsmayproveÔfreeÕ,thatis,availableinquantitiessuperiortodemandforanypositiveprice:theirpricewillbezero,andtheirproductionwillbenil.Bythesametoken,productionofeachcommoditywhosepriceproveslowerthanproductioncostswillbenil.Inotherwords,thesolutiontothesystemofequations,whichincludeequalitiesandinequalities,deÞnesanucleusofgoodsforwhichbothpricesandproducedquantitiesarepositive.ApeculiarityofvonNeumannÕsmodel,whichonthisaccountfollowedthesamelinesasCasselÕscontribution,isthestrictrelationshipbetweenrateofgrowthandrateofinterest.InvonNeumannÕsmodel,thesetwovariablesweredeÞnedassolutionsofdistinctbutÔdualÕproblems:therateofgrowthemergedasthesolutionoftheproblemofquantitiesconsideredasaproblemofmaximisationunderconstraint,whiletherateofinterestemergedasthesolutionoftheproblemofpricesconsideredasaproblemofminimisationunderconstraint.Acrucialaspectofthisgroupofcontributions,henceofKarlMengerÕsseminar,wastheuseoftopologyineconomictheory.Wemayrecallparticularlythecentralrole,intheproofsofexistenceofequilibrium,ofBrouwerÕsÞxedpointtheorem:acontributionwhichseemstohavealsohadaninßuenceonthedevelopmentofphilosophy,byinducingLudwigWittgensteintoreconsiderhisopinionthathis1921Tractatuslogico-philosophicusconstitutedthedeÞnitivesolutiontoallphilosophicalproblems,andthustogobacktophilosophy.KarlMengerÕsseminarhadalreadybeendispersed,evenbeforeAustriaÕsannexationtoGermany,bytheriseoffascismandnazism,whichinducedmanyofitsprotagonists(andallleadingAustrianeconomists)tochoosethepathofexile.(Schlesingerinsteadchosesui-cide.)Thesubsequentpointofreferencewas,aftertheconclusionoftheSecondWorldWar,theCowlesCommissionatChicago.Withit,how-ever,weentertheÞeldofthedevelopmentoftheaxiomatictheoryofequilibriumontheoneside,andofeconometricmodelsonthe46Cf.IngraoandIsrael1987,pp.202ff.

Generaleconomicequilibrium345otherÐthatis,themeswhichwillbediscussedrespectivelyinthenextsectionandin17.7.Herewemerelytouchonathemewhichwillbetakenupinchapter17:thedevelopmentofgametheoryinprimisbyvonNeumannandMorgen-stern,asamethodwhichallowedtheinterrelationswhichconnectthedecisionsofdifferenteconomicagentstobetakenintoaccount.Theirvolume,Theoryofgamesandeconomicbehaviour,waspublishedin1944;itsauthorspresentedgametheoryasabettertoolthantheWalrasÐParetotheoryforinterpretingthecomplexityofinterrelatedsocialphenomena,inparticularthecasesofintermediatemarketformsbetweencompeti-tionandmonopoly.Gametheorygaverisetodifferentstreamsofresearchwithineconomictheory,amongthemthereconstructionofcardinalutil-ityfunctionsonthebasisofaprobabilistic-subjectiveapproachwhichdatesbacktoDanielBernoulliandhissolutiontotheStPeterburgÕsparadox47anddevelopsthroughRamsey(1926)andDeFinetti(1930,1931)andthenSavage(1954);NashÕsnotionofequilibriumandofacoreoftheeconomy(Nash1950);48industrialorganisationtheory;and,inmorerecenttimes,evolutionarytheoriesbasedonrepeatedgames.6.ThesearchforanaxiomaticeconomicsAswehavealreadyhintedintheprevioussection,adecisivesteptowardsthemathematicalsolutionoftheproblemofexistenceofageneraleco-nomicequilibriumwasaccomplishedinthe1930s,particularlythankstotheuseoftopology.ThismathematicaltoolbecameestablishedamongeconomistsonlyaftertheSecondWorldWar;HicksÕsValueandcapital(1939),themostinßuentialreworkingofgeneraleconomicequilibriumtheoryofthatperiod,49stillusedonlythetoolsofdifferentialcalculus,47Forasyntheticillustration,cf.Niehans1990,p.405ff.48ANashequilibriumis,inessence,thatsituationinwhichnoagentcanimprovehisorherownposition,giventhestrategiesÐnotsimplythealreadyknownchoicesÐofotheragents.Inrelationtotraditionaltheory,herethepossiblereactionsofagentstothemovesofotheragentsaretakenintoaccount:TheÔcoreÕoftheeconomyconsistsofthesetofNashequilibriums.49AsIngraoandIsrael1987,p.178,recall,ÔitwastheassimilationandthemethodologicalÞlterproposedÞrstbyHicksandthenbySamuelsontospreadthetheoryofgeneraleconomicequilibriumamongprofessionaleconomistsandgiveitanunchallengedkeyposition.ÕThishappeneddespitetherelativebackwardnessoftheanalyticaltoolboxusedandinsufÞcientattentiontotheproblemsofuniquenessandstabilityofequilibrium,orperhapspreciselythankstothisdelaywithrespecttotheViennadebateofthelate1920sandearly1930s.AgainIngraoandIsrael(ibid.)recallthatÔinalittlereadandsoonforgottenreview,MorgensternaccusedHicksÕsbook[…]oflackingrigourandofbeingoutdated.Õ

346TheWealthofIdeasdatingbacktoNewtonandLeibniz.However,togetherwithtopologyanotherelementmadeitsentryineconomics,themethodofaxiomatictheorising.Thisisawaytoorganiseanalysiswhichistypicalofmathemati-caleconomists:indeed,theÞrsttoadoptitandtoimposeitineconomicsÐtobecomeNobelprizewinnersforeconomics,likeArroworDebreuÐweremathematiciansbytrainingwhoturnedtoworkoneconomicissues,fordifferentreasons,intheintermediatestagebetweenuniversitystudiesandthebeginningofanacademiccareer.Themethodofaxiomatictheorisingconsistsinformulatingaprecisesetofbasicassumptionsexpressedinformalterms(liketheaxiomsofcon-vexityofisoquantsontheproductionsideandofindifferencesurfacesontheconsumptionside),inexpressingtheproblemitselfinformalterms,commonlyintheeconomicÞeldintermsofconstrainedmaximisationorminimisation(maximisationofutilities,minimisationofcosts),andindeÞningagaininformaltermsthedesiredresult(forinstance,determi-nationofasetofnon-negativevaluesforpriceandquantityvariablessuchastosatisfytheproblemunderconsideration).Inotherwords,theissueofwhateconomicmeaningshouldbeattributedtothevariablesandtotheresultsoftheanalysisisrigorouslydistinguishedfromthesearchforananalyticalsolutiontoaproblemwhichinthiscontextonlyfeaturesasamathematicalproblem.50KennethArrow(b.1921,Nobelprizewinnerin1972)adoptedboththemethodofaxiomatictheorisingandthemathematicaltooloftopol-ogyinhisÞrstfamouscontribution,Socialchoiceandindividualvalues(1951).InthisworktheimportantÔimpossibilitytheoremÕwasproposed,accordingtowhichnodecisionalprocedureexistssuchastosatisfysimul-taneouslytworequirements:Þrst,toguaranteethetransitivityofsocialchoicesamongthreeormorealternatives(ifAispreferredtoBandBispreferredtoC,AtooispreferredtoC);second,tosatisfysomerequire-mentsofÔdemocracyÕ(expressedinformalterms:forinstance,ifoneofthealternativesgoesupinanindividualÕsranking,whileallotherindi-vidualsÕrankingsremainunchanged,thatalternativecannotgodowninrankingforsocietyasawhole).50Itispreciselythisclear-cutseparationbetweenthestageofconceptualisation,inwhichtheassumptionsarechosentobeusedasabasisforanalysis,andthestageofmodelbuilding,togetherwiththe(unjustiÞed)choiceoffocusingattentionexclusivelyonthelatter,whichexplainstheabsoluteabsenceofattentiononthesideofmoderngeneraleconomicequilibriumtheoreticiansforsuchanessentialaspectasthetotalunrealismoftheassumptionsofconvexityintechnologyorofcompletenessofconsumersÕprefer-ences.Confrontedwiththepersistentrefusaltotacklesuchissues,DebreuÕsstatement(quotedbyIngraoandIsrael1987,p.288)accordingtowhichÔtheaxiomatization[…]facilitatesthedetectionofconceptualerrorsintheformulationofthetheoryandinitsinterpretationÕappearsdevoidofcontent.

Generaleconomicequilibrium347WhenArrowtackledtheproblemofexistenceofsolutionsforthegen-eraleconomicequilibriummodel,therealreadyexistedthesolutionsbyWald(1936)forCasselÕssimpliÞedversion,andbyvonNeumann(1937);therealsoexistedasolutionbyNash(1950)forann-persongameintheframeworkofavariantofgametheoryproposedbyvonNeumannandMorgenstern(1944).The1954solutionbyArrowandDebreu51(likeasimilarsolution,publishedinthesameyearbyLionelMcKenzie)jointlyadoptedaxiomaticmethodandtopology.Theconditionsunderwhichexistenceofasolutionwasprovedweregivenbythestartingaxioms;oneofthem,concerningtheinitialendowmentsofeacheconomicagent(whomusthavepositivequantitiesavailableofeachgood),wasimmediatelyconsideredtoorestrictive,andafewsubsequentworksweredevotedtoreplacingitwithotheraxioms,heldtobelessrestrictive.Conversely,theaxiomofconvexityofproductionisoquantswasquietlyaccepted,eventhoughitcorrespondedtoanassumptionÐconstantordecreas-ingreturnstoscaleÐalreadyconsideredunacceptablebyMarshall,whodevotedmuchofhistheoreticalactivitysearchingforawaytocircumventit(cf.below,13.3).Inmorerecentyears,theattemptstointroducelocalconcavitiesinproductionsetsoriginatedmoreinthesearchonthepartofsomemathematicaleconomistsoflittle-developedÞeldsofenquirythanintherealperceptionoftheimportanceofthislimitinArrowÐDebreuanalysis.Anotherdevelopment,alongthesamelines,ofgeneraleconomicequi-libriumtheorywastheslimvolumebyDebreu,Theoryofvalue(1959),andanumberofotherwritingsculminatinginthewidesystematisationbyArrowandHahn(Generalcompetitiveanalysis,1971).AÞrstimportantstepconsistedintheintroductionofÔdatedÕcommodities:atonofcornavailableatacertaindateisdifferentfromatonofcornavailableatadifferentdate.ThemainstepthenconsistedintheintroductionofthenotionofÔcontingentgoodsÕ:thesamegood,forinstanceanumbrella,isconsideredasadifferentgoodaccordingtotheÔstateofnatureÕ(whetheritrainsornot)inwhichtheeconomicagentÞndshimself.Economicagents,inthiscontext,maximiseexpectedutility(anotionillustratedby51GerardDebreu,French,bornin1921,Nobelprizein1983,wasatthebeginningofthe1950sacolleagueofArrowattheCowlesCommissionatChicago,thenremainedinAmericaasprofessorÞrstatYaleandthenatBerkeley.AfeatureofDebreuÕsworkisthattheissueofthestabilityofequilibriumisleftaside,whileattentionisfocusedonexistenceproofs.ArrowandHahn,instead,followWaldÕsapproachintryingtospecifylessandlessrestrictivesetsofaxiomsbutsuchastoallowforaproofofbothexistenceandstabilityofequilibrium.Cf.IngraoandIsrael(1987,pp.278and300Ð1)onthisdifferenceofapproach,and(ibid.,pp.280Ð8and299Ð305)onDebreu,whoseapproachinvolvesÔemptyingthetheoryradicallyanduncompromisinglyofallempiricalreferenceÕ(ibid.,p.285).

348TheWealthofIdeasvonNeumannandMorgensterninanappendixtotheirbookontheappli-cationofgametheorytoeconomics),attributing(subjective)probabilitydistributionstothedifferentÔstatesofnatureÕ.Wecanthusrepresentageneraleconomicequilibriuminwhichthereareasmanymarketsastherearedatedandcontingentgoods,thusdealingwiththeissueofuncertainty(orrather,ofrisk);itisalsopossibletointerpretcontingentmarketsasmarketsforinsurancecertiÞcatesrelativetodifferentpossibleevents.52Axiomaticgeneraleconomicequilibriumtheoryhasbeenconsideredbymany,possiblybythemajorityofmainstreameconomists,asthefron-tierofbasicresearchintheÞeldofeconomics.ThelabelÔgeneralÕ,inparticular,hasbeenusednotsimplyintheoriginalmeaningofÔinclu-siveofthetotalityoftheeconomicsysteminitsinterrelationsÕ,butalso,implicitlyifnotexplicitly,inthemeaningofcompulsoryreferenceforanyeconomicenquiry.Indeed,asshouldbeevidentifweconsidernotonlythebasicassumptions,alwaysveryrestrictive,butalsoandespe-ciallythespeciÞcoperatingmechanismsbasedontheomni-pervasiveruleofmarketclearingequilibriumbetweensupplyanddemand,theÔArrowÐDebreumodelÕ,thoughmostusefulfordealingwithwell-deÞnedissuesalongaspeciÞcresearchpath,isonlyoneofthepossibleanalyticalrepresentationsofeconomicreality.Inotherwords,wemayperhapssaythatthemethodofaxiomaticthe-orisingwasusedbyArrowandDebreuinthelocalmeaningofanalyticalprocedureforspeciÞcissues,butwastheninterpretedinawidersense:thesamesenseinwhichHilbert,attheendofthenineteenthcentury,proposedaprogrammeofcompleteaxiomatisationofmathematics.53Theanalysisofgeneraleconomicequilibriumhasthusbeenconsideredaprogrammeforthereductionofthewholeofeconomictheorytoacen-tralcore:aprecisesetofaxiomsfromwhich,withtheadditionoffurtherassumptionswhichcouldchangefromcasetocase,wecandeductaseriesoftheoremsconstitutingaÔcompleteÕrepresentationofeconomicrealityoratleast,accordingtothefamousthesisoftheearlyWittgenstein,ofeverythingineconomicrealitywhichiscapableofscientiÞcexpression.Thus,onanumberofaccountstheÔsubstantiveÕresultofthelongresearchworkongeneraleconomicequilibriumtakesusbackwards:52Indoingthisitisassumed,amongotherthings,thateconomicagentsareaversetorisk.53TheinßuenceofÔBourbakismÕ(fromBourbaki,thenicknameunderwhichanimportantassociationofFrenchmathematicianspublishedtheirresultsintheimmediatepost-SecondWorldWarperiod,tryingtoreconstructthefoundationsofmathematics)wasalsoimportant,especiallyÐthroughDebreuÐattheCowlesCommission:cf.Mirowski2002,pp.390Ð4.ÔThelessonderivedbyArrow,Debreu,andNashfromBourbakiwasthatquestionsofexistenceofequilibriumwerereallyjustdemonstrationsofthelogicalconsistencyofthemodel;therewasnopressingcommitmenttomodelsasacalculativedevicethatmimickedrealityÕ(ibid.,p.410).

Generaleconomicequilibrium349furtherbackwardsthantheproblemsalreadytackledbyMarshall(suchasinparticularincreasingreturnstoscale)orthedebatesinthe1930sonG¬odelÕstheoremandtheimpossibilityofHilbertÕsprogrammeforacom-pleteaxiomatisationofmathematics,oroftheabandonment,onthepartofWittgenstein,ofthestandadoptedintheTractatuswhenconfrontedwithSraffaÕscriticisms.Butwewillreturntotheseissuesinthecomingchapters.

13AlfredMarshall1.LifeandwritingsAlfredMarshall(1842Ð1924)wasnotamongtheprotagonistsofthe1871Ð4ÔmarginalistrevolutionÕ:hisÞrstmajorwritingsbelongtotheendofthe1870s,andhismaincontribution,hisPrinciplesofeconomics,appearedin1890,nearlytwodecadesaftertheworksofJevons,MengerandWalras.MarshallhimselfwasaversetoconsideringthenewroadtakenbyeconomicanalysisasaÔrevolutionÕoraclear-cutbreakwiththepast:inhisopinion,thiswasinsteadastepforward,althoughcer-tainlyanimportantone,relativetotheclassicaleconomistsÕ(inparticularRicardoÕsandtheRicardiansÕ)approach.Indeed,hispersonalcontribu-tion,inhisownopinion,consistedinthesynthesisbetweenthegreattradi-tioninheritedfromthepastandthenewyeastofthesubjectiveapproach.Yet,wemustrecognisethatMarshallcontributedmorethananyoneelse,possiblyatleastinpartagainsthisownintentions,toÔshuntthecarofeconomicscienceÕinthedirectionofthatapproach(whichHicks,StiglerandSamuelsonpreferredtocallÔneoclassicalÕ,ratherthanÔmarginalistÕorÔsubjectivistÕ,inordertostressthattheturn-aroundimpliedanimpor-tantelementofcontinuitywiththepast)whichstilltodaydominatestheteachingandthinkingofeconomistsallovertheworld.MarshallwasborninLondon,on26July1842,toamodestbour-geoisfamily.1Hisfather,authoritarianifnottyrannicalwithinthefamily,wasamodestclerkoftheBankofEngland.AlfredstudiedinaschoolintheperipheryofLondon,theMerchantTaylorÕsSchool;hedistinguishedhimselfandwasawardedascholarshiptoOxford,aimedatÞnancingclas-sicalstudiesasabasisforanecclesiasticalcareer.However,hefeltmore1TherearetwomainreferencesforMarshallÕsbiography.TheÞrstistheclassicalportraitofMarshallprovidedbyKeynesimmediatelyafterthedeathofhismaster,intheobituary(Keynes1924)laterreprintedintheEssaysinbiography(Keynes1933,pp.150Ð266)withanumberofchangesandwithoutthesecondpart,theÔBibliographicallistofthewritingsofAlfredMarshallÕ.Letusalsomentionthemonumental,richlydocumented,biographybyGroenewegen(1995),towhichwedeferalsoforthereferencestothemultitudeofotherwritingsonthesubject.350

AlfredMarshall351inclinedtomathematicsand,thankstoaloanfromanunclewhohadmigratedtoAustraliaandhadbecomerich,decidedtodefyhisfatherÕspressuresandchooseCambridgeÕsmathematicalcurriculum,asastu-dentofStJohnÕsCollege.In1865hebrilliantlypassedhisexaminations,secondwrangler(thatis,rankingsecondamongthemathematicsgradu-ates,onlysurpassedbyRayleigh,futurelordandNobelprizewinnerforchemistryin1904).ThusMarshallÕscareerbegan,ÞrstwithafellowshipatStJohnÕs,then(in1868)aslecturerofmoralsciencesinthesamecollege.Aroundthemiddleofthe1870s,perhapsinconnectionwithhispreparationsforatriptoAmericain1875,hisinterestsshiftedfrommathematicsandmoralsciencestowardspoliticaleconomy.Participatinginaschemetopromotetheadmissionofwomentouniversity,AlfredtaughtpoliticaleconomytoNewnhamHallÕsfemalestudents.2TherehemetMaryPaley,whomhemarriedin1877.Afterareviewin1872ofJevonsÕs1871book,MarshallÕsÞrstimportantcontributiontoeconomictheorywasacollectionofessays,publishedin1879forprivatecirculationbyHenrySidgwick,onThepuretheoryofforeigntrade.Thepuretheoryofdomesticvalues.3Inthesameyearhepublished,togetherwithhiswife,adeclaredlydidactictext,Theeconomicsofindustry(Marshall1879a),whichhadgoodsalesandalsoconstitutedamostimportantoriginalcontributioninoutliningarepresentationofeconomiclifewhichwemaydeÞneasevolutionary.Followinghismarriage,MarshallwascompelledtoresignfromStJohnÕsCollege,whichrequiredcelibacyofitsfellows.MarshallwasabletogobacktoCambridgeonlywhenelectedprofessorofpoliticaleconomy,asasuccessortoFawcett,in1884.4InthemeantimetheMar-shallsspentsomedifÞcultyearsinBristol.HereAlfred,whoappearedexhaustedinbodyandinspirit,struggledundertheworkloadÐwhich2Thelecturenotes,takenbyMaryPaleyandrevisedbyMarshallhimself,havebeenpublished,withabroadintroductoryapparatussettingthemagainsttheirhistoricalback-ground,editedbyRaffaelli,BiaginiandMcWilliamsTullberg(Marshall,1995).3Marshall1879b;nearly100yearslater,in1975,aneditionofTheearlyeconomicwritingsofAlfredMarshall,1867Ð1890appeared,edited(andwithanextensiveintroduction)byJ.K.Whitaker,includingamongotherthingsthemanuscriptofavolumeonforeigntradefromwhichthetwochapterspublishedbySidgwickweredrawn.OntheÞrststageofdevelopmentofMarshallÕseconomicthought,cf.alsoDardi1984.4OnHenryFawcett(1833Ð84),oneofthemostpopularÞguresofVictoriantimes,cf.thecollectionofessayseditedbyGoldman1989.Fawcettbecameblindwhentwenty-Þveyearsoldduetoahuntingaccident,afterhavingbeenoneofthemostbrilliantstudentsatCambridge,butreactedwithenergyandcourage.AfollowerofJohnStuartMillandanexponentofthemostradicalstreamofliberalism,hepublishedaManualofpoliticaleconomy(Fawcett1863),becameprofessorofpoliticaleconomyattheUniversityofCambridgeand,in1865,MemberofParliament.

352TheWealthofIdeasincludedadministrativetasksinadditiontoteachingÐconnectedtohisroleasprofessorandsimultaneouslyasprincipaloftheUniversityCollege.In1881heresigned,andtheMarshallsspentayearlargelytravelling,withalongstayinPalermowhereitseemsthewritingofthePrinciplesbegan.BackinEngland,in1882MarshallbecameprofessorofpoliticaleconomyatBristol,butinthefollowingyearhemovedtoOxford,asthesuccessortoArnoldToynbee,lectureratBalliolCollege.TheprestigiousCambridgeappointment,whichcameunexpectedly,markedaturningpointinhislife.Marshallheldthepoliticaleconomychairfortwenty-fouryears,upto1908,butremainedinCambridgeuntilhisdeathin1924,andretainedastronginterestinthevicissitudesoftheeconomicscurriculumcreatedbyhisimpulsein1903.FromCambridge,MarshallexercisedsigniÞcantinßuenceovertheteachingofeconomicsintherestofEngland.In1890,withhisactiveintervention,theBritishEconomicAssociationwasfoundedandtheEco-nomicJournalwaslaunched.HisPrinciplesofeconomics(eighteditions,from1890to1920)5soonbecamethereferencetextforgenerationsofeconomicsstudents:yearslater,KeynessaidthattheformationofagoodeconomistonlyrequiresthePrinciples,accompaniedbythecarefulread-ingoftheeconomicpagesofagoodnewspaper.Amongthestudents,thesmallguidepublishedbyMarshallin1892,Elementsoftheeconomicsofindustry,waswidespread;itreplacedthewidelyread(andinmanyrespectsmuchmoreinteresting)Economicsofindustry(1879a),6whichhadbeenwrittenincollaborationwithhiswife.MarshallÕsinßuencewasexercised,perhapsmainly,throughhispupils:withoutevertakingonthepresidencyoftheBritishEconomicAssoci-ationorthedirectionoftheEconomicJournal,Marshallinßuencedtheselectionforthesepositions,andlikewiseinßuencedthenominationoftheeconomicsprofessorsinthemajorEnglishuniversities,amongwhichCambridgehadcometodominate;thereAlfredimposedArthurCecilPigouashissuccessor.MarshallÕsmarkwassostrongastobeperceptibledecadeslaterinpost-SecondWorldWarCambridgeaswellasintodayÕstextbooks.5Theeightheditionhadtenreprintsbetween1922and1959,andstillotherssubsequently;theninth(variorum)edition,dated1961,waseditedbyMarshallÕsnephew,C.W.Guillebaud,intwovolumes,ofwhichtheÞrstcontainsthetextoftheeightheditionandthesecondthevariantsofpreviouseditionsandothermaterials.6SeeBecattiniÕs(1975)wide-rangingintroductiontotheItalianedition.Inthenewbookof1892,MarshallputÔthemostoriginalresultsofhisresearchesonthelabourmarketÕ(Becattini2000,p.32).AsnotedbyKeynes(1924,pp.628,632,633),whilethetwoeditionsoftheEconomicsofindustryrepresented,withtheirtenreprints,15,000copiesinall,theElementsoftheeconomicsofindustryreachedfoureditionswithnineteenreprintsand81,000copies.ThePrincipleshadeighteditionsandonereprint,37,000copiesoverall,beforeMarshallÕsdeath.

AlfredMarshall353Sidebysidewiththeoraltraditionofhislecturesandthevastcor-respondencewithinterlocutorsworldwide,7animportantcomponentoftheMarshalliantheoreticallegacyisrepresentedbyhisOfÞcialpapers,mostlytestimonialstoparliamentarycommissions,8andagroupofarti-clescollectedafterhisdeathinavolumeofMemorials.9ConsideredaslessimportantarethetwovolumesoriginallyintendedasthecompletionofthegreatdesignbegunwiththePrinciples,whichMarshallpublishedonlyintheÞnalyearsofhislife:Industryandtrade,dated1919,andMoney,creditandcommercedated1923.Marshalldied,agedeighty,in1924.2.ThebackgroundInordertostudyMarshallÕsthoughtitisworthfocusingonhismag-numopus,thePrinciples.Yet,noteveninthiswayisitpossibletoreachaunivocalrepresentationofhisthought.Indeed,throughamultiplicityofqualiÞcationsandshadesofmeaningMarshallbroughttogetherdifferentelements,evencontradictoryones,suchasanevolutionaryviewandstaticequilibriumanalysis.Moreover,intime(henceinsubsequenteditionsofthePrinciples)therewerenumerousandoftenmajorchangestothemean-ingofkeynotionsandtheveryanalyticalstructureofMarshalliantheory.Thus,itmaybeusefultobeginbyconsideringMarshallÕsbackgroundandhisÞrstwritings.Marshallalwaysmaintainedthathehaddevelopedhisapproachautonomously,basedonasubstantiallysubjectivetheoryofvalueandonequilibriumbetweendemandandsupply,butalsoonanattempttosafeguardwhatheconsideredasvitalintheclassicaltradition.HisthesiswasthattheresultssubsequentlydevelopedinthePrincipleshadalreadybeenreachedbyhimattheendofthe1860s,bytranslatingJohnStuartMillÕstheoriesintomathematicalterms.Indeed,itisclearthatwhenJevonsÕsTheoryofpoliticaleconomyappearedin1871,MarshallwasreadyÐaswasshownbyhisreviewofthebook,whichconstitutedoneofhisÞrstprintedworks(Marshall1872)Ðtounderstanditselementsofnovelty,andtoevaluatetheminthelightofanalreadysufÞcientlydevelopedviewofhisown.However,thisdoesnotdenyJevonsÕspriorityofpublication,asregardsthemaininnovativeelementsofthemarginalistrevolution7Cf.ThecorrespondenceofAlfredMarshall,economist,3vols.(withanaccuratecriticalappa-ratus)editedbyJohnK.Whitaker,Marshall1996a.8ThevolumecollectingtheseOfÞcialpaperswaspublishedposthumously,in1926,editedbyJ.M.Keynes.FurthermaterialcollectedbyPeterGroenewegenhasbeenpublishedrecently,liketheÞrstvolumeundertheauspicesoftheRoyalEconomicSociety,withthetitleOfÞcialpapersofAlfredMarshall.Asupplement(Marshall1996b).9TheMemorialsofAlfredMarshall,editedbyPigou,werepublishedundertheauspicesoftheRoyalEconomicSocietyin1925.

354TheWealthofIdeaswithinthesubjectivisttradition,inparticularthederivationofdemandcurvesandthedeterminationofpricesconnectedtomarginalutility.ThisfactimpressedonMarshalltheneedtoclearlydistinguishhisideasfromthoseoftheÔfoundingfatherÕofEnglishmarginalism:aneedreinforcedbyhispersonalvicissitudes,typicalofauniversityman,determinedtoprogressinthecareerwhichhehadundertaken.DifferentiationfromJevons,systematicallypursuedinallofMarshallÕssubsequentscientiÞcwork,consistedÞrstinstressingtheone-sidednessofapurelysubjectivetheoryofvalue,asJevonsÕsutilitarianonewas,andincounteringitwiththeequallyone-sidedobjectivetheoryoftheclassicaleconomists,basedoncostofproduction;theninpresentinghisowncontributionasasynthesiswhichincludedwhatwasvalidineachofthetwoopposingapproaches.Asweshallsee,thisimpliedasomewhatmisleadingreinterpretationoftheclassicalapproach,asifitwerebased,likethemarginalistone,onthepillarofthestaticnotionofequilibriumbetweensupplyanddemand.MarshallÕsÞrstenquiriesintheeconomicÞeld,asalreadystated,werepublishedin1879forprivatecirculationbyhisfriendSidgwick,underthetitleThepuretheoryofforeigntrade.Thepuretheoryofdomesticvalues.Itseems,however,thattheinitialwritingofthetwoessayscollectedinthissmallvolumedatedbackto1869Ð73,whichlendssupporttotheideathatMarshallÕstheoriesdevelopedindependentlyofthoseofthefoundingfathersofthemarginalistrevolution,inparticularJevons.MarshallÕsthesisofanautonomousdevelopmentofhisthought,gradualandnotinfrontaloppositiontotheclassicalschool,ismadeplausiblebytheseÞrstwritings.HereMarshallbeganwithanalysisofequilibriuminforeigntrade,andasalogicaldevelopmentarrivedthenatatheoryofinternalprices.Thestartingpointconcernedthefollowingissuewhichclassicaltheoryhadleftopen.Ontheonehand,thelabour-valuetheoryadoptedbyRicardoandhisimmediatefollowersprovidedaunivocalÐthoughnotsatisfactoryÐanswertotheproblemofdeter-miningrelativeprices;ontheother,thetheoryofcomparativecostspro-posedbyRicardoinordertoexplaintheßowsofforeigntradelefttheexchangeratiosbetweenimportedandexportedcommoditiesindetermi-nate(thoughwithinanintervalwhoseextremesaredeterminedforeachpairofimportedandexportedcommoditiesbytheratiosbetweentheircostsofproductioninthecountriesoforiginanddestinationoftheßowsofexchange).ThisproblemhadattractedJohnStuartMillÕsattentioninoneofhisEssaysonsomeunsettledquestionsofpoliticaleconomy(publishedin1844),andhehadproposedasolutionbasedonrecoursetotheroleofdemand.InthesimpliÞedcaseoftwocountriesandtwocommodities,wemaythusreachconclusionssuchasÔtheadvantageofsmalldimensionsÕ,

AlfredMarshall355bywhichthesmallestcountryobtainsbettertermsofexchange,thankstothereduceddimensionofitsdemandfortheimportedcommodityrel-ativetothedemandfortheexportedcommoditycomingfromthelargercountry,orsuchastheforecastofaworseningofthetermsoftradeforthatcountryinwhichdemandfortheimportedcommodityincreases.ThisisthelineofresearchthatMarshalldevelopedinhisPuretheoryofforeigntrade,determiningequilibriumtermsoftradeonthebasisofacomparisonbetweenthedemandcurvesforimportsofthetwocountries.Marshalltookfulladvantageofhismathematicaltraining,inparticularbyrecoursetotheÔgraphicalmethodÕ.Inconsideringthecaseoftwogoodsandtwocountries,thegraphanalysedbyMarshallhadonthetwoaxesthequantitiesofthetwocommodities.Foreachofthemitisalreadyknown,fromcomparativecosttheory,whichisimportedandwhichexportedbyeachofthetwocountries.Thetwodemandcurves(oneforeachcountry)indicate,foranygivenquantityofimportedcommodity,themaximumquantityofexportedcommoditywhichthecountrybeingconsideredisreadytogiveinexchange.Theintersectionofthetwocurvesdeterminestheequilibriumpoint,whichindicatesthequantityexchangedofthetwocommodities,hencethecorrespondingexchangeratiobetweenthem.TheresultsthatMarshallthusreachedincluded,Þrstofall,attributingacentralroletothenotionofequilibriumbetweendemandandsupplyasthebasisfordeterminingexchangeratios;secondly,theproposalofthethemesofmultiplicityandpossibleinstabilityofequilibrium,towhichdetaileddiscussionwasdevoted.Thesamemethod,thesamenotionofequilibriumandthesamethemesconcerningmultiplicityandpossibleinstabilityofequilibriumwerethendevelopedinThepuretheoryofdomesticvalues.HerewealsoÞndtheprob-lemofincreasingreturnstoscalewithwhichMarshallwassoconcernedinhismatureformulationofthetheoryofequilibriumoftheÞrminhisPrinciples.Finally,wealsoÞndsystematicuseofthetemporalspeciÞca-tionofthenotionofequilibrium;inparticular,Marshalldistinguishedbetweenveryshort,short,longandverylongperiodequilibriums.10Suchequilibriumsareconnectedtotheassumptionofgivensupply(veryshortormarketperiod),variablesupplybutonthebasisofagivenproductivecapacity(shortperiod),variablesupplyalsothroughtheadaptationofproductivecapacitybutonthebasisofagiventechnology(longperiod),variablesupplyinacontextinwhichalsotechnologyandthewholestateoftheeconomicsystemchange,includingconsumerincomesandtastes(verylongperiod).10Ofcoursethedistinctiondoesnotconcernactual(historical)time,butwhathasbeencalledÔoperationalÕtime:cf.Blaug1962,p.354.

356TheWealthofIdeasThesameyear,1879,sawthepublicationoftheworkMarshallwrotewithhiswifeMaryPaley,Theeconomicsofindustry,basedonhisaptlyreviseduniversitylectures.WhiletheessayseditedbySidgwickreßectedMarshallÕsmathematicalformulation,anddecidedlypointedinthedirec-tionofaÔneoclassicalÕviewbasedonstaticequilibriumbetweensupplyanddemand,TheeconomicsofindustrymorestronglyreßectedMarshallÕsstudiesinthesocialsciences(atthetimeincludedintheareaofmoralsciences).Itwasthusacontributionthat,whilstnotseekingtobuildarigorousanalyticalstructure,wasmorereceptivetoaspectsofhistoricalevolution,aimingtorepresentacomplexandconstantlychangingeco-nomicreality.EveniftheinßuenceofDarwinÕsevolutionismwasnotexplicitlyrecognised,itismuchmorevisibleinthisworkthaninthetheoreticalessayscollectedbySidgwick(letusrecallthatTheoriginofspecieswaspublishedin1859andThedescentofmanin1871,andthatDarwinÕsinßuencewasquitestronginCambridgeuniversitycircles).11MarshallexpressedbothagradualistviewtoevolutionismsummarisedinthemottopreÞxedtothePrinciples,ÔNaturanonfacitsaltumÕ,andacomplexviewofeconomicprogresswhichlaidstressmoreonthequalityoflifethanonpercapitaincome.Alsotheideaoftimeasanirreversibleßowwasrepeatedlystressed.Finally,atleastpartlyconnectedtotheevo-lutionaryviewistheshiftfromtheclassicalnotionofÔnaturalÕpricestothatofÔnormalÕvalues(forpricesaswellasforproducedandexchangedquantities).Suchashiftreßectedwithsomedelaythediffusionoflognor-mal(orGaussian)curvesinstatistics,andtheconnectedideathatsuchcurvesrepresentlawsofdistributionforthephenomenaofsocietyaswellasforthoseofthenaturalworld.Insubstance,deviationfromtheÔnormÕwasconsidered,atleastwithinlimits,amostcommoneventwhichdidnotconstituteaviolationofthenormitself.Suchanormemergedasastatisticalaveragefromalargenumberofcasesobserved;asaconse-quence,theelementofÔcorrespondingtowhatitshouldbeÕorÔperfectexpressionofalawwhichisintrinsictothenatureofthingsÕwaslost,whileitwasimplicitinthenotionofnaturalvalue.Furthermore,accordingtoMarshallthepresenceoftechnologicalchangeaccentuatedtheindicativecharacterofnormalvalueasdeÞnedbythetheory,andthusthemarginofimprecisionwithwhichthetheoreticallawcouldbeappliedtotherealworld.1211Becattini2000,p.7,alsorecallstheinßuenceoftheÔrevolutionÕofnon-Euclideangeometry.12CarlFriedrickGauss(1777Ð1855)usedthelognormalcurvetorepresentthelikelydistributionoferrorinthetheoryofmeasure.SubsequentlyAdolpheQuetelet(1796Ð1874)usedthesamecurvetorepresentbiologicalorsocialphenomena,interpretingtheresultsasmanifestationsofnaturalorsociallaws,whoseaverage(ormedian:in

AlfredMarshall357Wethushave,sinceMarshallÕsÞrstpublications,atwofoldlineofresearch:ontheoneside,theattempttobuildarigoroustheoreticalsys-tem,basedonastaticnotionofequilibriumbetweensupplyanddemand;ontheother,theattempttoworkoutasystemofconceptssuchastorepresenteconomicrealityinawaythatallowedforhistoricaldevelop-mentsandevolution.Ratherthantheproblemofasynthesisbetweenthesubjectivemarginalistapproachandtheobjectiveapproachofclassicaleconomists,itisthecontinuousoverlappingofthesetwolinesofresearchandtheimpossiblereconciliationbetweenthetwodistinctresearchaimswhichisthetruekeytounderstandingandinterpretingMarshallÕspath,hiscontributionstoeconomicscienceandthelimitsofhiseconomicsconstruct.133.ThePrinciplesWhenin1890theÞrsteditionofthePrinciplesofEconomicsappeared,aftermanyyearsÕwork,thegroundhadalreadybeenpreparedtoensurethebookhadamajorimpactontheeconomiccultureofthetime.MarshallwasthensettledintheCambridgechair,whichthanksmainlytohispres-tigehadbecomethemaineconomicschairofthecountry,andhispupilsoccupiedimportantpositionsintheEnglishacademicworld(aswehavenoted,thesameyearsawthebirthoftheRoyalEconomicSocietyandtheEconomicJournal).Moreover,theinßuenceoftheclassicaltraditionthelognormaldistributionthetwocoincide)representsinsynthesisthepropertyofapopulationofcases,andtheÔlawÕthusrepresentedisnotviolatedbyindividualcasesdifferingfromtheaverage.WemayconsiderasÔanomalousÕonlythecaseswhichdifferfromtheaveragebymorethanapre-setamount(bearinginmindthatinthecaseofaGaussiandistribution,adifferencehigherthantwicethemeansquaredeviationhasaprobabilityofabout5percent).Ontheimportanceofthisviewforthedevelopmentofsocialsciencesandonitsrapidspread,cf.Hacking1990,inparticularpp.105Ð24.Withsomeexcessofemphasis,wemightsaythattheideaofhumansciencesasconcerningargumentstobededucedfromÔhumannatureÕwasreplacedbythatofstatisticallawsaboutwhatisÔnormalÕ.Inthissense,wemightadd,theviewofeconomicscienceasatheoryofthebehaviouroftherationalagent(orhomooeconomicus)istheextremedescendantoftheoldviewofhumansciences;substitutionofthetermÔnaturalÕwiththetermÔnormalÕonthepartofMarshallisanindicationofhispersistentattempttoescapesuchaview.ThemottoÔnaturanonfacitsaltusÕ,ÔnaturedoesnotproceedbyjumpsÕ(notÔsaltumÕ,asMarshallwrote),hadalreadybeenutilisedinthemid-eighteenthcenturybythegreatnaturalistCarolusLinnaeus(1707Ð78).13Becattini2000offersafascinatingreconstructionofMarshallÕsÔvisionÕ,stressingtheÔanomaliesÕinthisauthorrelativetothemarginalisttradition.Amongsuchanomalies,aviewofÔmanasavariedandvariableentityÕ(ibid.,p.11),alreadyhintedatinthepreviousnote,isprominent.Becattini(ibid.,p.50)goessofarastoconclude,agreeinginthiswithDardi1984,thatÔMarshallshouldnotbeplacedasmoreadvancedorlaggingbehindonthepathofneoclassicaleconomics,butelsewhere.ÕThisinterpretationimpliesconsideringthePrinciplesasÔonlyanintroductiontotheintroductionofthebookÒontheworldÓwhich[Marshall]alwayslongedforwritingÕ(ibid.,p.32).

358TheWealthofIdeaswasstillstrong,whilethemarginalistheterodoxyattractedindeedthemostbrilliantmindsbutstilllessconsensusthanCliffeLeslieÕsEnglishhistoricalschool.14Insuchasituation,Marshallofferedasetofelementsdesignedtoattracttheconvergentinterestofthedifferentstreamsofeco-nomiccultureexistingatthetime:insistentreferencetotheclassicaltradi-tion,fromtheSmithiantheoryofthedivisionoflabourtotheÔRicardianÕtheoryofrent;acceptanceofthebasicelementsofthemarginalistrevo-lution,withattributionofacentralroletodemand,hencetoeconomicagentsÕpreferences,withinatheoryofvalueinwhichpricesweredeter-minedbythemechanismofequilibriumbetweensupplyanddemand;15insertionofthisanalyticalstructureinthecontextofbroaddiscussions(whichcannotbereducedtosimpledigressions)onthemeaningoftheconceptsusedintheanalysisandonthehistoricalevolutionofsociety;andreferencestoDarwinianevolutionism,whichconferredanelementofscientiÞcmodernityontheworkandprovidedaßexible,openresponseÐalsoinmethodologicaltermsÐtohistoricalevolutionincomparisontothereferencetophysics(moreprecisely,tostaticmechanics)prevailinginthetheoriesofequilibriumofauthorsofstrictermarginalistfaith.ThePrincipleswerepresentedastheÞrstoftwovolumes;thesecondvolume,however,wasnevercompleted,andsincethesixthedition(1910)thelabelÔÞrstvolumeÕdisappeared.Thesecondvolumewasoriginallyplannedtodealwithforeigntrade,monetaryandÞnancialissues,tradecycle,taxation,collectivismandasynthesisoftendenciesoftheeconomytowardssocialprogress;onlypartofthisgroundcorrespondstothatcov-eredinthetwolastworksbyMarshall,IndustryandTrade(1919)andMoney,creditandcommerce(1923).16FromtheÞrst(1890)totheeighth14ThomasEdwardCliffeLeslie(1827Ð82),professoroflawandpoliticaleconomyatQueenÕsCollege,Belfastfrom1853,proposedandusedinvariouswritingsahistorical-deductivemethodofanalysis,recallingSmithandJohnStuartMillinoppositiontoRicardoÕsdeductivemethod.Hiswasarelativelymoderatehistoricism,especiallyifcomparedwiththepositionsthatweretobetakenupbySchmollerÕsGermanhistoricalschool(cf.above,11.2).OccupyingslightlymoreradicalpositionsthanCliffeLeslieÕswastheotherÞrst-rankexponentoftheEnglishhistoricalschool,JohnKellsIngram(1823Ð1907),followerofAugusteComteÕspositivism,henceofanintegrationofpolit-icaleconomywithothersocialsciences,whosebest-knownwork(Ahistoryofpoliticaleconomy,1888)illustratedtotheEnglishpublicthecontributionsofthecontinentalhistoricalschool.15Moreprecisely,foreachcommoditythenormalpriceisdeterminedbythepointwheretwocurvesmeet,graphicallyrepresentingthedemandandsupplyfunctions.Theserespectivelyconnectthesupplyprice(costplusnormalproÞt)andthedemandprice(themaximumpricewhichthepurchaserisreadytopay)tothequantityofthecommodityunderconsideration.16Cf.Whitaker1990.Wheneightyyearsold,whenhehadcompletedMoney,creditandcommerce,MarshallstillplannedacollectionofessaysonEconomicprogressasapartialsubstituteforanoriginalvolumeonthesubject,whichhefelthewasnolongerabletowrite.

AlfredMarshall359(1920)edition,thePrinciplesremainedatthecentreofMarshallÕstheoret-icalwork,undergoingsubstantiverevisions;thisisespeciallytruefortheÞfthedition(1907),thelastbeforehisresignationfromtheCambridgechair.Thevoluminousvariorumeditio(1961),promotedbytheRoyalEconomicSocietyandeditedbyMarshallÕsnephew,CharlesGuillebaud,allowsustoreconstructthispath.TheimportanceofMarshallÕsrevisionstohisPrinciplestestiÞestothedifÞcultieshemetinhisworkofsynthesisbetweendifferentapproachesandinhisattempttobuildatheoryofvaluewhichwastoincludesimul-taneouslytheobjective(costofproduction)andthesubjective(utility)element,andwhichwastobeatthesametimerigorous,realisticandopentohistoricalevolution.BeforediscussingthedifÞcultiesMarshallmet,itmaybeusefultorunoverthemainaspectsofhisapproach:themethod(complexityoftherealworldandshortcausalchains);thenotionsofequi-libriumandcompetition;andtheconceptsoftheÞrmandtheindustry.Wewillthenconsidertheproblemofincreasingreturnsandthetwosolu-tionssuggestedbyMarshall,therepresentativeÞrmandexternalÐinternaleconomies.MarshallÕsmethodologicalstandpointwassimpleinitsobjective:torecognisetheextremecomplexityoftherealworld.Theorycannotbutbeabstract,butmustkeepitsfeetontheground.Hencehistenet,whichunderlayhisÔpartialequilibriummethodÕ,thatÔshortcausalchainsÕshouldbeprivileged.Ateachstep,theoryproceedsbyisolatingalogicalnexusofcauseandeffectheldtobethemainone,andthusleavesasideothereffectsheldtobesecondary,thoughnotnon-existent.Thisislegit-imate,indeednecessary,forconstructionofeachindividualanalyticalpiece.However,whenweputtogethermanylogicallinksandgeneratelongcausalchainsÐashappensforinstanceingeneraleconomicequilib-riumtheoryÐthesecondaryeffectsleftasidemayinrealityhavereper-cussionswhichamplifystepbystep,andthismaycausetheconclusionsdrawnfromthetheoreticalanalysistobemisleading.HenceMarshallrelegatedtoamathematicalnote,inappendixtohisPrinciples,hisillus-trationofgeneraleconomicequilibrium(anexpositionwhich,compactasitis,isoneofthemostrigorousofthetime).Instead,inthetextMarshallpreferredtofocusontheÔshortcausalchainsÕ,inparticularonthemethodofpartialequilibriums.ThelatterconsistedinconsideringdemandandsupplyofeachgoodÐthatis,theconditionswhichcon-curindeterminingequilibriuminthecorrespondingmarketÐasinde-pendentofwhatsimultaneouslyhappensonothermarketsfortheothergoods.ThesameawarenessofthecomplexitiesoftherealworldÐanawarenesswhichisdemonstratedinthewealthoffootnotesandqualiÞcationshe

360TheWealthofIdeasmakes,thatonoccasiondominatethelogicalthreadoftheexpositionÐmayalsobeperceivedintheattentionMarshalllenttotheconstructionofthesystemofconceptsbywhichtorepresentreality.17IntheÞrstbooksofthePrinciples,stepbysteptheconceptsintroducedarediscussedbyillustratingforeachtheshadesofmeaningandtheÔpenumbraÕÐtouseGeorgescu-RoegenÕsevocativetermÐwhichrenderedtheircontoursimprecise.18Thisistrueinparticularforthekeynotionsofequilibriumandcom-petitiontowhich,intheintertwiningoftextandnotes,afÞrmationsandqualiÞcations,itisverydifÞculttoattributeaunivocalmeaning.Wecanpointtotwotermsofreference,betweenwhichMarshallÕsposi-tionoscillated,intheimpossibleattempttoabsorbboth:ontheoneside,thenotionswhichsubsequentlytookthetextbooksbystorm,andwhichconstitutewhatwemightcalltheMarshallianvulgata;ontheother,theesotericnotions,disseminatedamongthecircleofpupilsanddirectfollowers,connectedtoanevolutionaryviewwhichdrewmoreonLamarckratherthanonDarwinÕsoriginaltheories.19IntheÞrstcaseÐtheMarshallianvulgataÐthenotionofequilibriumcorrespondstothestaticnotionofequalitybetweendemandandsupply,andthenotionofperfectcompetitiontothepresenceofalargenumberofÞrmsineachindustry,solargeastorenderthesizeofeachÞrmirrelevanttothedimensionsof17PerhapsinthisrespecttheinßuenceofAustrianandGermaneconomistswasimportant.Onecouldrecall,forinstance,theattentionlenttotheseaspectsinMengerÕsPrinciples.Streissler1990a,p.51,showsthatthestructureofMarshallÕsPrinciples,likethoseofMenger,reproducedthestructureofatypicalGermantextbookofthemiddleofthenineteenthcentury,suchasthosebyRauorRoscher(cf.above,11.1).Streissler(ibid.,p.57)stressesalsothatRauÕstext,oneoftheÞrsteconomicsbooksreadbyMarshall,precededthelatterÕsPrinciplesinrepresentingthedemandcurvewiththepriceonthehorizontalaxis.18ItwasalsointhiswaythatMarshallsucceededinrealisinganuncertaincompromisebetweentheÔobjectiveÕapproachofclassicaleconomistsandtheÔsubjectiveÕoneofthetheoreticiansofthemarginalistrevolution.Thus,forinstance,thewagewassometimesconsideredasthematerialsubsistenceoftheworkersandsometimesasanincentivetotheirÔeffortandsacriÞceÕ.Bharadwaj1978,p.98,instressingthispoint,recalledthatitwassuggestedtoherbySraffa.Analogously,inthecaseofproÞtsthenotionofÔabstinenceÕproposedbySeniorwassoftenedbyMarshallintothenotionofÔwaitingÕ.Whenfromtheconceptswemoveontothetheory,thependulumdecidedlytendstowardsmarginalisttheory.19Cf.RidolÞ1972.ThethesiswhichcharacterisedthepositionofJean-BaptistedeLamarck(1744Ð1829)andwhichwasrejectedbyDarwin,wastheheredityofthechar-acteristicsacquiredinlifebyanorganismasresponse-adaptationtotheenvironmentinwhichitlives.DarwinÕswell-knownthesiswasthatthecharacteristicsbestadaptedtoexistence(andabovealltoreproduction)intheendprevailbecauseofaprocessofnaturalselection.LamarckÕstheseshadbeenreproposed,confoundedwithDarwinÕsevolution-ism,asatoolfortheanalysisofsocietybythesociologistHerbertSpencer(1820Ð1903),veryinßuentialatthetime;hisimportanceinthedevelopmentofMarshallÕsthoughtisstressedbybothRidolÞ1972andGroenewegen1995.

AlfredMarshall361theindustryasawhole,andthechoicesofeachindividualÞrmirrele-vantfortheindustryasawhole(hencefortheequilibriumpricelevel).InthesecondcaseÐtheevolutionaryviewÐthenotionofequilibriumtakesondynamicfeatures,intheattempttotakeaccountoftheirre-versibilitywhichcharacterisestheactualmovementsoftheÞrmandtheindustryalongdemandandsupplycurves;20thenotionofcompetitionissoftenedbyattributingtoeachÞrmsomeroomformanoeuvrewhichamongotherthingsincludesthepossibilityofviolatingtheso-calledlawoftheoneprice.21TheoreticalanalysisÐconstructionofwell-structuredmodelsÐisinevitablyledtorefertoclear-cutconceptsoftheÞrstkind;inthecaseoftheevolutionaryview,asweshallseebelow,weremaininsteadintheÞeldofmetaphors,whichareevocativebutcertainlynotrigorous.22Inotherwords,intheoscillationfromtheÞrsttothesecondpoleoftheMarshallianconstruct,whatisgainedonthesideofrealismislostonthesideofanalyticalrigour.TheverynotionsofindustryandÞrmconstitutedabridgebetweenthecomplexityoftherealworldandtherequirementofsimplicityofabstracttheory.MarshalltherebydistancedhimselffromtheextrememethodologicalindividualismoftheÞrstmarginalisttheoreticians,andprivilegedinsteadaclassicalfeature,bywhicheachcommodity(ÔgoodÕ,inthesubjectivistterminology,whichthuslaysstressontheirutilitytotheconsumer)correspondstoacategorywhichincludesobjectsnotidenticalbetweenthemselvesbutsufÞcientlysimilartowarrantunitarytreatment,23andinparalleleachindustryincludestheÞrms(complexproductiveunits)whichoperateinoneofsuchcommoditycategories.20MarshallderivedtheÔevolutionaryÕnotionofequilibriumfromthetheoryofpopulation,whichcantendtoastationarystatethroughbirthanddeathßows.Cf.RidolÞ1972.InthePrinciplesMarshallseemedtopreferthisnotiontotheÔmechanicalÕonederivedfromphysics,whichdominatedbeforeandafterhimamongmarginalisttheoreticians.21CompetitionwasratheridentiÞedwithfreedomofmanoeuvre.Marshall1890,p.347,explicitlystressedthathisnotionofÔnormalÕdidnotcoincidewiththatofÔcompetitiveÕ.Hart1996,p.360,remarksthatÔInPrinciples,competitionwasessentiallyseenasabehaviouralactivityratherthanasamarketstructure.Õ22Obviously,anevolutionaryviewtoocangiverisetomathematicalmodelsandawell-structuredanalysis.Wemayask,inthissense,whatshapethePrincipleswouldhavetakenifMarshallhadknownAlfredJamesLotkaÕs(1880Ð1949)writingsonmathematicalpopulationtheory.However,adevelopmentinthisdirectionmaywellhavebroughttolightthenumerouselementsofunrealismoftoostrictacomparisonbetweenbiologicalpopulationsandsetsofeconomicsubjectslikeÞrms,evenasidefromconfusionbetweenLamarckÕsandDarwinÕsevolutionism.AdebttowardsthedifferenceequationsusedbyLotkatodeÞnedimensionsandtheagestructureofthepopulationinthecaseofthestationarystatewasrecognisedbySamuelsoninhisFoundations(1947).23InthisrespectMarshall(1890,p.509n.2)quotedPettyapprovingly,whohadrecalled(inPetty1662,p.89)thatintheLordÕsPrayerthetermÔbreadÕdesignatesfoodingeneral.WemayalsorecalltheuseofthetermÔcornÕinRicardoandmanyotherclassicaleconomiststodesignatethesetofagriculturalproducts.

362TheWealthofIdeasQuitenaturally,variousproblemsarisewhenthecategoriesthusdeÞnedarerelatedtotherealworld:fromthecaseofjointproductiontotheproblemofdifferencesinthetechnologiesadoptedbydifferentÞrmsbelongingtothesameindustry,uptotheproblemofgreaterorlessersimilaritybetweentheproductsofdifferentÞrmsbelongingtothesameindustry.Thelatteraspectinparticularisimportant,foritrenderslessclear-cut,andmoreßexible,theMarshalliannotionofcompetition;insuchaway,indeed,thisnotionwasbentsoastoallowforsomedegreeofindependencebetweentheÔmarketsÕofthedifferentÞrmsbelongingtoanindustry,hencesomedegreeofautonomyinthepricechoicesofthedifferentÞrms.Ashintedabove,withinthisconceptualframeworkMarshallÕsanalyt-icalstructurewasbasedon(shortorlongperiod)equilibriumbetweendemandandsupply.Thedemandfunctionforeachcommodityisassumedtobederivedfromindividualpreferences;24overall,however,Marshalltendedtoskateovertherelationshipbetweenutilitymapsanddemandfunctions:thisaspectdidnotconstituteoneofhisoriginalcontributions.25Forthepurposeofdeterminingequilibrium,itissuf-Þcienttoassumeasgiven(anddecreasing,onthebasisofthedecreasingmarginalutilitypostulate)thedemandfunctionsforthedifferentgoods.26Attentionisratherfocusedonsupplyfunctions:itwasinthisÞeldthatMarshalltriedtoprovideaninnovativecontributionincomparisontothetheoriesproposedbytheÞrstprotagonistsofthemarginalistrevolution,particularlybyJevons.Thelatterhadrecoursetoaprinciplesymmetri-caltothatofdecreasingutility,theprincipleoftheincreasingsacriÞceorpainfulnessoflabour;thisallowedhimtoobtainincreasingsupplycurves,sinceproducersaskforhigherandhigherpricesasaconditionforincreasingtheircontribution(theamountoflabourspent),henceforincreasingthequantityproduced.Suchanapproach,however,cannoteasilybeextendedfromthestudyofthebehaviourofindividualstotheanalysisofindustriesandÞrmsincompetitivemarkets,themoresoifwesticktothemethodofpartialanalysis:eachÞrmorindustryconsidered24Forderivationofdemandcurvesfromutilityfunctions,cf.Marshall1890,pp.92ff.and838ff.Inthecontextofpartialanalysis,themarginalutilityofmoneyisassumedtobeconstant:incomeeffectsarethusruledout.ThisisjustiÞedbyassumingthatthemarketforthecommodityunderconsiderationisverysmall,comparedtotheeconomyasawhole;thismustbetrueforeachindividualeconomicagent.25FollowinginthistheexponentsoftheÔoldÕGermanschool,Marshallattributedimpor-tancetotheanalysisofneeds:theobjectiveelementoftheabilitytosatisfyneeds(BernardinefromSienaÕsvirtuositas:cf.above,2.5)wasthusplacedsidebyside,asinScholasticthought,tothesubjectiveelement(complacibilitas),indeterminingthedemandfunction.26RecallingJohnStuartMill,Marshallinthisrespectstressedtheneedtodevelopanewscience,ethology,orthestudyofhumanhabitsandcustomsandoftheirgradualchangesinthecourseoftime.

AlfredMarshall363inisolation,infact,caneasilyobtain(inacompetitivelabourmarket)additionalhoursoflaboursimplybysubtractingthemfromotherÞrmsorindustrieswithoutchangingthemarginaldisutilityoflabourfortheindividualworker.27Marshallthusproposedtheroadofpartialequilibriumforsupplysideanalysis,henceforconstructingsupplycurvesreferringtoindividualÞrmsandindustries.Tothispurposehetooktwoelementsoftheclassicaltra-ditionandreworkedtheminacontextquitedifferentfromtheorigi-nalone.TheÞrstwastheSmithiantheoryoftheconnectionbetweenenlargementofthemarketanddivisionoflabour,andconsequentlypro-ductivityincreases.ThesecondwastheÔRicardianÕtheoryofdifferentialrent.NewlychristenedasÔlawsofreturnstoscaleÕ,thesetwotheoriesweresimultaneouslyusedtoexplainthevariationsofcostsinresponsetochangesinthequantityproduced,respectivelyidentiÞedwiththecaseofincreasingreturnstoscaleandwiththecaseofdecreasingreturns.ClearlythisisanartiÞcialconstruct,whichputstogetherquitedifferentthings.28Furthermore,evenifconsideredoneatatime,thetranspositionoftheSmithianandÔRicardianÕÔlawsÕintotheambitofthetheoryoftheÞrmandtheindustrygaverisetodifÞcultieswhichMarshallsaworperceived,buttowhichhedidnotattributetheimportancetheydeserve.LetusconsiderÞrstofallthereferencetotheÔlawofdecreasingreturnsÕusedbyRicardointhetheoryofrentwithreferencetotheproductivityofameansofproductionofaparticularkind,suchasland,takentobeavailableinagivenquantityandwithdistinctivefeaturesforeachunitofland.TheRicardiantheoryofdifferentialrentinfactdidnotrevolvearounddecreasingreturnsforindividualÞrmsorindustries,butaroundtheproblemofthedistributionofnationalincomeamongthesocialclassesofworkers,landlordsandcapitalists,andinparticulararoundtheproblemofdeterminingtherentaccruingtothelandlords.InthemodiÞedformwhichMarshallgaveit,thetheoryofdecreasingreturnsinsteadconcernedthemeansofproductionutilisedbyspeciÞcindus-tries.Thecaseinwhichanindustryisthesolesubjecttouseagiven27OntheotherhandÐwemaynowaddonthebasisofSraffaÕs1925remarksÐifweweretotakeaccountalsoofinÞnitesimalchangesinthepainfulnessoflabour,stemmingfromchangesinproductionlevelsofasingleÞrmorindustry,suchchangeswouldequallyaffectallindustriesandÞrmsintheeconomy.Asaconsequence,itwouldnotbepossibletousetheceterisparibusclausewhichisthebasisofpartialanalysis;inparticular,whenfacedwithgeneralisedchangesinpricesitwouldnotbepossibletoassumeasgiventhedemandcurvefortheindividualindustry.28Thispointwillbeconsideredagainlater,whenillustratingSraffaÕscritiquesofthisconstruct:cf.16.4.HerewewillmerelystressthatintheÞrstcaseincreasingreturnscorrespondinaÞrstapproximationtoproportionalchangesinallthemeansofproduc-tionused;inthesecondcase,instead,decreasingreturnsareconnectedtochangesintheproportionsinwhichthedifferentmeansofproductionareutilised,sincethequantityofÔlandÕutilisedremainsÞxedwhilethequantitiesoflabourandÔcapitalÕchange.

364TheWealthofIdeasmeansofproductionis,however,averypeculiarone.Onceagain,out-sidethiscase,whichwastheonetowhichtheRicardiantheoryreferred,theceterisparibusclause(hencethemethodofpartialanalysis)shouldbeabandoned.AlreadyinhisÞrstwritings,moreover,Marshallconsideredafurtherproblem,crucialforhisapproach:theexistenceÐandimportanceÐofincreasingreturnstoscale,whichareconsideredasthesourceofeco-nomicdevelopmentintheSmithiantheoryofthedivisionoflabour.CournotÕs1838theoryoftheequilibriumoftheÞrmÐacrucialpointofreferenceforthedevelopmentofthemarginalisttheoryÐfallsapartiftheassumptionofdecreasingreturnsisabandonedinfavourofthat,decid-edlymorerealistic,ofincreasingreturnstoscale.Astableequilibriumispossibleinthiscaseonlyifthedemandcurvedecreasesmorerapidlythanthesupplycurve;butthiscannotholdinthecaseofcompetition,wherethepriceisbyassumptionindependentofthequantityproducedbytheindividualÞrm.Inotherwords,theassumptionofperfectcompetitionisincompatiblewiththecaseofincreasingreturnstoscale.Asstatedabove,MarshallhadalreadyrecognisedtheexistenceofthisdilemmainhisessaysonThepuretheoryofdomesticvalues,publishedin1879;muchofhisanalyticaleffortinthePrinciplesandinsubsequentrevisionsofthebookwasdevotedtosolvingthedilemma.Inthiscasetoo,duetothecomplexinterplayofafÞrmationsandqualiÞcations,cross-referencesandoppositionsbetweentextandnotes,itisquitedifÞculttodeÞneunivocallythesolutionproposed(whichmoreoverevolvedovertime);itmaybebettertofocusontwodistinctreferencepoints.First,wehavethesolutionthatwasdevelopedbysomeamongMarshallÕsfollowers,inparticularPigouandViner,andthenadoptedinmosttextbooks.29ThissolutionwasbasedontheassumptionofU-shapedcurvesrepresentingtherelationshipbetweenaverageandmarginalcostsontheonehandandquantityproducedontheother.Initially,costcurvesaredecreasingbecauseincreasingreturnsprevail;fromacertainpoint(acertainlevelofthequantityproduced)onward,decreasingreturnstakethelead,andcostsstartincreasing.Undercompe-titionandinthelongrun,theequilibriumpointfortheÞrmcorrespondstotheminimumoftheaveragecostcurve,namelythepointwheretheaveragecostcurveterminatesitsdescentandbeginstoincrease.Theweightofthedevelopmentoftheindustryisthenputontheshouldersof29Cf.RidolÞ1972foracritiqueoftheidea,ratherwidespreadintheliterature,thatthissolutionwaspresentinMarshallÕsPrinciples,andforareconstructionofitsorigin.Bharadwaj1989,pp.159Ð75,followingasuggestiongivenherbySraffa,usedMarshallÕsmanuscriptnotesatthemarginofPigouÕsWealthandwelfare(1912)toshowhowMar-shallineffectconsideredwithextremedifÞdencethelineofresearchonwhichhissuc-cessortotheCambridgechairhadembarked.

AlfredMarshall365aspeciÞckindofeconomiesofscale:thoseinternaltotheindustryitself(sincefortheindustrythedemandcurveisdecreasing,sothatanequilib-riumispossibleevenifthesupplycurveisalsodecreasing,providedthatthespeedofdecreaseislowerthanthatofdemand),butexternaltotheindividualÞrmswhichcomposetheindustry(soastoretainforthemthepossibilityofacompetitiveequilibriumwhichneedscosttoincreasewiththequantityproduced,fromacertainpointonwards).Suchaconstruct,thus,maybecriticisedbothforitslackofrealismanditsconnectiontoastaticnotionofequilibrium.30Marshall,whilehintingatthelineofreasoningjustsketchedabove,suggestedasecondpathtosolvingthedilemmabetweenassumptionofcompetitionandincreasingreturns:apathtowhichheseemstohaveadheredwithincreasingconÞdenceintheeditionsofthePrinciplessub-sequenttotheÞrst,atleastuptotheÞfth.ThissecondroadconsistsinthetheoryoftherepresentativeÞrmandinrecoursetobiologicalmetaphors.Thecoreoftheargumentisthis:theindustryismadeupofmanyÞrmswhich,liketreesinaforest,areatdifferentpointsoftheirÔlifecycleÕ:some,theÔyoungÕones,experienceincreasingreturnsanddevelopthoughinacompetitiveenvironment;others,theÔmatureÕones,havealreadyreacheddimensionsatwhichtheelementsofgrowthanddecaybalanceout;stillothersaredecaying.InaworldcomposedofindividualÞrmsdistributedamongthedifferentstagesofdevelopment,theÔrepresentativeÕÞrm,ofaveragedimensions,turnsouttobeatthemiddleofitsdevelopmentprocess,andcanthusbeidentiÞedwithaÞrmexperiencingincreasingreturns,evenifoverallthepopulationofÞrmsisstationary.TheweaknessinthisconstructisnotsimplythedifÞcultyoftranslat-ingitintoawell-structuredanalyticalmodel;itratherliesinthedifÞcultyofacceptingtheassumptionoftheÔlifecycleÕ.JustiÞcationofsuchanassumptionwasgivenbyreferringtothesequenceofthreegenerationsincontroloftheÞrm:thefounder,endowedwithabove-normalorgan-isationalandinnovativeability;hisimmediateheirs,grownatthehardschoolofthefounderandusedatleasttoarigorousmanagementofthefamilybusiness;thethirdgeneration,grownupinprosperousconditionsandlessreadytomakethesacriÞceswhichareoftennecessaryinacom-petitiveenvironmentcharacterisedbycontinuoustechnologicalchangeandhencebytheneedtosaveandinvestinordernottolosegroundtotheircompetitors.31SuchjustiÞcationclearlyreferstoaworldofsmall30Sraffa1925providedsufÞcientmaterialforacritiqueofthisapproach.31Inthatperiod(elevenyearsaftertheÞrsteditionofMarshallÕsPrinciples,butsixyearsbeforetheÞfthedition,inwhichtheideaoftherepresentativeÞrmreacheditsfulldevelopment)theideaofthelifecycleofÞrmsfoundliteraryexpressioninthefamousnovelbyThomasMann,Buddenbrooks(1901).

366TheWealthofIdeasÞrmsmanagedbytheirproprietor.InthelasteditionsofthePrinciplespublishedinhislifetime,Marshallhimselfstressedthegrowingimpor-tanceofpubliccompanies,inwhichtheassumptionofthelifecycledoesnotseemacceptable,andappearedconsciousofthedifÞcultiesstemmingfromthis.VariousamonghisfollowersnonethelessremainedfaithfultotheconstructoftherepresentativeÞrm,likeRobertsonwhoreproposeditin1930,provokingSraffaÕs(1930a)sarcasticreaction.ThePrinciplesthusconstitutedafailure,atleastwithrespecttowhatMarshallhimselfconsideredacrucialelementofhispersonalcontribu-tiontothedevelopmentofaneoclassicaltheoryofvalue.However,vari-ousotherelementsofMarshallÕsediÞcearefullyentitledtoremainpartofmoderneconomictheory:letusrecallforinstancethenotionofelastic-ity.AnditshouldbeaddedthatMarshallÕsgreatnessasaneconomistliesalso(andperhapsmainly)inhisawarenessofthelimitsofhisanalyticalconstructs,whichinsteadhavebeenacceptedwithoutcriticalscrutinybymanyofhisfollowers,eveninrecentyears.4.EconomicsbecomesaprofessionAmongMarshallÕscontributionstothedevelopmentofeconomicsweshouldalsorecallhisroleinthetransformationoftheeconomistintoaprofession,withspeciÞcautonomyintheareasofresearchandteaching.WhenMarshallbeganhisprofessionalcareer,withinuniversitystudiesitwaspossibletodistinguishtwogeneralcurricula:humansciencesandnaturalsciences.WithintheÞrstcurriculum,philosophy(withadomi-nantroleformoralphilosophy),historyandmoralscoexisted.Politicaleconomyhadasmallerrole;theeconomiclecturesthatMarshallgavetothefemalestudentsofNewnhamCollegewereonmanyaccountslessonsinciviceducation.InthissenseÐasacontributiontoasoundmoraleducationÐweshouldinterpretthesupportwhichtheyoungMarshallgavetothemovementforadmissionofwomentouniversitystudies:supportwhichwassub-sequentlytochangetoheatedoppositionÐwithashiftinattitudethatbiographersandscholarshavefounddifÞculttoexplain.32ThischangeofattitudemayhavebeenduetoMarshallÕsimpressionthattheconnectionoriginallyperceivedbetweenuniversityinstructionandcivicandmoraleducation(aconnectionconsistentwiththeroleheattributedtowomenasenlightenedvestalsofthefamilyandsociety)hadtransformedintoalinkbetweengettingauniversitydegreeandstartingaprofessionalcareer,suchastofavouragrowingassimilationofmenandwomen.Apartfrom32Cf.Groenewegen1995,pp.493Ð530.ThechapterisentitledÔAfeministmanqu«eÕ.

AlfredMarshall367anundoubtedevolutionofhisposition,Marshallinfactappearsatradi-tionalistVictorian,favourabletoculturalenhancementasinstrumentaltomoralenhancementinthecaseofwomenasinthatofworkers,butpolesapartcomparedtothepro-womenpositionmanifestedforinstancebyJohnStuartMillsomedecadesearlierortheÐoftenquitemoderateÐcontemporarysupportersofwomenÕsaccessiontouniversity,likehisoldfriendHenrySidgwick.CreationofprofessionaleducationintheeconomicÞeldrequiredthateconomicsbemadetoemergefromthewiderÞeldofstudyofthemoralsciences,takingondecidedlythecharacterofatechnicaltoolofanalysisofanimportantaspectofsocialreality.Insubstance,economicswasnolongertobeseenasoneofthepossibleÞeldsoflearningofagenericsocialscientist,butwastobeconsidereditselfasetofconnectedspecialistÞeldsofwork.Asalreadystated,Marshallmadeadecisivecontributioninthisdirec-tion.Firstofall,therewasthefoundationin1890oftheBritishEconomicAssociation(subsequentlytheRoyalEconomicSociety)andofitspubli-cation,theEconomicJournal.33Second,weshouldrecallthelongstrugglefortheinstitutionofaspecialisedcurriculumofstudiesattheUniversityofCambridge,independentofthegenericoneinmoralsciences.34Eco-nomics(nolongerÔpoliticaleconomyÕ)wasconceivedasasciencewhosedevelopmentwasentrustedtospecialists,onthemodelofnaturalsci-ences,andnolongerasabranchofknowledgeentrustedinparttothosewhocouldponderontheirownpracticalexperiences(fromCantillonthebankertoRicardothestockbroker)andinparttopersonsendowedofgoodgeneralcultureandwithapoliticalinterestforanunderstandingofeconomicandsocialevents(fromthephysiciansPettyandMandevilletoaprofessionalrevolutionarysuchasMarx).Theprofessionalisationofeconomicshadbothpositiveandnegativeeffectsonitsevolution.Amongthepositiveeffects,therewasnodoubtthediffusionofmorereÞnedtechniquesofanalysis,whichcalledforgreaterrigourandgreatercontrolofthelogicalconsistencyofargu-ments.Thedevelopmentofmathematicaleconomicsandespeciallythecollectionandsystematicanalysisofstatisticalinformationwereaspectsof33WeshouldnotbemisledbythefactthatMarshallpreferredtoremainbehindthescenes,leavingtootherstheofÞcialrolesofpresidentandsecretaryoftheBritishEconomicAssociationandofeditoroftheEconomicJournal.Hisdefactocontrolovertheassociationandthejournal,andmoregenerallyontheselectionofeconomistsinEnglishuniversities,wasnonethelessquitestrong.Cf.Groenewegen1995,pp.464Ð68;Maloney1991;HeyandWinch1990,inparticulartheessaybyKadishandFreeman.34Thehistoryofthisbattle,whichculminatedin1903withtheinstitutionofaneweco-nomicstripos,istoldinGroenewegen1995,pp.531Ð69;cf.alsoMaloney1985,2ndedn.1991.

368TheWealthofIdeasthisprocess.Asforthenegativeelements,researchactivitylostitsnatureofparticipatinginculturalandpoliticallife,andbecameaninstrumentofacademiccareers.Theimportanceattributedtooriginalityandpri-orityofpublicationofoneÕsownideas,onthepartofMarshallaswellasofJevonsorWalras,canthusbebetterunderstood.35However,atthispointthetheoreticaldebateacquiredadangerousautonomywithrespecttotheconstantconfrontationwiththerealworld:toshowoneÕsownÔscientiÞcÕability,essentiallythroughuseofreÞnedanalyticaltools,graduallybecamemoreimportantthanagoodÔpracticalÕunderstandingoftherealissues.ThroughtheprocessofprofessionalisationofeconomicsMarshallmadeadecisivecontributiontotherisetodominanceofneoclassicaltheory:notonlyintheversionhehimselfhadproposedinthePrinciples,butalsointhatofgeneraleconomicequilibrium.Moreover,ifwebearinmindthenegativeeffectsrecalledabove,itwasperhapsnaturaltoexpectthat,relativetotheambivalenceofthethesespresentedinthePrinciples,themoresimplisticevenifanalyticallymoreprecisetheoreticalconstructofthevulgataofstaticequilibriumshouldhavecometoprevail.Bythesametoken,theaxiomaticversionofgeneralequilibriumtheorywastoprevailoverthemoreconcrete,butlessÔscientiÞcÕ,MarshalliananalysisofpartialequilibriumandÔshortcausalchainsÕ.5.Monetarytheory:fromtheoldtothenewCambridgeschoolInhismainwork,thePrinciples,Marshalldidnotdealwithmoney:asstatedabove,thesubjectwassetasideforasubsequentvolumeofthegreattreatiseinitiallyplanned;whenMarshall,alreadyeightyyearsold,succeededinpublishingMoney,creditandcommerce(1923),hisanalyt-icalvigourhaddisappeared.HiscontributionstotheÞeldofmonetarytheoryarerathertobefoundinhisparticipation(mainlyintheformof35Episodesofconßictonpretendedplagiarisms,oronpriorityofpublication,hadalsotakenplacepreviously;letusrecallforinstancethefamouscontroversybetweenAdamSmithandFergusononthedivisionoflabour(butwemaystressthat,notbychance,bothFergusonandSmithwereprofessors!).However,thereisaqualitativeleapintheattentionintheseaspects.Letusrecall,forinstance,thatintheseventeenthcenturyWilliamPetty,certainlynotamodelofaltruism,quietlymadeagiftofatleastsomeideastohisfriendJohnGraunt,ifnotthewholetextofthefamousworkonLondonÕsmortalitytablestowhichtheoriginsofdemographyareusuallytraced(Graunt1662);intheeighteenthcenturytheproclivitytoplagiarismoftheMarquisdeMirabeauorofPostlethwaytarewellknown;thankstothelatterwenowhavewhatisinallprobabilitytheoriginalEnglishtextofCantillonÕsbook(1755).

AlfredMarshall369testimonials)insomecommissionsofenquiryintothesubject,36andintheoraltraditionstemmingfromhisteaching.TwoaspectsofMarshallÕstheoryofmoneydeservementionhere.First,MarshalltransformedIrvingFisherÕsquantityequation(cf.above,12.5),MV=PQ,intotheso-calledCambridgeequation,kY=M.37Second,therewastheroleofÔmonetarydisturbancesÕinexplainingthecyclicaloscillationsoftheeconomyaroundthelongperiodequilibriumdeterminedbytheÔrealÕfactorsconsideredwithintheneoclassicaltheoryofvalue.AsfarastheÞrstaspectisconcerned,atÞrstsightitmightseemasimplechangeinsymbols:ÔCambridgeÕskÕcorrespondsinfacttotheinverseofthevelocityofcirculationofmoneyVinFisherÕsequation.However,behindthisformalchangeadifferentnotionofthedemandformoneyshonethrough.ThisisconnectednotsomuchtoÞnancingrequirementsforexchangeastoeconomicagentsÕchoicesontheshareoftheirincome(or,inadifferentformulation,latertobedevelopedbyKeynes,ontheshareoftheirwealth)thattheydesiretokeepintheformofmoney.38Inthiswayprecautionarydemandformoney(andlater,withKeynes,speculativedemand)wasmadetoappearexplicitlysidebysidewithdemandformoneyfortransactionpurposes.Inotherwords,theformalchangeintheequationofexchangesallowedMarshalltostressanewperspectivefromwhichtotackletheissueoftheroleofmoney:apotentiallyrevolutionaryperspective,aswastobeseenwhenhispupilKeynesaccomplisheddecisivestepsforward.Withrespecttotheroleofmoneyinthedeterminationoftherealvariablesoftheeconomy,Marshalladvancedfurtherinterestingideas,admittingtheinßuenceofliquidityconditionsonincomeandemploy-mentaswell,togetherwithitsinßuenceonmoneyprices.However,inthiscaseaswellthedecisivestepforwardwasaccomplishedlater,byKeynes.MarshalllimitedtheÔnon-neutralityÕofmoneytotheshortperiod,asafterhimhispupilsorfollowers,fromHawtreytoRobertson,andmoreorlessthewholeoftheneoclassicaltradition,uptoHayekandbeyondwerealsotodo.3936Cf.Marshall1926and1996b.37LetusrecallthatMindicatesthequantityofmoneyincirculationintheeconomy,Vitsvelocityofcirculation,Pthepricelevel,Qanindexofquantityproduced,Ynationalincomeinmoneyterms(sothatPQ=Y),ktheshareofincomethateconomicagentsdesiretokeepinmoney.38OnthispointMarshallhadbeenprecededbySenior.Cf.Bowley1937,pp.214-15,whoillustrateshowSenioropposed(J.S.MillÕsversionof)thequantitytheoryofmoney.39Cf.above,11.4,forHayekÕstheoryofthetradecycle;andbelow,ch.14,forthedevelop-mentsofthislineofanalysisbyKeynes.OnMarshall,cf.Eshag1964andTonveronachi1983,pp.15Ð24.

370TheWealthofIdeas6.MaffeoPantaleoniMaffeoPantaleoni(1857Ð1924)wasakeyprotagonistofthedevelop-mentofItalianeconomicthoughtattheendofthenineteenthcenturyandthebeginningofthetwentiethcentury.ÔTheprinceof[Italian]economistsÕ,asSraffa(1924,p.648)calledhim,playedonvariousaccountsadecisiverole:Þrstofall,asthemastertomorethanagen-erationofeconomistsandasinßuentialfriendofothers,likePareto;40secondly,becauseoftheimpulsehegavetothefoundingofoneoftheresearchlinesinItalywhichhadthelargestinßuenceinternationally,theItalianschoolofpublicÞnance;41thirdly,forhispassionateparticipationinthedebatesofthetimeintheoreticalandappliedeconomics;42fourthly,forhismostinßuentialtextbook,Principiidieconomiapura(Principlesofeconomics,1889);andlastbutnotleast,forhiscombinationofscien-tiÞcandmoralrigourdemonstratedinthecourseofanoftentormentedlife.AftergraduatinginRome,PantaleonibecameprofessorofpoliticaleconomyattheUniversityofCamerinowhentwenty-Þveyearsold,andsubsequentlymovedtoMacerata,VeniceandBari.In1890,however,heresignedinresponsetothecontroversyarisingfromhiscritiquesofthegovernmentandhisstatementsinfavourofbankingreform:averyharshcampaign,whichamongotherthingscontributedtothebankruptcyoftheBancaRomana.In1895hewentbacktotheuniversityasaprofessorinNaples,butaftertwoyears,againinpolemicwiththegovernment,heresignedandmovedtoGeneva.In1900hewentbacktoItaly,asprofessoratPaviaandthen(from1902uptohisdeath)attheUniversityofRome,holdingthechairthatthankstohisprestigebecamethemostimportanteconomicschairinItaly:aroleitlostaftertheSecondWorldWar,whenthefocusofeconomicteachingshiftedoutofthefacultiesof40ThecorrespondencebetweenPantaleoniandPareto(Pareto1960)isamostusefuldocument(as,inasubsequentstage,isthatbetweenLoriaandGraziani,inAllocati1990)forrelivingfromÔbehindthesceneÕthetheoreticaldebatesandtheacademicvicissitudesofItalianeconomistsatthetime.41Inparticularwithanessaypublishedin1883,Contributoallateoriadelripartodellespesepubbliche(Acontributiontothetheoryofallotmentofpublicexpenditure).Amongtheeconomistswho,afterPantaleoni,contributedtothedevelopmentofanItalianschoolofpublicÞnanceweshouldatleastmentionAntoniodeVitideMarco(1858Ð1943),whoamongotherthingsisoneoftheelevenItalianholdersofachairwhorefusedtheoathofloyaltytofascism.ThisschooloriginatedthestreamofÔpublicchoicetheoryÕwhichhasbeenrevivedinthelastfewdecadesbythe1986Nobelprizewinner,theAmericanJamesBuchanan(b.1919).42Cf.theessayscollectedinErotemidieconomia(Economicsquestions,1925),andthebookonLacadutadellaSociet`aGeneralediCreditoMobiliareItaliano(ThefalloftheSGCMI,1895),whichSraffa(1924)comparedtothefamousinßuentialworkonLombardStreetbyBagehot(1873).

AlfredMarshall371law.From1900hewasMemberofParliament;butwassoontheobjectoffalseaccusations(inhisopinion,madebythosewhoseinterestshehaddamagedatthetimeofthebankruptcyoftheBancaRomana).CompelledtoalonganddifÞcultdefencewhichruinedhimÞnancially(moreover,hiswife,afterattemptingsuicide,becamementallyill),heresignedfromParliamentassoonasheemergedvictoriousfromthescandal.MinisterofÞnancewithDÕAnnunzioatFiume,headheredtofascismandin1923wasappointedtotheSenate;hisdeaththefollowingyearmakesitdifÞcultforustosettletheissueofhisreactionstothepoliticalassassinationofMatteotti,aleadinganti-fascistMemberofParliamentÐanassassinationforwhichMussoliniwastoclaimfullmoralresponsibility.Thebooktowhichheoweshisfameasaneconomistis,asmen-tionedabove,thetextonPrincipiidieconomiapura,publishedin1889andtranslatedintoEnglishin1898.PublicationprecededbyayearthatofMarshallÕsPrinciples,andwasthefruitoflargelyindependentresearch,butsharedasubstantiallysimilarorientation.InhisPrincipii,PantaleonidecisivelyadoptedthesubjectivistapproachofJevonsandMenger(Jevonswastherethemostfrequentlyquotedauthor,althoughinItalytheinßuenceoftheAustrianschoolwasprob-ablystronger).Suchanapproachwasconnectedinanoriginal,onlyapparentlyeclecticwaytothecontributionsoftheclassicaltradition,withmarkedsensitivitytotheconcreteapplicabilityoftheoreticalargu-mentations.Manyideas,includinghisanalysisofpredatoryandparasiticphenomena,indicateaninclinationonthepartofPantaleonitowardsanevolutionaryapproachwhichwasinlinewiththeculturalclimateofthetimeandsimilartothatwhichweÞndinMarshallÕsPrinciples.Pantaleoniremainedsubstantiallyfaithfultothisapproachinhissub-sequentteachingwhen,thoughattractedbythedevelopmentsofgen-eraleconomicequilibriumtheory,heremainedperplexedbyitsrareÞedabstractnature,whileheappearedannoyedattheclassiÞcatorymaniastowhichtheMarshallianvulgatahadgivenrise,withthedistinctionbetweenincreasing,constantanddecreasingreturnsindustries.How-ever,hisinßuenceledtotheriseofaMarshallianÐPigovianstreamwithinItalianuniversities,withamongitsepigonessomeofhissuccessorstotheRomechair,likeGiuseppeUgoPapi(1893Ð1989)andGiuseppeDiNardi(1911Ð92).Wecannotknowwhatthenewtextbookwouldhavebeenlike,onwhichPantaleoniwasworkinginhislatteryearswhileherefusedtolethisoldPrincipiibereprinted.However,despitehisfamousstatementaccordingtowhichthereareonlytwoschoolsofeconomists,thosewhounderstandeconomicsandthosewhodonot(astatementwhichimpliestheexistenceofanobjectivetruthinourÞeld),Ôhisteaching,farfrombeingaimedat

372TheWealthofIdeasimposingready-madetheoriesuponhispupils,wassolelyconcernedwithurgingthemtothinkforthemselvesÕ(Sraffa1924,p.652).7.MarshallismintheUnitedStates:fromJohnBatesClarktoJacobVinerTherisetodominanceoftheneoclassicalvulgataintheteachingofeco-nomicsandineconomiccultureintheÞrsthalfofthetwentiethcen-turywasduenotonlytodevelopmentsinEnglandandinparticularinCambridgewithPigou,butespeciallytotheincreasingroleofAmericanuniversities(favouredwhenItalianandthenmiddle-Europeanculturewasupsetbytheriseoffascismandnazism)andtheinßuenceofafewprotagoniststhere,whosystematisedeconomictheoryinthesimpliÞedversionsofpartialoraggregateequilibrium.LetusfocusattentionontwokeyÞgures:JohnBatesClark(1847Ð1938)andJacobViner(1892Ð1970).43J.B.Clarkwas,withRichardEly(1854Ð1943)andHenryCarterAdams(1851Ð1921),oneofthethreepromotersoftheAmericanEconomicAssociationin1885,andwasfrom1895to1923professoratColumbiaUniversityinNewYork.Afterstudy-ingatAmherst,inthe1870shehadspenttwoyearsatHeidelberg,feelingtheinßuenceofKniesÕsGermanhistoricalschool;butalreadyhisÞrstbook(Thephilosophyofwealth,acollectionofarticlespublishedin1886)containedÔatotallyoriginalandquitesophisticatedstatementoftheprin-cipleofmarginalutility(ÒeffectiveutilityÓinClarkÕsvocabulary)Õ.44Hismainwork,Thedistributionofwealth,publishedin1899afterlongyearsofelaboration,offeredanorganicillustrationoftheneoclassicaltheoryofvalueanddistributionbasedontheaggregatenotionofcapital,andhadawideimpact.Letusbrießyexaminethistheory.Clarkconsideredaneconomicsys-temwithonlytwofactorsofproduction,labourandcapital(land,andanyotherproductiveinputdifferentfromlabour,werereducedtocapital).Withinsuchasystem,thequantityofproductobtaineddependsonthequantityutilisedofthetwofactorsofproductionandontheircombination;rateofinterestandwageratecorrespond,inequilibrium,tothemarginalproductivityofthetwofactors,capitalandlabour,andconstitutetheirpricesorÔnaturalvaluesÕ.4543InthepreviouschapterwehavealreadydiscussedIrvingFisher,whoworkedattheboundarybetweenthegeneraleconomicequilibriumapproachandtheaggregateapproachonwhichwefocusattentionhere.44Dewey1987,p.429.Cf.alsotheessaybyJohnBatesÕsson,JohnMauriceClark1952.45Clarkleftopentheissueoftheconditionsunderwhichthedistributiverulebasedonthemarginalproductivitiesofthefactorsofproductionwhollyexhaustthevalueofthe

AlfredMarshall373Clarkwasastrongsupporterofaggregateanalysis,forthepossibilityitofferstoachieveconcreteandanalyticallyrobustresults.46Therefore,herejectedasirrelevanttheattemptstodevelopadisaggregatetheoryofcapitalsuchasthatofthematureWicksell,derivedfromB¬ohm-Bawerk,basedontheperiodsofproductionofthedifferentcapitalgoods(cf.above,11.4and11.5).Moreover,ClarkproposedaÔuniversalmeasureofvalueÕbasedonacombinationofutilityandlabour.Ontheconceptualplane,hismaincontributionconsistedinthedistinctionbetweenstaticsanddynamics;attheanalyticallevel,inthedemonstration,thoughbasedonasimplegraphicalapparatusÐintheframeworkoftheaggregateneoclassicaltheoryrecalledaboveÐoftheerroneousnessofconsideringtheshareofincomegoingtocapitalortolandasasurplus,becauseofthesymmetrybetweenthedeterminationofthewagerateandthatoftheinterestrate,whichcorrespondtothemarginalproductofthetwofactorsofproduction,labourandcapital.47InthegenerationfollowingClarkÕs,JacobVinertaughtattheUniversityofChicago,withveryshortbreaks,from1916to1946,andsubsequentlymovedontoPrincetonupto1960.HismainÞeldsofresearchwerethetheoryofinternationaltradeandthehistoryofeconomicthought.48Hismostinßuentialcontribution,however,wasanarticleonÔCostcurvesandsupplycurvesÕpublishedin1931.ThereinVinerofferedsystematictreatmentinfourgraphsofthedeterminationofshortrunandlongrunequilibriumsoftheÞrmandtheindustrybasedonpairsofU-shapedcurvesrepresentingaverageandmarginalcostsasfunctionsofquantityproduct:thesamethingwhichWicksteedhaddoneinhisEssayontheco-ordinationofthelawsofdistributionpublishedin1894.Howeverinareviewofthiswork,publishedintheEconomicJournalinJune1894(henceÞveyearsbeforethepublicationofClarkÕsbook),Fluxhadstressedtheneedtoassumeconstantreturnstoscalefortheapplica-bilityofEulerÕstheoremtotheaggregateproductionfunction,hencetoguaranteethecorrespondencebetweensumofthedistributivesharesandvalueoftheproduct.Cf.Steedman1992;onthehistoryofmarginalproductivityingeneral,andontheroleofEulerÕstheoremwithinit,cf.Stigler1941.LaterimportantcontributionsonthelineofamarginalisttheoryofdistributionbasedonanaggregateproductionfunctionareHicks1932andDouglas1934.46AlreadyWicksell(cf.above,11.5)hadremarkedthatsuchconcretenessandrobustnesswereonlyapparent,andthiswastobecomeÞnallyevidentinthedebatewhichfollowedpublicationofSraffaÕs1960book:cf.below,16.8.47Clarkwasalsotheauthor,inthesecondstageofhisresearchactivity,ofworkswhichconstitutethetheoreticalfoundationofantitrustUSpolicy(letusrecallinparticularThecontroloftrusts,publishedin1912andwrittenincollaborationwithhisson,JohnMauriceClark,1884Ð1963,whowasalsoaninßuentialeconomist,professoratChicagofrom1912to1926andthenatColumbiaUniversityupto1952).Finallyweshouldrecallhiscontribution,whichalsoconcernedorganisation,tothepeaceresearchsponsoredbytheCarnegieEndowmentforInternationalPeace.48Cf.,respectively,Viner1937andtheessayscollectedinViner1991.VinerÕshugeeru-ditionmaybelikenedperhapsonlytoSchumpeterÕsorSraffaÕs.

374TheWealthofIdeasproduced.ThelongperiodsupplycurvefortheÞrm,inparticular,wasobtainedfromtheenvelopmentofshortrunsupplycurves.49Thissystematictreatmentwastakenonsubstantiallyunchangedineconomicstextbooksofthesubsequenthalf-centuryandbeyond.Inpar-ticularitwasacceptedÐtogetherwithClarkÕsaggregateneoclassicalversionofthetheoryofvalueanddistributionÐasthecentralcoreofthefamoustextbookEconomics(1948a)byPaulSamuelson(b.1912,Nobelprizein1970),notonlythebestsellingtextbookofthelastÞftyyears(morethanthreemillioncopiessoldinsubsequenteditionsandinnumeroustranslations),butalsoamodelforvariousotherauthors.508.ThornsteinVeblenandinstitutionalismIntheUnitedKingdom,MarshallÕsÞghtwasmorewiththehistoricalschoolthanwiththeremnantsofRicardianismintheendeavourtoestab-lishthedominanceofhisparticularbrandofeconomics;intheUnitedStates,thespreadofMarshallismalsotookplaceinacontextwherehistorical-institutionalistviewswerewidespread,althoughbynomeansall-pervasive.Infact,themainrepresentativeofinstitutionalism,Veblen,perhapsalsoduetohisunconventionalpersonality,wasneverconsideredasbelongingtotheacademicestablishment.ThornsteinVeblen(1857Ð1929),thesonofNorwegianimmigrants,bornintoafarmingcommunity,astudentofJohnBatesClarkandsub-sequentlyofthepragmatistphilosopherCharlesPeirce,51oftenfeltoutofplaceinuniversitylife,duetohisunconventionallifestyleandalsotohisreligiousscepticisminaperiodinwhichmostAmericancolleges49Inthisrespectthereisawell-knownstoryaboutViner,whoaskedhisreaderstoexcusetheinabilityofthedraughtsmanofthegraphsofhisarticletomakethelongperiodaveragecostcurvepassthroughtheminimumpointsoftheshortrunaveragecostcurves:VinerÕsrequestwasonewhichitisimpossibletosatisfy,asalgebraictreatmentoftheproblemcanshow.ItistoVinerÕscreditthatinthereprintsofthearticle,afterhismistakehadbeenspotted,thefootnoteonhisdisagreementwiththedraughtsmanrecallingthelatterÕsmathematicaldoubtsthennotunderstoodbyVinerhimself,wasnotomitted.50Inthisnewsynthesis,analyticaltechniquesdrewincreasingattention,whileissuescon-cerningtherepresentationoftheworldrecededinthebackground.Thus,Ôconsumertheoryceasedtoexplainchoicesandmerelydescribedthem:rationalitycametobeequatedwithconsistent,transitivepreferences[…]Competitioncametobeunder-stoodintermsoftheinabilityofagentstoinßuencepricesinmarketsthatweredevoidofanyinstitutionalfeatures,deÞnedonlybytheexistenceofasingleprice.Theresultwasthatprocessviewsofcompetitionwereignored.[…]Acommonfeature[…]wastheneglectofallargumentsthatcouldnotbeexpressedusingformalequilibriummodelsÕ(Backhouse2003,p.321).51AnotherofhisprofessorswasWilliamGrahamSumner(1840Ð1910),aconservativeevolutionistandleadingrepresentativeofso-calledSocialDarwinism,supporterofelitistindividualismandextremeeconomicliberalism.Sumner,likeMarshall,wasstronglyinßuencedbyHerbertSpencerÕssocialevolutionism(cf.above,note19).

AlfredMarshall375anduniversitieswerechurch-afÞliated.AproliÞcwriter,hiredasajuniorteacherattheUniversityofChicagoin1892,in1896hebecametheÞrstmanagingeditoroftheJournalofPoliticalEconomyandin1899publishedaprovocativeandsuccessfulbookonThetheoryoftheleisureclass,inwhichhediscussedtheinßuenceofeconomicvaluesoncustomsandfashionwithheavyirony.Healsoshowedhowthebusinessmentalitycametodominateevenwithintheinstitutionsoflearning,witharetrogressionofculturalvalues.AccordingtoVeblen,moderncapitalismischaracterisedbypersistenceofoldmodesofthought,suchasancientpredatoryinstinctsandtheuseofconspicuousconsumptiontoassertsocialsuperiority.InThetheoryofbusinessenterprise,publishedin1904,Veblencontrastedthemenofindus-try(inventors,engineers,technicalexperts)withbusinessmenbecomesalesmenorfocusingonÞnancialmanagementratherthanproduction.52Asanimplicationofthis,inlaterwritingsheforesawÔthecomingdomi-nationoftheeconomybyanoligopolisticnucleusofgiantcorporationsÕ(Diggins1999,p.57).TherearemanyotherinsightsinVeblenÕswritings,andmanyofthemresurfacehereandthereinlaterAmericaneconomicthought.Forinstance,theseparationbetweenownershipandmanagementofÞrmsandthegrowthofgiantcorporationsareatthecentreofBerleandMeansÕsfamous1932book;thereareshades,inVeblenÕswritings,ofGalbraithÕsÔtechnostructureÕ(cf.below,17.4);morerecently,thedom-inantroleofÞnanceandtheideasoncyclicalÞnancialfragilityresurfacedinMinskyÕsnotionofÔmoneymanagerscapitalismÕandinhistheoryofendogenousÞnancialcrises(cf.below,17.5).ButtwocentralaspectsofVeblenÕsinstitutionalapproachdisappearfromAmericaneconomicculturewiththerisetodominanceofmarginalism,bothintheMarshal-lianandinthegeneralequilibriumvarieties,namelytheideathathumannatureshouldnotbetakenasgiven,butisanendogenousvariableineco-nomicanalysis;53andtheideaofadecisiveroleplayedbyculturaland52ItisVeblen,followingthencustomaryhabits,whowritesÔmenÕwheretodayweprefertowriteÔpersonsÕ;buthewascertainlynotananti-feminist.Infact,heconsideredÔthebarbarianstatusofwomenÕ(anexpressiononwhichheinsisted,quotedbyDiggins1999,p.141)Ôasananthropologicalartifact,aresiduethatreßectedthepersistenceofcustomandthecontinuityofhabitÕandsawÔinhumanevolutionthedescentofwomenaswellastheascentofmenÕ(ibid.).OnVeblenÕspositiononthegenderissue,cf.Diggins1999,pp.139Ð66.53ÔThehedonisticconceptionofmanisthatofalightningcalculatorofpleasuresandpains,whooscillateslikeahomogeneousglobuleofdesireandhappinessundertheimpulseofstimulithatshifthimaboutthearea,butleavehimintact.Hehasneitherantecedentnorconsequent.Heisanisolated,deÞnitivehumandatum,instableequilibriumexceptforthebuffetsoftheimpingingforcesthatdisplacehiminonedirectionoranother.

376TheWealthofIdeasinstitutionalchangeintheprocessofeconomicdevelopment.54Incon-trastwiththeoptimismofSumner,whosawsocialevolutionasapathofprogress,VeblenÕsevolutionaryviews,whichconcernedbothsocialinsti-tutionsandhumanculture,focusedonthetensionsstemmingfromthelaginculturaladaptationtothechangingeconomicenvironment.VeblenwastoomuchofanoutsidertobelongtoanyÔschoolÕ,buttheimportantinstitutionalistcurrentintheUnitedStates,withprotagonistssuchasWesleyClairMitchell(1874Ð1948)and,atleastinpartofhisresearches,JohnMauriceClark,55canbeseenaslargelyinspiredbyhiswritingsandteaching.56Anotherimportant,atleastpartlyindependent,inßuencewasthatofJohnRogersCommons(1862Ð1945),co-founderwithRichardElyoftheWisconsininstitutionalschool,whichhadanotinsigniÞcantinßuenceontheNewDealinthe1930s.57Amongotherthings,CommonsgaveimportantcontributionstotheindustrialrelationsÞeld:recognisingtherealityofconßicts,hepressedforinstitutionsensuringmediationandgovernanceforthem.Mitchellwastheleadingprotagonistofanotherinstitutionalschoolactiveintheinterwarperiod,basedinColumbiaUniversityandtheNationalBureauofEconomicResearchinNewYork,ofwhichhewasthedirectorforaquarterofacentury(1920Ð45),makingimportantcon-tributionstostudyofthebusinesscycleand,moregenerally,toempiricalstudies,statisticscollectionandtheelaborationofnationalaccounts.589.Welfareeconomics:ArthurCecilPigouAmongMarshallÕspupils,twoemergedabovetheothers:JohnMaynardKeynes,towhomthenextchapterisdevoted,andArthurCecilPigouSelf-imposedinanelementarystate,hespinssymmetricallyabouthisownspiritualaxisuntiltheparallelogramofforcesbearsdownuponhim,whereuponhefollowsthelineoftheresultantÕ(Veblen1919,quotedbyDiggins1999,p.50).54Thisdidnotimplyaleaningtowardsananti-theoreticalattitudesuchasadoptedbythehistoricalschool,whichVeblencriticisedpreciselyonthisaccount.Hiscritiqueofneoclassicaltheoryconcerned,rather,itsrestrictedscope,withitsneglectofthewiderissuesofsocialevolutionanditsinterrelationwithcultural-institutionalchange,anditsstatic,non-evolutionarymethod.55ClarkÕs1923bookonoverheadcostsstressedtheroleofahighratiobetweenÞxedandcirculatingcapital,intrinsictomoderntechnologies,foratendencyawayfromcom-petitionandtowardsoligopolisticandmonopolisticmarketforms.Anotherimportantcontributionisthe1926bookonmarketfailuresandtheneedforaÔsocialcontrolofbusinessÕ.56ForanoverviewofAmericaninstitutionalismintheÞrsthalfofthetwentiethcentury,cf.Rutheford2003andthebibliographyquotedthere.57OnElyÕscentralroleinthefoundingoftheAmericanEconomicAssociationcf.Barber2003,pp.240Ð2.58OnsubsequentdevelopmentsofinstitutionalismintheUnitedStatescf.below,17.4.

AlfredMarshall377(1877Ð1959).SixyearsolderthanKeynesandbytemperbettersuitedtotheuniversityenvironment,althoughhewasthenveryyoungPigouwaschosenbyMarshallin190859ashissuccessortotheeconomicschairinCambridge,apositionhehelduptohisretirementin1943.Herethereisonlyspacetomentionthreeofhiscontributions:hisÔorthodoxÕversionoftheMarshalliantheoryoftheÞrmandtheindustry;hismostinnovativecontribution:thedevelopmentoftheresearchstreamofwelfareeconomics;andhisanalysesofemploymentandmacroeco-nomicequilibriums,characterisedbyhistornrelationshipwithKeynesiantheory.Aswehavealreadysuggestedin3,Pigouchosetoadopt,withinthevariedcorpusofMarshallÕsanalysis,theapproachthatatleastseemedbettersuitedtorigorousanalytictreatment,thatofpartialanalysisofshortandlongperiodequilibriumsbasedonU-shapedcostcurves,drop-pingMarshallÕssuggestionsforanevolutionaryanalysis(ÔthetreesandtheforestÕ).Thisalsoprovokedsomerigorouslyprivatereservationsonthepartofhismentor(cf.Bharadwaj1989,pp.159Ð75)andagrowingisolationevenwithrespecttohismorestrictlyMarshalliancolleagues,likeRobertsonandShove.Despitehisactiveparticipationinthedebatestartedin1922bythepublicationofanarticlebyClaphamintheEconomicJournal(cf.below,10),andespeciallydespitehissystematicapplicationofMarshalliantoolsindifferentÞeldsofanalysis,wecannotconsiderthistheÞeldofhismainanalyticalcontribution.Thoughhepre-cededVinerinutilisingagraphwithU-shapedcostcurves(Pigou1928,p.246),moreimportantforthesystematicconstructoftheMarshallianvulgatawasinfactVinerÕs1931articlementionedin7above.PigouÕsmaincontributioniscommonlyconsideredtobehisrecoursetonotionsofexternaleconomiesanddiseconomies,illustratedbyMarshallinthePrinciples,forthedevelopmentofanewÞeldoftheoreticalresearch:welfareeconomics.Letusrecallthatwehaveexternaleconomies(ordis-economies)wheneveraneconomicactivityÐbeitproductionorcon-sumptionÐgeneratesindirecteffectsonthirdparties,fromwhichtheyreapabeneÞt(oraloss),withouthavingparticipatedinthedecisionoftheeconomicagentdirectlyconcerned.Forinstance,wehaveacaseofexternaleconomieswhentherosesIdecidetocultivateatmyexpenseinmygardengladdennotonlymyselfbutalsomyneighbours;wehaveacaseofexternaldiseconomieswheneverthecarIdrivepollutestheairandcontributestoatrafÞcjam.Whenthe(assumedlyselÞsh)economicagentdecideshowmuchtoproduceandconsume,heorsheconsiderstheeffectsoftheactionwhichdirectlyconcernhimorher,butnottheeffectsonothers;thisimpliesthattoolittleisconsumedandproduced59Withaharshacademicbattle,onwhichseeDeane2001,pp.247Ð52.

378TheWealthofIdeasofwhatgeneratesexternaleconomies,andtoomuchofwhatgeneratesexternaldiseconomies.HencethedesirabilityofpublicinterventionintheeconomicÞeld,aimedatstimulatingwithsubsidiestheÞrstkindandhinderingwithtaxesthesecondkindofactivity.Welfareeconomicsispre-ciselytheÞeldofanalysiswhichstudiesthenatureandmeasureofsuchinterventions,aimedatdrivingtheeconomytowardsoptimalsituationsforthecommunityasawhole.PigouÕsmaincontributiontothislineofresearchisWealthandwelfare(1912),whichinthewidelyrevisedsecondeditiontookonthetitleofTheeconomicsofwelfare(1920).InthesewritingsPigousystematicallyusedtheanalyticaltoolofÔconsumerÕssurplusÕ,proposedbyMarshallinthePrinciplesinthecontextofpartialequilibriumanalysis.Suchanotiondesignatesthegainoftotalutilityobtainedbythebuyerfromexchangethankstothefactthat,whileforthelast(inÞnitesimal)dosepurchasedthepricepaidcorrespondstotheadditionalutilityobtained(marginalutility),theutilityoftheprecedingdoseswasgreaterthanthepricepaid.Thedifferencebetweenthesetwomagnitudes(assumingthatutilityismeasuredintermsofmoney,undertheassumptionofconstantmarginalutilityofmoney),addedupforallunitspurchased,givestheconsumerÕssurplus.ObviouslythechoicebetweendifferentsituationsiseasilyderivedbycomparingtheconsumerÕssurplusrealisedwithintheeconomyindifferentcases:thisisinfacttheroadtakenbywelfareeconomics.60Finally,PigouwasknownastherepresentativeofthatorthodoxythatKeynesattackedinhisGeneraltheory.Inthiswork,thecritiquestothe60TheusejustillustratedofthenotionofconsumerÕssurplusisvitiatedbythefactthatsuchanotioncanbederivedexclusivelyinthecontextofpartialanalysis,sinceitassumesthedemandcurvedoesnotshiftwhenthequantityproducedorconsumedchanges,sothatthisconstructcannotbeappliedrigorouslyinthecontextofgeneralanalysis.More-over,partialequilibriumanalysisdoesnotconstituteasolidtheoreticalbackgroundforwelfareeconomics:astheso-calledÔsecondbesttheoremÕshows(LipseyandLancaster1956),inamulti-sectoreconomyamovementtowardsoptimalityinonesectordoesnotnecessarilyimplyageneralmovetowardsParetooptimality.Anotherdubiousaspectofwelfareeconomicsconcernedtheissueofinterpersonalcomparabilityofutilitiesanddisutilities,whichiscircumventedÐbutcertainlyleftunsolvedÐbyrecoursetoanaggregatesocialwelfarefunction(Bergson1938),andwhichwastobecomeessentialforlaterdevelopments(theso-callednewwelfareeco-nomics).Suchdevelopmentsconcernedtheanalysisofcasesinwhichsomeagentsgainfromachangeinthesituationwhileotherslose.ThereissaidtobeanincreaseinwelfareiftheformercanpaythelatterÔcompensationÕwhichislowerthantheadvantagetheyderivefromthechangeinquestion,butsufÞcienttorenderthechangeacceptabletotheagentswhobearaloss.AmorerecentdevelopmentinwelfareeconomicsisconnectedtoRawlsÕs1971ideasonjustice,accordingtowhichanequitabledistributionofresourcesisthatwhichwouldbeagreedonbytheagentsinvolvedinitbeforetheyknewwhichpositiontheywilloccupyinit.

AlfredMarshall379ÔclassicaltheoryÕwereindeedaimedatPigouandhisTheoryofunem-ployment(1933).InthedebateswhichfollowedpublicationofKeynesÕsGeneraltheory,too,PigouÕsnamewasconnectedtothedefenceoftheideaofre-equilibratingpowerofcompetitivemarketsconfrontedwithunem-ployment.Theideaisthat,evenwhenthetraditionalre-equilibratingmechanismbasedonthereductionoftherealwagerateisabandoned,sinceitdoesnotworkwhenthereductioninthemoneywagerateinducedbyunemploymentinducesaparallelreductioninthepricelevel,wemayresorttotheso-calledÔPigoueffectÕorÔrealwealtheffectÕ.Thismech-anismissetinmotionbytheeffectthatthepricedecline,inducedbyunemploymentthroughthereductionofmoneywages,hasontherealvalueofmoneybalances(orbalancesanyhowdenominatedinmoneyterms)heldbyfamilies.Theincreasedvalueofsuchbalances,henceoftherealvalueofthefamiliesÕwealth,inducesanincreaseincon-sumption,henceinaggregatedemand,whichleadstoreabsorptionofunemployment.Evenwhen,inoneofhislastwritings(KeynesÕsGeneraltheory:aret-rospectiveview,1950),PigoudeclaredthathehadfavourablyrevisedhisjudgementonKeynesÕstheory,hewasinfactsuggestingareabsorptionofthetheorywithinthetraditionalneoclassicalframework.PigouthustooksideswithHicks(1937)andModigliani(1944,1963)indevelopingtheso-calledÔneoclassicalsynthesisÕwithinwhich,asweshallseebet-terbelow(17.5),thetrulyoriginalelementsofKeynesÕsthoughtwereabandoned.KeynesÕsthesisonthepossibilityofpersistentunemploymentwastakenuponlyinsofarasitisconnectedtorigiditiesinthemarketforlabour;suchrigiditieswereattributedtheroleofimpedingopera-tionoftheadjustmentmechanismsoutlinedbytraditionalneoclassicaltheorywhichshouldhaveledtheeconomytoitsÔtrueÕfullemploymentequilibrium.10.ImperfectcompetitionAswehavealreadyhinted,thenotionofcompetitionwithinMarshallÕstheorywasmorenuancedÐhencelessrestrictiveÐthaninothermarginal-isttheoreticians,inparticularJevonsandWalras.Inthetheoriesoftheselatter,asinthetextbookvulgata,perfectcompetitionwasthatsituationinwhichtheeconomicagentistoosmall,relativetothedimensionsofthemarketofaclearlydeÞnedandhomogeneousproduct,tobeabletoinßu-encewithhisbehaviourthedeterminationoftheprice:atthelimit,itisnecessarytoassumethatthedimensionofeachÞrm,orofeachconsumer,beinÞnitesimalcomparedtothedimensionofthemarket,hencethatthenumberofÞrms,orofconsumers,beinÞnite.Intechnicalterms,the

380TheWealthofIdeaspriceisconsideredanexternallygivenparameterforthetheoryexplain-ingthebehaviouroftheindividualÞrmorconsumer,whiletheunknowntobedeterminedisthequantityrespectivelysuppliedordemanded.InMarshallÕstheory,conversely,manyargumentspresupposedsomedegreeoffreedomforÞrmsinpricesetting.Thismarginoffreedomofaction,whichdisappearedinPigouÕsandVinerÕsvulgata,waspresentintheevolutionarymetaphorswithwhichMarshallillustratedthebehaviouroftherepresentativeÞrm,intheattempttostrikeacompromisebetweentheoreticalrigourandrealism.IntheCambridgeschoolwewillÞndsubsequentlyananalogousnotionofcompetition,forinstanceinKeynesÕstheory(notwithstandingKahnÕseffortstobringitintothemoreÔrigorousÕformsofthevulgata).ThemainmanifestationofarepresentationoftheworkingoftheeconomicsystemwhichleftÞrmssomemarginsoffreedomÐthepriceshouldnotneces-sarilybethesameforallÞrmswithinanindustryÐwasrepresentedbythetheoryofimperfectcompetition,forwhichthetraditionalreferenceisJoanRobinsonÕsbookpublishedin1933.Behindthisbook,however,wemustrecallthelongseriesofcontributionswhichconstituteditsbackground.WemightsaythatthestorybeginswithafamouscontroversyonthetheoryoftheÞrmstartedin1922byanarticlebyClapham,ÔOnemptyeconomicboxesÕ,intheEconomicJournal.TheÔemptyboxesÕtowhichClaphampointedinthetitleofhisarticlewerethecategoriesofincreas-ing,constantanddecreasingreturnstoscale:categorieswhichappearedtobeinapplicabletothecaseofrealindustries.AmongtheresponsesoftheorthodoxMarshallians(withPigouinthefrontline),whooccasion-allyprovidednovelcontributions,andthecriticalvoiceswhoaddedtoClaphamÕscriticisms,acontributionbySraffapublishedin1926cametodominatethescene.TheÞrsthalfofthisarticlesummarisedthecritiquesoftheMarshalliantheoryofthelongrunequilibriumoftheÞrmandtheindustryundercompetitiveconditions,whichhadbeenillustratedinalongessaypublishedinItalianthepreviousyear(cf.below,16.3);thesecondpartproposedawayoutofthedifÞcultiesbyrecallingthenon-competitiveelementscommonlypresentinreality(andalreadyvariouslyillustratedbyMarshallinthePrinciples),whichallowustoconsidereachÞrmasendowedwithadistinctmarketofitsownwithintheindustry.Theimperfectnatureofreal-worldcompetitionallowsustoassumethateachÞrmisconfrontedwithademandcurvewhichisnothorizontal,butratherdecreasing,sothatwithincertainlimitstheÞrmcanincreasethepriceofitsproductwithoutlosingallofitsclientele(orcandecreaseitwithouthavingtoabsorballthedemandpreviouslydirectedtotheotherÞrmsinthesameindustry).Inasituationofthiskind,equilibriumofthe

AlfredMarshall381Þrmispossibleeveninconditionsofconstant,orslowlydecreasing,costswhenthequantityproducedincreases.Asweshallsee(16.4),Sraffawassoontoabandonthislineofresearch.However,thenotionofcompetitiononwhichitreliedcorresponded,aswestatedabove,toMarshallÕsoriginalorientationsandtoawell-establishedattitudeintheoraltraditionoftheCambridgeschool.Thusaviewofthewaytheeconomyworkedwhichstressedtheroleofmarketimperfectionsresurfaced,forexample,inKahnÕs1929fellowshipdisser-tation(Theeconomicsoftheshortperiod),whichremainedunpublishedatthetimeandwaspublishedonlyrecently,ÞrstinItalianin1983,theninEnglish.ThesamedirectionwasperhapstakenbyGeraldShove(1888Ð1947)who,however,publishedonlytwoarticles,onein1928andacon-tributiontothe1930EconomicJournalsymposiumontheMarshalliantheoryoftherepresentativeÞrm.61RobinsonÕs1933bookthusrepresentedthepointofarrivalofalineofresearchtowhichvariousrepresentativesoftheCambridgeschoolhadcontributed.ByutilisingananalyticaltoolcommonlyattributedtoKahn,thenotionofmarginalrevenue,JoanRobinsonprovidedavul-gataofthetheoryofimperfectcompetition,inwhichstaticequilib-riumisdetermined,fortheshortandthelongrun,theÞrmandtheindustry.JoanRobinsonÕsbookremainedwithinthetraditionalMarshallianframework,relyingonthenotionsoftheÞrmandtheindustry.TheworkbyChamberlin62onmonopolisticcompetition,publishedinthesameyearandcommonlyplacedsidebysidewiththatofJoanRobinson,constitutedinsteadadifferentcontributiononimportantaccounts.InstressingthemarginsoffreedomenjoyedbyeachÞrmbecauseofthewidespreadpresenceofmarketimperfections,Chamberlinremarkedthatinthiswaytheverynotionofindustrylosesmeaning,sinceitsboundarieshadbeenestablishedartiÞciallyonthebasisoftheassumptionofhomo-geneityoftheproductofÞrmsincludedinthesameindustry.IntheplaceofgroupsofÞrms(theindustry)producinganidenticalcommodity,wenowhaveacontinuumofqualitativevariationsamongproductsofdiffer-entÞrms.Inthissense,ChamberlinÕscontribution(aswastobebettershownbyasubsequentcontributionbyRobertTrifÞn,1940)representedashiftinthedirectionofthemodernaxiomatictheoryofgeneraleco-nomicequilibrium,inwhicheacheconomicagentrepresentsacasebyitself.61OnRichardKahnandJoanRobinson,cf.below,14.9.62EdwardChamberlin(1899Ð1967),studentandthenprofessoratHarvard,focusedallhisresearchonthethemeofmonopolisticcompetition.

382TheWealthofIdeas11.MarshallÕsheritageincontemporaryeconomicthoughtMarshallhadanexceptionalimpactonthedevelopmentofeconomicthought,strongerthaniscommonlyrecognised.Thereasonforthisunder-valuationisthathiscontributionembracedtwodistinctifnotoppositestreamsofeconomicculture.Ontheoneside,theMarshallianvulgatastillplayedinthesecondhalfofthetwentiethcentury,andoftenstillplaystoday,acentralroleinbasiceconomicinstructioninsecondaryschoolsandundergraduateuniversitytextbooks,withanimpactwhichisfeltnotonlyinthetheoryofprices(equilibriumoftheÞrmandtheindustry)butalsoincollateraldisciplines,fromindustrialeconomicstopublicÞnance.Withitsapparentgreatergeneralityandrigour,thegen-eraleconomicequilibriumapproach,despitefrequentreferences,oftenremainedinthebackground,duetoitssterilityforconcreteapplications.Ontheotherside,theMarshallianapproachtoeconomicdevelopmentasanevolutionaryprocess,itsnuancednotionofcompetitionandtheattributiontomonetarydisturbancesofakeyroleindeterminingthecyclicalswingsoftheeconomy,constitutedastrongcallforimportantstreamsofcontemporarythought,intermediatebetweenheterodoxyandorthodoxy.ApartfromreferencestoSchumpeter,indeed,itwastoMarshallianevolutionismthattheoriesoftheÞrmlikethosebyNelsonandWinter(1982)referred;thesetheoriesconsideredtheÞrmasanorganismwhosegenesconsistinasetofroutines.Technologicalprogresstakesplace,accordingtosuchtheories,throughsubstitutionofoldroutineswithnewones,moreadequatetothetasksoftheÞrmandtheenvironmentinwhichitoperates.Thespreadingofsuchroutinesthentakesplacethroughamechanismofspreadingandselection,inwhichlatecomersaredoomedtosuccumb.(Onceagain,thereferenceherewasmoretoLamarckÕsgenetictheoriesthantoDarwinÕs:exactlyashadalreadyhappenedforMarshall,throughtheintermediaryofSpencerÕssociology.)Thisapproachhadanimportantroleinbringingattentiontodynamicprocessesandtechnologicalchange63withawealthofempiricalresearch.However,atthetheoreticallevelitremainedtrappedinthesameblindalleyinwhichMarshallhadfoundhimself.Indeed,thepromisesofavagueconceptualapparatus,whichpreciselybecauseofitsimprecisionseemsreadytotakeintoaccountdifferentaspectsoftheprocessofeco-nomicdevelopment,cannotbekeptwhenoneseekstoformaliseinrig-orousmodelsatheoreticalapproachwhichtriedtocircumventtheneed63Itthusfavouredthedevelopmentofresearchstreamswithsimilarorientation,albeitwithimportantdifferences:cf.thesurveybyDosi1988.

AlfredMarshall383forafrontalcritiqueoftheneoclassicalnotionofequilibriumandthetraditionofwhichthisnotionisaconstituentelement.AsfortheMarshalliannotionofcompetition,theideaofeconomiesofscaleexternaltotheindividualÞrmbutinternaltotheindustry(orrathertoalocalindustrialsystem)foundanimportantoutletintherecentßourishingofstudiesonlocaleconomies,inparticularonthenotionoftheindustrialdistrict,alreadyhintedatinMarshallÕswork.64Inthiscasetoo,however,apartfromthrowinglightontheconcreteimportanceofaparticularformofterritorialaggregationofsmallandmediumÞrmsandonthefactorswhichfavourthem,thetheoryoftheindustrialdistrictdidnotmanage(nordiditaim)todevelopananalyticalapparatusendowedwithsufÞcientgeneralitytoallowatheoryofpricesanddistributiontobebuiltontop.Finally,insofarasmonetarytheoryisconcerned,MarshallÕsinßuencewasßankedbysimilarinßuencesfromothertheoreticalstreams,suchastheAustrianoneofWicksellandHayek,whoalsosoughtanexplanationforcyclicalphenomenaandunemploymentinmonetaryÔdisturbancesÕ.Thusreinforced,theimpactoftheMarshallianmonetarytraditiononeconomicculturewasverystrong,butthemainresultwastofavoursterilisationofKeynesÕstheorywithintheso-calledneoclassicalsynthesiswhich,asweshallseebelow,triedtorendercompatiblethelongperiodequilibriumoftraditionalmarginalisttheoryontheonesidewiththecyclicalswingsandunemploymentontheother,relegatingthelattertotheshortperiod.Onthewhole,therefore,theundoubtedconceptualrichnessofMarshallÕsthoughthadafar-reaching,lastingimpactoneconomicthought,withimportantramiÞcationswhichpersistincontemporaryeconomicthought.However,theproblemwhichMarshallhimselfhadencounteredremainsunsolved:thatoftranslatingsuchanintrinsicallydynamicconceptualapparatusintotheoreticalmodelswhich,linkedtothemarginalisttradition,remainbasedontheirremediablystatickeyconceptofequilibriumbetweendemandandsupply.64Cf.Becattini1989;Brusco1989.

14JohnMaynardKeynes1.Lifeandwritings1JohnMaynardKeyneswasborninCambridge,England,on5June1883,theÞrstsonofJohnNevilleKeynes(1852Ð1949)andFlorenceBrown(1861Ð1958).Hisfather,apupilofMarshall,wasascholaroflogicandeconomics,authorofThescopeandmethodofpoliticaleconomy(1891),buthadpreferredanadministrativecareertoprospectsofaprofessorship,reachingthetopoftheCambridgeUniversityadministration;hismotherwasoneoftheÞrstfemalegraduatesofthatuniversity,andtheÞrstwomantobeelectedmayorofCambridge.2MaynardÕscurriculumwasinkeepingwiththehigheststandardsofthebourgeoisie:secondaryschoolatEton,universityatKingÕsCollege,Cambridge.Herehestudiedmathematicsandclassicalhumanities;hewasalsoelectedintotheelitistsecretsocietyoftheApostles,devotedtoÔthepursuitoftruthÕ.InagenerationshortlyprecedingthatofKeynes,anotherApostle,thephilosopherGeorgeEdwardMoore(1873Ð1958),hadrejectedtheutilitarianidentiÞcationbetweenÔtobegoodÕandÔtodogoodÕ,proposinganethicsofinnerself-searchingfortruthandper-sonalcoherence.IntheclimateofculturalrenewalcharacterisingtheEdwardianperiod,toKeynesandhisfriendsthismeantaradicalreap-praisalofVictoriancultureandethics,manifestedalsointheirpersonalconduct(markedbyextremeintellectualismandthepursuitofaestheticpleasures),while,departingfromMoore,theyrejectedtheideaofgeneralrulesofconduct,substitutedbyconÞdenceintheabilityoftheÔelectÕtoevaluatecasebycasewhattherightbehaviourwouldbe.ThissocietyenlistedamongothersthenovelistLyttonStracheyandphilosophersBertrandRussellandAlfredWhitehead.Someofthe1ThemainbiographiesarethosebySkidelsky(1983,1992,2000)andMoggridge(1992);nowoutdatedisthebiographybyHarrod(1951).TheCollectedwritingsofJohnMaynardKeynes,inthirtyvolumes,editedbyDonaldMoggridgeand(vols.15Ð18)ElizabethJohnson,werepublishedattheinitiativeoftheRoyalEconomicSocietybetween1971and1989(Macmillan,London).2OnJohnNevilleKeynes(withawiderecoursetohispersonaldiaries),cf.Deane2001.384

JohnMaynardKeynes385Apostles,inparticularStrachey,withotherleadingprotagonistsofEnglishliteraturesuchasVirginiaWoolfandVanessaBell,gavelifeinthefollowingdecadestotheBloomsburycircle(fromthenameoftheresi-dentialareaofLondonwheretheprotagonistsofthecirclelived).Keynesmaintainedcloserelationswiththisgroup,atleastuptohismarriage.Aftergraduatinginmathematics,in1906Keynestookthecivilserviceentranceexaminationsbut,cominginsecond,hadtocontenthimselfwithajobattheIndiaOfÞce(whilethetopofthelisttraditionallywenttotheTreasury).Therewaslittleworktobedone,andKeyneshadthetimetowriteatreatiseontheIndianmonetarysystem(publishedin1913,underthetitleIndiancurrencyandÞnance),andalongessayonthetheoryofprobability.Thankstothisessay,afteraÞrst,unsuccessfulattempt,in1909,heobtainedafellowshipatKingÕsCollege,Cambridge.Keyneswastocontinueactiveinvolvementwithhiscollegeforthewholeofhislife;electedBursarin1924,hetoppedupthecollegecofferswithaseriesofshrewdreal-estateinvestmentsandadventurousspeculationonthestockexchange.In1908,beforeobtainingtheKingÕsfellowship,KeynesresignedfromtheIndiaOfÞceandacceptedapostaslecturerineconomicsatCambridge;hismodestsalarywaspaidbyPigououtofhisownpocket,thuscontinuingatraditionstartedbyhismaster,Marshall.InthatyearPigouhadsucceededMarshalltotheeconomicschair;later,inthe1930s,hewastobecomeatheoreticaladversaryofKeynesandtheKeynesians.Asfrom1911,withMarshallÕssupport,KeynestookovereditorshipoftheEconomicJournal;twoyearslaterhealsobecamesecretaryoftheRoyalEconomicSociety.Hewastoholdthesetwoappointmentsformorethanthreedecades,inaperiodofexceptionalvitality,especiallyfortheEconomicJournal,whichrosetobethemostprestigiouseconomicjournalofthetime.DuringtheFirstWorldWar,followingtheexampleofhisBloomsburyfriends,Keynesdeclaredhimselfaconscientiousobjector,althoughwork-ingÐwithsomeinconsistency,whichdrewcriticismfromhismoreintran-sigentliteraryfriendsÐattheTreasuryonissuesconnectedwithÞnancingthewareffort.In1919hewasamemberoftheEnglishdelegationatthepeaceconferenceinVersailles,butopposedtheÔreparationsÕimposedonGermany,consideringthemanunsustainableburdenontheGermaneconomyandsociety:thusheresignedand,oncebackinCambridge,addressedthesubjectinhismostsuccessfulTheeconomicconsequencesofthepeace.33KeynesÕscriticismswerenotbasedontheÔinternalÕsustainabilityofreparations,i.e.ontheÞscalburdentheyimplied,butontheirÔexternalÕsustainability,i.e.thechancesof

386TheWealthofIdeasBynowawidelyrecognisedwriter,Keynescontributedonthemainthemesofeconomicpolicywithaseriesofarticles;healsopublishedsomebooks,amongwhichweretheTreatiseonprobabilityin1921(arevisedver-sionofhis1909fellowshipdissertation,towhichKeynesdedicatedmoreyearsofworkandmorecarethantoanyotherofhispublications)andtheTractonmonetaryreformin1923.4Tohisvariousacademicrespon-sibilitieshethenaddedthatofchairmanofaninsurancecompanyand,inpartnership,launchedintospeculationontheexchangemarketsonhisownaccountandonbehalfofrelativesandfriends(althoughtheresultswerenotalwayshappy).In1925,havingspentagreatpartofhislifecultivatingmalefriendships,MaynardmarriedafamousRussiandancer,LydiaLopokova,notwithstandingtheill-concealedoppositionofhisBloomsburyfriends.In1930and1936,respectively,hepublishedthetwoworksÐtheTreatiseonmoneyandtheGeneraltheoryofemployment,interestandmoneyÐtowhichheprincipallyoweshisfameasatheoreticaleconomist.OtherimportantcontributionswerethelivelyandprovocativeessayscollectedintheEssaysinpersuasion(1931),andthewell-documentedandincisivebiographiescollectedintheEssaysinbiography(1933).InthesameyearthatsawtheGeneraltheorypublished,KeynesinauguratedinCambridgetheArtsTheatre,builtalmostentirelyfromhisownprivatefunds;hiswifeLydiawasprimaballerinaintheinauguralperformance.Inthefollowingyearhehadaheartattackandwasobligedtoscaledownhisworkload.In1940hewasappointedadvisertotheTreasuryandplungedonceagainintoproblemsofwarÞnance,negotiatingloansfromtheUnitedStates.In1941healsojoinedtheboardoftheBankofEngland.IntherealisingasurplusinotheritemsofthebalanceofpaymentssufÞcientlylargetooffsetunilateraltransfersforreparations.KeynesÕsattentionfocusedontheimpossibilityofgeneratingasufÞcientsurplusinthebalanceoftrade,andthusgaverisetoawide-rangingdebatecentredonexportandimportelasticitiestotheexchangerateandtoincome.Asamatteroffact,Germanyactuallyshowedasubstantialcapitalinßow,thanksalsotoloansfromtheUnitedStates.KeyneswasthusconsideredresponsiblefortoobenevolentanattitudetowardsGermany:athesiswhichtookonrenewedvigouraftertheriseofnazismandtheoutbreakoftheSecondWorldWar,aswastestiÞedforinstancebytheessaybyBelgian«EtienneMantoux,TheCarthaginianpeace,ortheeconomicconsequencesofMr.Keynes,publishedposthumouslyin1946,ayearafteritsauthordiedinthewar(cf.Skidelsky1983,pp.397Ð400).4InthisworkKeynesdistinguishedbetweeninternalandexternalstabilisationofthevalueofmoney(adistinctionprobablysuggestedbySraffa:cf.below,16.1)anddeclaredpreferenceforstabilisationofinternalpricesratherthanoftheexternalvalueofthenationalcurrency;hewasthereforecriticaloftheideaofthepoundreturningtothegoldstandardÐdecided,however,afewmonthslater,on28April1925.Moreover,bythedecisionofthethenChancelloroftheExchequerWinstonChurchill,returntothegoldstandardtookplaceatthepre-warparity;thisimpliedanover-valuationofthepoundandalossofcompetitivenessforEnglishmanufactures.Keynescriticisedthedecisionscathinglyinabrilliantpamphlet,TheeconomicconsequencesofMr.Churchill,1925.

JohnMaynardKeynes387followingyearhewasmadealord,withthetitleofBaronofTilton.DuringthewarKeyneshadalreadybeguntoproduceaseriesofplanstoreformthepost-warinternationaleconomicorder;inJuly1944heplayedaleadingroleintheBrettonWoodsconference,althoughthegreaterbargainingpoweroftheUnitedStatesledtoÞnalresultsthatwereclosertotheUSposition(theÔWhitePlanÕ,fromthenameoftheAmericandelegate)thantohisown.Sufferingafurtherheartattack,hediedinhiscountryhouse(atTiltoninSussex)on21April1946.ThereisanimmenseliteratureonKeynesÕsthought:wemightsaythatthereisnoaspectofhistheorieswhichhasnotseenavarietyofinterpre-tations.Thisholdstruealsofortherelationshipbetweenhisanalysisandthetimeshelivedin.ManyÐindeedtheoverwhelmingmajorityÐcon-curindrawingaparallelbetweenKeynesandthe1929GreatCrisis(or,moreprecisely,withtherecessionintheUnitedKingdomafterreturntothegoldstandardin1925).Therecaninanycasebenodoubtthattheconditionsofhighandpersistentunemploymentinthe1930satleastfavouredthespreadofKeynesianideas.Somecommentatorsstressotheraspects,suchasthedistinctlyBritishviewpointofKeynes,whosawhiscountrylosinggroundtotheUnitedStates,bothinmanufacturingandintheÞnancialmarkets,butmorerapidlyintheformer,whichappearstoaccountforthegreaterinteresthetookinthelatter.Atthesametime,asfarasproblemsofreconstructingtheinternationalmonetarysystemwereconcerned,Keynesoutlinedschemeswhichtookintoaccounttheinterestsofthelessstrongcurrencies,asinfacttheBritishpoundwaslikelytobeinaworlddominatedbytheUSdollar.Indeed,inlayingoutthefoundationsofhistheoreticalanalysisKeynes,whoseexceptionalpragmatismwasrepeatedlystressedbyhiscontempo-raries,mirroredthemaineconomiceventsofaperiodoftimewhichincludedtheGreatCrisis,butwhichwasnotlimitedtothe1930s.KeynesÕsbasiccommitmentwasasaneconomistwhoseprofessioncoin-cidedwithhiscivicsense.Hisgreatdesignwastocontributetoareformedsystemofcapitalism,whichshouldguaranteeincreasingfairnesstogetherwithanampledegreeoffreedomandefÞciency.ThedesignemergedinfullerdeÞnitionwhenconfrontedwiththeriseoftotalitariansystems:fas-cismandnazisminItalyandGermanyandStalinismintheSovietUnion.Hencehisrecognitionoftheendoftheideologyofeconomicliberalisminitsmostsimplisticandextremeform:Theendoflaissez-faire,asheenti-tledapamphletpublishedin1926.Reconsideringfromthisperspectivetheroleplayedbythestateintheeconomy,atwofoldneedemerged:ontheonehand,toprovideacritiqueofthethendominanttheory,showinghowinsufÞcientweretheequilibratingmechanismsofthefreemarket;ontheotherhandÐonthepositivesideÐtoconstructatheoryofstate

388TheWealthofIdeasinterventionandhenceofeconomicpolicy.Thisistheprojectwhich,withhisscientiÞcactivityandhisdirectinvolvement,Keynesendeavouredtocarryout.Foreaseinexpositionwemaydistinguishthreehistoricalstages,andthreecorrespondingstagesinKeynesÕsresearchwork.TheÞrststageembracedtheÞrstdecadesofthetwentiethcentury,uptotheWallStreetcrashin1929;thesecondstagereachedtheoutbreakoftheSecondWorldWar,thuscorrespondingtotheyearsoftheGreatDepression;thethirdstagebeganwhentheeconomicproblemsconnectedwiththewarbroughtthepatternofinternationaleconomicrelationstogeneralattention.Inparallel,theÞrststageinthedevelopmentofKeynesÕsanalysiswentfromthetractontheIndianmonetaryandÞnancialsystem(1913)uptotheendofthe1920s;thesecondperiodwasthatwhichledfromtheTreatiseonmoney,publishedin1930,totheGeneraltheory(1936),includingtheimmediatelysubsequentwritingswhichdefendedtheapproachproposedinthelatterworkandstresseditsnovelty;thelaststagewasthatofHowtopayforthewar(1940)andofproposalssuchastheClearingUnion,foranewinternationaleconomicset-up.Ingeneral,commentatorsfocusattentionmainly,ifnotexclusively,onthesecondstage,sincethewritingsbelongingtothisperiodarerightlyconsideredKeynesÕsmaincontribu-tionsinthetheoreticalÞeld.However,muchislostontheway,bothinsofarasinterpretationofKeynesÕsthoughtisconcerned,andwithrespecttohisÔprogrammeforactionÕ.Inparticular,hiscontributiontothethe-oryofprobability,withhisnotionofuncertainty,merittreatmentintheirownright,beforeconsideringhiscontributionstothetheoryofmoneyandemployment.2.ProbabilityanduncertaintyAsmentionedabove,KeynesÕsoriginalspecialisationwasthatofamathe-maticianwithaleaningtologic.Between1906and1911Keynesdevotedmostofhisresearchworktoanessayonthetheoryofprobability.Thiswork,takenupagainin1920whenKeyneshadalreadyacquiredfameasaneconomist,wasfurtherrevisedandÞnallypublishedastheTreatiseonprobability.InordertounderstandthisworkwemustapproachitintermsofthecultureofCambridgeatthetime.ThetraditioninheritedfromthepastwasthatofJohnStuartMillÕslogicalinductivism.InthistraditionwealsoÞndMaynardÕsfather,JohnNevilleKeynes,whoattemptedinhis1891bookaneclecticsynthesisbetweenitandGermanhistoricism,theinßuenceofwhichwasmediatedinCambridgebyMarshall;fusionofanabstract-deductiveapproachandhistorical-inductiveapproachwas

JohnMaynardKeynes389attributedtoatraditionwhichwentfromSmithtoMill,whileRicardowasconsideredtoounilateralinhisadherencetoabstractmodelsofreasoning.InthesameyearsthatsawKeynesatworkonprobabilitytheory,anotherApostle,thephilosopherBertrandRussell(1872Ð1970),laidthefounda-tionsofanalyticphilosophyandtogetherwithAlfredNorthWhitehead(1861Ð1947)wentaheadontheprojectofdeducingmathematicsfrompurelylogicalpremises,publishingbetween1910and1913thethreevolumesofthePrincipiamathematica.Keynesthustackledthetheoryofprobabilityintheculturalcontextofalivelydebateonthethemesofinductiveknowledgeandtheroleofdeductivelogic.Hisambitionwastobuildageneraltheoryofknowledgeandrationalbehaviour,withrespecttowhichthecasesofperfectcertaintyandfullignorancearetheextremes.ForthisreasonKeynesrejectedthefrequentistinterpretationofprobability,whichisapplicableonlytothatclassofphenomenaforwhichwecanassumethepossibilityofaninÞniteseriesofrepetitionsunderunchangedconditions(aswithdicethrowing).HeproposedinsteadaÔrationalistÕapproach,centredonthedegreeofconÞdencewhichitisreasonabletohaveinacertainevent,giventhestateofknowledge.Letusmentionbrießysomeaspectsofthisapproach.IntheÞrstplace,itsimportanceliesinthefactthatitdealswiththeproblemofrationalbehaviourinacontextinwhichthesubjectisdevoidofcertainties.Inotherterms,humanspursuerationalbehavioureveniftheyknowthattheydonothaveobjectivefoundationssufÞcientforafullandcertainevaluationoftheoutcomesoftheiractions.Rationalbehaviouristhenconnectedtosubjectiveevaluationsbasedonexperienceaswellasonpersonalintuitions;probabilitycalculusisthetechniquebywhichtheseevaluationsarescreened.ÔTheprobable[…]isthatwhichitisrationalforustobelieve.[…]TheprobableisthehypothesisonwhichitisrationalforustoactÕ(Keynes1921,p.339).Secondly,Keynesdistinguishedbetweenthepropositionwhichexpressestheprobabilityofagivenevent,andtheconÞdencewhichonecanhaveinsuchanevaluation,namedÔweightoftheargumentÕ.WhenrelevantempiricalevidenceÐunderstoodasthesetofinformationdirectlyorindirectlyusefulforourassessmentoftheeventÐincreases,thentheweightoftheargumentincreases,whiletheprobabilityattributedtotheeventmayincreaseordiminishorremainunchanged.Thirdly,Keynesrejectedtheideathatitispossibleingeneraltoattributeanumericalvaluetotheprobabilityofevents.Inhisopinion,weshoulddistinguishthreeclassesofevents:intheÞrstwehavethoseeventsforwhichitispossibletodeÞneprobabilityasarationalnum-bercomingbetweenzeroandone(forinstance,inthegameofdice,

390TheWealthofIdeasormortalitytables:ingeneral,inallcasesofactuarialrisk);inthesec-ondclasswehavethoseelementsforwhichwehaveasufÞcientbasisofknowledgetoexpressnon-quantitativeopinionsonpartialrankingofevents(forinstance,onthebasisofourmodeloftheworkingoftheecon-omy,wemaysaythattherateofinterestismorelikelytoincreasethantodiminishinthenextthreemonths);inthethirdclasswehavethoseeventsforwhichtheknowledgebasisisinsufÞcientforustoformulateevenrelativejudgementsofthiskind(isitmorelikelythatthepresidentoftheUnitedStatesin2050willbecalledMary,orthattheItalianpresi-dentwillbecalledPaola?).Whenconfrontedwitheventsbelongingtothesecondorthirdclass,itmayberationaltorelyonÔconventionalÕformsofbehaviour,conformingtoorpossiblyanticipatingthebehaviourofthemajority.5Fourthly,fortheseveryreasonsKeynesÕsapproachshouldbekeptdistinctfromthesubjectiveonedevelopedafewyearslaterbyRamsey(1931),DeFinetti(1930,1931,1937)andSavage(1954),whosawprobabilitiesintermsofsubjectiveevaluationsexpressedthroughbets,andthusgenerallyquantiÞable.WhileRamseyviewedtheexistenceofprobabilityrelationssuchasthosedescribedbyKeyneswithscepticism,thelatterÐnotwithstandinghisadmirationfortheintelligenceandexu-berantpersonalityofhisyoungfriend6Ðshowednosignsofmodifyinghispositioninthefaceofcriticismandofthedevelopmentofthenew5Cf.PasquinelliandMarzettiDallÕAsteBrandolini1994,p.xxiv.Accordingtothesecom-mentators,uncertaintyofshortrunexpectations(thosewhichentrepreneursrelyonwhendecidingonproductionlevels)maybeconnectedtotheÔknownprobabilityÕoftheTreatiseonprobability,whileuncertaintyoflongrunexpectations(thoserelevantforentrepreneursÕdecisionsoninvestments)maybeconnectedtoÔunknownprobabilityÕ.Thisisconsid-eredtobetheoriginofKeynesÕsreferencetotheroleofentrepreneurialÔanimalspiritsÕininvestmentdecisions,takenbyrationalagentsmoreonthebasisofanÔurgetoactionÕthanofactuarialcomparisonbetweenrisksoflossesandpossibilitiesofgains.However,thisinterpretationappearstobetoodrastic.Theanimalspiritswerebasedon,oratanyratewentsidebysidewith,arationalevaluationofthesituation,inwhichalternativesexistedfortheemploymentandaccumulationofwealththatfellwithinthesecondclassofevents.Indeed,theÞrstandthirdclassesofeventsmaybeconsideredextremecasesofrelativelylowinterestintheeconomicÞeld.Keynestookupandgraduallyre-elaboratedinhisworks,ontheimplicitbasisoftheTreatiseonprobability,anotionofexpectationsalreadypresentintheeconomicsliterature,andthusarrivedattheÔcanonicalÕsystemati-sationofthenotionintheGeneraltheory:themeaningofthenotionofexpectationsandtheiranalyticalroleonlybecameclearoncethetheoreticalframeworkthenotionwastoÞndaplaceinhadbeenspeciÞed.6ToFrankRamsey(1903Ð30)Keynesdedicatedfondandeulogisticpages,collectedwithotherbiographicalwritings(includingthetwosubstantialessaysonMalthusandMarshall)intheEssaysinbiography(1933).IntheeconomicÞeld,wemayrecallRamseyÕsmodelofgrowthbasedonintertemporalmaximisation(Ramsey1928)and,inthecontextofhisworkonthetheoryofprobability,theaxiomatisationofpreferencesconnectedtosubjectiveexpectations(Ramsey1931).

JohnMaynardKeynes391approach,whichdrewuponBernoulliÕsinsights(cf.above,10.2)togoon,withSavage,tocombineaxiomatictreatmentofprobabilitiesandpreferences.7Asmaybeseenfromthesebroadoutlines,theKeynesiannotionofuncertainty,whichplayedacrucialroleinhistheoryofmoney,incomeandemployment,hasrathermoresubstancethanthefamousdistinctiondrawnbyKnight(1921)betweenÔprobabilisticriskÕandÔuncertaintyÕ,usefulasitmaybe.Thesameholdsforthequestionofthelimitsofeco-nomicagentsÕknowledge,inconnectionwithwhichtheAustrianschoolisoftenassociated,althoughitreceivedbarementionfromMenger(1871)inthiscontext,tobedevelopedbyHayekonlyinthesecondstageofhisresearchactivity(cf.above,11.6),henceacoupleofdecadesafterKeynes.3.TheTreatiseonmoneyAswehaveseen,thetwogreateconomicworksbyKeynesaretheTreatiseonmoneyandtheGeneraltheory;wewillnowfocusattentiononthem.Variousotherworksofhisplayedanimportantroleintheeconomicdebateofthetimeandarerelevanttointerpretationofhisthought,butontheseaspectswereferreaderstothemanycommentariesandtheeditionofhisCollectedworks.8Ofallhiseconomicworks,theTreatisewastheoneonwhichKeynesworkedthelongestÐoversixyears.Thiswasalsoaperiodofgreatintel-lectualfermentinCambridge.Beginningin1922,theEconomicJour-nal(editedbyKeynes)publishedaseriesofimportantcontributionstothedebateontheMarshalliantheoryoftheÞrm,whileagainwithintheframeworkofMarshalliantheoryÐbutreferringmorecloselytoMarshallÕsOfÞcialpapersandtheoraltraditionofhisteachingthantothePrinciplesÐanumberofworkswerepublishedontherelationshipbetweenmonetaryphenomenaandshortperiodproductionlevels,suchasthebooksbyDennisRobertson(1890Ð1963),Astudyofindustrialßuctuations(1915)andBankingpolicyandthepricelevel(1926);byRalph7Ineffect,thenotionofanimalspiritsseemstohavebeenmeanttostresstheexistenceofaresiduumofunavoidable,acceptedimprecisioninsubjectiveevaluationsofthesituationinwhicheconomicdecisionsaretaken,hencetheunsuitabilityoftheschemeofquan-titativebetstodescribesuchsituations.ThedistinctionbetweenshortandlongperiodexpectationsindicatedthatthedimensionofsucharesiduumÐsigniÞcantlylargerinthelattercaseÐhadnotableanalyticalrelevance.8AmongthemanyworksoninterpretationofKeynesÕsthought,letusrecallAsimakopulos1991;Kregel1976;Minsky1975;Moggridge1976;Pasinetti1974,ch.2;Tonveronachi1983;andVicarelli1977.

392TheWealthofIdeasHawtrey(1879Ð1975),Currencyandcredit(1919);andbyArthurCecilPigouonIndustrialßuctuations(1927a).9Keyneswasalwaysinvolvedwiththeeconomicpolicydebate.Inhis1923Tractonmonetaryreform,heconfrontedthepost-wartensionsÐthesenseofinstability,mainlyconnectedtoinßationandunemploymentÐopposingthethendominantrecipeofareturntostablerulesofthegame,namelytoautomaticequilibratingmechanismssuchasthegoldstandard.Keynesperceivedthatstabilisationoftheexchangerate,atwhichthegoldstandardaimed,didnotnecessarilyensureinternalpricestability;keepingintoaccounttheconßictinginterestsofsavers,entrepreneursandworkersheconsideredbothinßationanddeßationasdamagingfortheeconomy.Thus,moneyshouldnotbeconsideredneutral,andshouldbemanagedwithaneyetointernalpricestabilisation.Neutralityofthereturntothegoldstandardwasalsoruledoutbythedifferentbehaviouroftwosectorswithintheeconomy,onesubjectedandtheothernotsubjectedtoforeigncompetition.Allthisruledoutthesimplepolicyoflaissez-fairepredicatedbythepoliticalestablishment.Inanimportant1926pamphlet,Theendoflaissez-faire,Keynesremarkedthatthedogmaticlaissez-faireprinciple,thoughadoptedasthefoundationofthethencurrentliberalism,wasnotupheldinthewritingsofthegreatclassicaleconomists.Moreover,anefÞcientsocialorganisa-tionÐasundercertaincircumstancescapitalismcouldbeÐshouldnotbeconsideredasanendinitself,andcareshouldbetakenthatitdidnotruncountertoourbasicsystemofvalues.Equity,besidesefÞciency,wasneededfortheverystabilityofsociety.Allthisisverysimilartothedistinctionbetweeneconomicandpoliticalliberalism:theÞrstonetakeninisolationÐnamelydogmaticlaissez-faireÐwasfoundtobebothanachronisticinthecircumstancesofmoderncap-italism,andnotamoralvalueinitself.Aneweconomicwisdom,onwhichtorelyforthegovernanceofmoderncapitalism,wascalledfor;itsconstructionwasthetaskthatKeynessethimself.Such,then,wasthebackgroundthatsawthebirthoftheTreatise.Inanumberofrespects,ittoomaybeconsideredasaworkwithintheMarshalliantradition;atthesametime,however,theinnovativeelementsconstitutedabridgetotheradicalnoveltiesoftheGeneraltheory.9Inverybroadoutline,Robertsonfocusedattentiononmonetaryelementsinsofarasshortcycleswereconcerned,andonthecrowdingofpurchasesfortherenewalofplantandmachineryandfordurablecapitalgoodscausedbythealternationofÔswarmsÕofinnovationswithperiodsofrelativestagnationintechnologicalchangeinsofarascyclesofmediumdurationwereconcerned(followingSchumpeter1912,inthisrespect:cf.below,15.3);Hawtreystressedtheroleofmovementsininterestratesonshort-termloans,henceontheÔinventorycycleÕ;Pigoudweltuponthesequenceofwavesofoptimismandpessimism.

JohnMaynardKeynes393Keynesavoidedhead-oncriticismofthetheoreticalnucleusofthemarginalisttradition,consistingintheideaofalongrunequilibriumcharacterisedbyfullemploymentofresources,labourincluded,andbytheneutralityofmoney(thatis,bythefactthatthequantityofmoneyincirculationaffectsthelevelofpricesbutnottheÔrealÕvariablesofthesystem,suchasproductionandemploymentlevels).Thisviewofthelongperiodthusremainedinthebackground,especiallyforreadersuntrainedinthesubtlequaliÞcationsofMarshallÕsteaching.AsfarastheinterpretationoftheworkingofthemonetaryandÞnancialsectorwasconcerned,theTreatisetookupanddevelopedtheMarshalliancritiqueofthequantitytheoryofmoney,intheversionproposedbyIrvingFisher,withhismechanicalrelationshipbetweenmoneysupplyandgen-eralpricelevel.Onthepositiveside,KeynesdevelopedtheapproachbasedontheÔCambridgeequationÕforliquidstocksdemand.Asfarastherealsectorwasconcerned,Keynesproposedatwo-sectormodel,whichweshallnowtakeacloserlookat.ThemostinterestingnoveltiesoftheTreatiseconcernedtheconnectionsbetweenmonetaryandÞnan-cialaspectsontheonehandandrealaspectsontheother.FollowingtheMarshallianmethodologicalprincipleoffocusingattentiononshortcausalchains,Keynessetouttolocate,linkbylink,thecause-and-effectconnectionsintheinterrelationsbetweenchangesinpricesandproducedquantities,theaimbeingtogaininsightintotheworkingofamonetaryeconomyinperennialmovement.Keynes,then,utilisedinhisanalysisatwo-sectorscheme:onesectorproducesinvestmentgoods,theotherconsumptiongoods.Theproblemthusarisesofpriceindexnumbers,andKeynesshowedthattherecouldbenounivocalanswer,butonlyapproximateones.Inotherwords,itisnotpossibletoattributetothenotionofagenerallevelofpricesthatanalyticalrigourwhichwouldbeindispensableifweweretorelyonitasoneofthecentralelementsinatheoreticalconstruction.Thisobservationmaybeseennotonlyasastrictureontheconceptualfoundationofthequantitytheoryitself,butalsoasexpressingdifÞdencetowardsaggregatenotions:adifÞdencetypicaloftheMarshalliantradition,whichshouldbekeptinmindwhenconfrontedwithinterpretationsofKeynesÕstheorybasedontheoppositionbetweenanaggregateÔmacroÕanalysisandadisaggregatedÔmicroÕone.TheÔfundamentalequationsÕconstitutetheanalyticalcoreoftheTreatise.Theyexpress,throughtheeffectsthatmaycausepricestodivergefromtheirequilibriumlevels,therelationsbetweenpricesanddemandandsupplylevelsinthetwosectors.Moreover,theyprovideasequen-tialschemethatconnectsproductionlevelsandrealisedproÞts.Keynesutilisedherenotionsofincome,proÞtsandsavingsatvariancewiththose

394TheWealthofIdeasnormallyusedinmodernnationalaccounting,andwiththosethathehimselfwastoutiliseintheGeneraltheory.ThesenotionsareinfactdeÞnedintheTreatisesoastoallowfortheirusewithinasequentialanal-ysis.AtthecentreoftheanalysisÐandthisisanelementwhichanticipatedacrucialaspectoftheGeneraltheoryÐtherewasthedistinctionbetweeninvestmentsandsavings.Insofarastheyareaneffectofthedecisionsoftwodifferentgroupsofeconomicagents(entrepreneursandfamilies),investmentsandsavingsmaydiffer;theirdifferencedeterminesdisequi-libriabetweendemandandsupplyinthetwosectors,withpricechangeswhichgenerateunforeseenproÞtsorlosses,10towhichentrepreneursreactwithchangesinproductionandemploymentlevels.Savingsareassumedtobeconnectedtowealth,andhencerelativelystableinthefaceofshortperiodchangesinincome.Cyclicaldynamics,interpretationofwhichwastheobjectofthebook,thusdependsonthevariabilityofinvestments.Giventhescantinßuenceofinvestmentsininventories,KeynesfocusedattentiononinvestmentsinÞxedcapital,mainlyconnectedtoSchumpeterianprocessesofinnovation-imitation,althoughtherateatwhichtheyareenacteddependsonlongruninterestrates.Thisisthetheoreticalcoreofthework.WeshouldaddthatKeynesdevotedmanypagesÐmostofthebook,infactÐtodescriptionofthedifferentchannelsofliquiditycreationanddecisionsonholdingÞnancialassets,withastudyinappliedeconomicsthatremainsamodelofitskindtothisday.AlthoughitdevelopsalineofargumentationproposedbyMarshallwithhisanalysisofdemandformonetarystocks,thisisanaspectcommonlyoverlookedbycommentators.Itis,however,interestingnotonlyinitself,suggestingasystemofinterrelationsbetweenÞnancialstocksandrealßows,andasananticipationoftheGeneraltheory,butalsoasanindicationofanti-cyclicaleconomicpolicylines.Fromthislatterpointofview,inparticular,Keynesanalysedthetransmissionmechanismsofimpulsesfromshortruninterestrates,inßuencedbythecentralbank,tolongruninterestrates,whichintheirturnimpactonÞxedcapitalinvestmentdecisions.Inthecontextofanopeneconomy,tothosealreadymentionedaboveotherreasonsfordisequilibriaareadded.Againwithreferencetothe10IntheTreatiseterminology,proÞtscorrespondedexclusivelytosuchunforeseengainsorlosses,andwerenotincludedinthedeÞnitionofincome.Interestoncapitaladvanced,usuallyincludedinthecategoryofentrepreneurialincome,wasinsteadconsideredaspartofproductioncostsandincludedinincome.(ThecategoryofproÞtnormallyutilisedbyKeynesthusmirroredthemarginalistandMarshallianviewoftherateofinterestasthepricefortheserviceoftheÔfactorofproductioncapitalÕ,whilethewagewasthepricefortheuseoftheproductivefactorlabour.)

JohnMaynardKeynes395fundamentalequations,adifferentrelationshipbetweenaverageproduc-tivityandwagesindifferentcountries,andinparticularincountriesatdifferentlevelsofdevelopment,generatesdisequilibriainthebalanceoftrade,andhenceininternaldemand.Thusitfollowsthattheexchangerateisacrucialpolicytoolintheabsenceofadjustmentininternalmoneywagesand/orproductivity.TheTreatisealsoincludedanalysisofinternationalmonetaryrelations,ausualthemeforKeynesbothinthe1920s,whenhetookpartinthedebateonthereturntothegoldstandard,andinthe1940s,asweshallseebelow(5).Keynesstressedthedesirabilityofaninternationalmon-etarystandard,andintheplaceofgoldproposed(inthewakeofIrvingFisherÕstabularstandardandanalogousproposalsadvancedbyMarshallandothers)acurrencyissuedbyaninternationalcentralbankconstrainedbytheobligationtokeepitsvaluestableintermsofabasketofsixtyinternationallytradablegoods.Inthiscontext,characterisedbyÞxedexchangeratesamongnationalcurrencies,nationalmonetarypoliciesloseanyautonomy,anditthenbecomesnecessarytoresorttoÞscalpoli-cies,andinparticulartopublicworks,inordertosupportemploymentÐanotherthemewhichthenappearedonthescene,toassumeacentralrolelaterintheGeneraltheory.4.FromtheTreatisetotheGeneraltheoryTherehasbeenmuchdebateamongKeynesÕscommentatorsonthecru-cialstageoftransitionfromtheTreatisetotheGeneraltheory,regardingbothdeÞnitionofthemaininnovativeelementsofKeynesÕstheoryandevaluationofthecontributionofideasandsuggestionsfromthatgroupofyoungeconomistswhoconstitutedtheso-calledÔCambridgeCircusÕ.TheprocessoftransitionbeganwhentheTreatisewasabouttoappear.Keynes,characteristically,succeededinviewinghisownideaswithcrit-icaldetachmentassoonashehadputthemforward,andevenwhilecorrectingandrevisingtheproofsoftheTreatisehearrivedatthecon-clusionthatadifferentanalyticalstructurewouldhavebeenbetterÞttedtosupporthismainideasonthegovernanceofthemarketeconomy.Thekeymomentinthetransitionwasthepassagefromanalysisofdise-quilibriatoanalysisofunderemploymentequilibrium.Whilethecausalnexusgoingfrominterestratetoinvestmentsandfromthesetoincomeremained,thepossibilityÐindeed,thelikelihoodÐwasrecognisedthatthemarginalpropensitytoconsumemighttakeonvalueslowerthanone,whichopenedthewaytoattributinginvestmentswithacrucialroleindeterminationoftheequilibriumlevelofincome.Choicebetweenthemanypossibleequilibriumsthenrequiredatheoryofinterestrates.

396TheWealthofIdeasHowever,KeynesdidnotbuildanewtheoryofvalueasthefoundationforhisanalysisbutsettledforthemorefamiliarconÞnesofshortperiodanalysis,triedandtestedandÐthankstothediffusionofMarshallisminEnglandÐmorereadilyunderstandabletohisreaders.Amongotherthings,hewasdriveninthisdirectionbyRichardKahn,hispupilandclos-estcollaboratoraswellasbeinganimatorandÔmessenger-angelÕoftheCircus.11BetweentheTreatiseandtheGeneraltheorytherearethuscertaincru-cialdifferencesinanalyticalstructure.Thekeyideas,however,remainedunchanged:asKeynessaidintheprefacetothesecondofthetwoworks(Keynes1936,p.vi),betweenthemthereisaÔnaturalevolutionÕ,notaÔchangeofviewÕ.Thecrucialidea,diametricallyopposedtoacentraltenetoftraditionalmarginalisttheory,wasthatinamonetaryeconomyentrepreneurialdecisionsonproductionlevelsarenotnecessarilyconsis-tentÐorautomaticallymadesobymarketmechanismsÐwiththeequi-libriumsituationcharacterisedbyfullutilisationofavailableresources.IntheTreatiseweÞndananalysisofdisequilibria;theideaoflongrunequilibriumremainedinthebackground,butwithamarkedlyreducedheuristicvaluebecauseofthecentralimportanceattributedtotheanaly-sisofdisequilibria,intheabsenceofrelevantequilibratingmechanisms.IntheGeneraltheory,themainthesisÐasweshallseeingreaterdetailinthenextsectionÐwaspreciselythis:thepersistenceofequilibriumscharacterisedbyunemploymentispossible,sincemarketeconomiesdonothavereliableautomaticmechanismstobringthemtoequilibriumscharacterisedbyhigherlevelsofincomeandemployment.Hencetheimportanceofactivemanagementoftheeconomyprimarilywiththemonetary-ÞnancialleverintheTreatise,withbothitandtheÞscallever(publicexpenditureinparticular)intheGeneraltheory.12BetweenpublicationoftheÞrstandsecondofthesetwoworks,aswehaveseen,theanalyticalstructuresupportingthisthesischanged.Inthis11Inotherwords,KahnwastheintermediarybetweenKeynesandthegroupofyoungeconomistswho,groupedintheÔCircusÕ,discussedtheTreatiseonmoney:cf.Keynes1973,vol.13,pp.337Ð43.(TheexpressionÔmessengerangelÕwasMeadeÕs:cf.ibid.,p.339.)OnthisstageoftransitionseethereconstructionbyKahnhimself(1974,1984).Onthesamelines,cf.alsoMoggridge1976.Patinkin1976,1987,wasofadifferentopinion,ratherinclinedtoisolatethedevelopmentofKeynesÕsthoughtfromtheextremepositionsofhisyoungfollowersandtobringitbacktotheneoclassicaltradition.12IntheTreatiseandinvariousotherworksoftheperiodKeynesseemedtosuggestrecoursetoananti-cyclicalÞscalpolicywiththebalancingofthepublicbudgetensuredasanaverageoverthecycle,whenmonetarypolicywasineffective;intheGeneraltheorytheconnectionbetweenlongrundeÞcienciesofaggregatedemandandpoliciesofpublicexpendituresbecameclearer.Overtime,Keynesseemedtohavebecomemoreandmorescepticalabouttheuseofpublicworksasatoolofanti-cyclicalpolicy,especiallyinthepresenceofshortcycles.(TheseaspectshavebeenpointedouttomebyMarioTonveronachi.)

JohnMaynardKeynes397respect,theinßuenceoftheÔCircusÕ,andinparticularofRichardKahn,appearsimportant.Thecontributionofthelatterconsistednotonly,norindeedprevalently,inthemultipliermechanism,13althoughitconstitutedoneofthethreeanalyticpillarsoftheGeneraltheory,togetherwiththenotionofeffectivedemandandthetheoryoftherateofinterestbasedonthespeculativedemandformoney.Forgoodorill,KahnÕsmaincontribu-tioninalllikelihoodconsistedinsuggestingrelianceoftheGeneraltheoryontheMarshallianshortperiodequilibrium.Thiswas,aswehaveseen,atriedandtestedanalyticalsystem(developedinparticularbyKahninhisfellowshipdissertationandinotherrespectsbyJoanRobinsoninher1933book:cf.above,13.10)which,afterall,constitutedthelivecoreoftheMarshalliantraditioninCambridgewhenKeyneswaswriting.Atthesametime,thevariantofthisapproachdevelopedbyKahnfocusedonasystemofÞrmsunderstrongcompetitivepressurebutendowedwithsomemarginsofstrategicautonomyandsomedecision-makingpower,notnecessarilycharacterisedbydecreasingreturnsbutconstrainedintheirgrowthbydifÞcultyinÞndingmarketoutletsfortheirproducts.Itwasthusanapproachwhichsawacrucialroleplayedbymarketimperfec-tions,andwhichthusdifferedsubstantiallyfromtheMarshallianvulgataofperfectlycompetitiveequilibriumsbasedonthepairsofU-shapedcostcurves(averagecostandmarginalcostasafunctionofquantityproduced,fortheÞrmandtheindustry,fortheshortandthelongrun)proposedbyPigouthatfoundtheirway,throughVinerandothers,intothetextbooks(cf.above,13.7).Actuallythetheoryhadalreadycomeinfordevas-tatingcriticismfromSraffainhis1925and1926articles;moreover,itimpliedapassiveroleforentrepreneurs,alientoKeynesÕsconceptualframeworkthathadthemplayinganactiverolewithrespecttodecisionsbothonproductionlevelsandoninvestmentsinnewproductivecapacity.WithintheÔCircusÕavarietyofpositionswererepresentedalongsideKahnÕs.AtoneextremeweÞnd(withMeadeandAustinRobinson)amoretraditionalview,closertoPigouÕsvulgata,evenifnotidentiÞablewithit,andinanycasesigniÞcantlymoreopentothedevelopmentsoftheÔneoclassicalsynthesisÕ(cf.below,17.5).Attheotherextremewehaveaviewlargelyexternaltothemarginalistapproachasawhole(withSraffa,whointhosecrucialyearshadalreadylaidthefoundationsofProductionofcommoditiesbymeansofcommodities:cf.below,ch.16).WiththecommittedsupportofJoanRobinsonandtheinßuenceofMarshallÕsteachings,KahnÕscentralroleandintelligentdevotioneventuallypre-vailed,andindeeddeterminedtheanalyticalframeworkinwhichKeynes13Amongotherthings,KahnÕs1931wasanemploymentmultiplier;itstransformationintoanincomemultiplier,asintheGeneraltheory,requireddevelopmentofageneralanalyticalscheme.IowethisremarktoMarioTonveronachi.

398TheWealthofIdeaspresentedhisviewofthemonetaryproductioneconomy.ThequestionstillremainstantalisinglyopenastowhichtheoryKeyneswouldhavedevelopedifadifferentinßuencehadprevailedovertheanalyticalframe-workservingasthesettingforhisideas.Thus,ontheonehandwemaywonderwhetherKeynesÕsideaswouldhavebeendistortediftheyhadbeenorientedmoreinternallywithinthemainstreamofmarginalistthe-ory,whichistantamounttoaskingwhetherHicksÕsandModiglianiÕsÔneoclassicalsynthesisÕ(cf.below,17.5)wasanaturaldevelopmentoraradicaldistortionofKeynesÕsanalysis.Ontheotherhand,wemayquestionthelegitimacyofareformulationofKeynesÕstheorybasedonaclassicalapproachorÐwhatamountsmoreorlesstothesamethingÐjusthowcompatibleSraffaÕsandKeynesÕsanalysesactuallywereandwhatscopethereistodevelopaÔSrafÞanÐKeynesianÕapproachasanalternativetothedominantmarginalisttheories.WhatiscertainisthattheÔcompromiseÕsuggestedbyKahn(butalsoundoubtedlypromptedbytheMarshallianbackgroundofKeyneshimself),despiteitsimmedi-atesuccess,showedsigniÞcantlimitationsinthelongrun.145.TheGeneraltheoryTheGeneraltheoryofemployment,interestandmoneyappearedinFebruary1936.Itimmediatelyfoundawidereadership,althoughnotquiterepeat-ingthesuccessofTheeconomicconsequencesofthepeace.However,ithadamoresolidinßuence,concentratedintheÞeldofprofessionaleconomistsandalreadyintheairbeforepublicationthankstoashrewdcirculationofproofsamongKeynesÕscolleaguesandpupils.Theimpactwasespeciallystrongamongtheyoungscholars:fromHarrodtoHicks,fromLernertoSamuelson,fromReddawaytoTarshis,hundredsofbuddingeconomistswhoweretooccupyimportantpositionsinuniversitiesallovertheworld,butespeciallyintheAnglo-Saxonworld,rapidlyadoptedthenewtheoryasabasicreferencepointintheirownresearchworkandteaching.TheGeneraltheoryisnotaneasybook,andmanyÔKeynesianÕeconomistsdidnotreadit.Philologicallyuntenableinterpretations,liketheideathatKeynesiantheorywasbasedonthedownwardrigidityofwagesandprices(whenchapter19ofthebookdiscussedpreciselythecaseofareductioninmoneywages,showingthatnotevenitguaranteesan14ThisisnottodenytheunorthodoxnatureÐrelativetothemarginalistapproachÐofthetheoreticalstructureoftheGeneraltheory.Inthisrespect,thecrucialpointisthemonetaryandÞnancialnatureoftherateofinterest,whichimpliedabandonmentofthetraditionaltheoryoftherateofproÞts.Inchapter17oftheGeneraltheory,indeed,Keyneswentsofarastoindicate,thoughinanotfullydevelopedway,aninversecausalrelationgoingfromtherateofinteresttotherateofproÞts.

JohnMaynardKeynes399increaseinemployment),couldneverhaveenjoyedthecirculationtheyactuallydidifdirectacquaintancewithKeynesÕsbookhadbeenmorewidespread.15Firstofall,letustakealookatthebackgroundtotheGeneraltheory:whatKeyneswasaimingatandthecrucialaspectsofwhathecalledÔthemonetarytheoryofproductionÕ.16Aswehaveseen,defenceofalib-eralpoliticalsystembased,amongotherthings,onfreedomofindividualinitiativeintheeconomicarenarequired,accordingtoKeynes,thatthelimitsofthepurelaissez-fairesystemberecognised;hencetheneedforactiveinterventionofthestateintheeconomy,intheinterestsnotonlyoffairnessbutalsoofoverallefÞciency.InterpretationofthefunctioningoftheÔmonetaryproductioneconomyÕrevolveduponthecentralchar-acteristicrepresentedbytheconditionsofuncertaintyÐasdeÞnedintheTreatiseonprobabilityÐinwhicheconomicagentstaketheirdecisions.Atthemethodologicallevel,thisledtorejectionofdeterministicomni-comprehensivemodelsandapreferenceforÔopenÕmodels,speciÞcallydesignedfortheproblemunderconsideration,tobebuiltwithcaution,andponderingtheconditionsunderwhichindividualcausalrelationshold.VariousotheraspectsofthesetofconceptsonwhichthemorestrictlyanalyticalpartofKeynesÕstheorywasbuiltalsoderivedfromuncertainty.ThisappliedinparticulartotheroleoftheÞnancialmarkets,whichnotonlyplayedanintermediarypartbetweentheactiveandpassiveÞnancialpositionsofthedifferenteconomicagentsbutalso,andaboveall,pro-videdanelementofßexibilitythatallowedconsumerstoavoidchoicestoobindingforthefuture,whilemeetingtheneedforentrepreneurstotakedecisionsonproductionlevelsandinvestmentsconcerningthefuture.ItisinthiscontextthatweÞndthedistinctionbetweenshortandlongrunexpectations,theformerconcerningchoicesoncurrentproduction,suchthattheycanbepromptlyadjustedtoresults,thelatterconcerningfutureproduction,andhencedecisionsoninvestmentinÞxedcapital;fortheseimmediateadjustmentisimpossiblewithoutsigniÞcantcosts,sotheimpactwhichuncertaintyhasonthemisindeedstrong.Hencetherelevanceofthetheoryofinvestmentand,withinit,ofÞnancialfactors(theinßuenceexertedoninvestmentsbytheinterestratesimplysummingthem).15Naturally,thisdoesnotmeanthattheassumptionofdownwardrigidityofwagesandpricescouldnotbeutilisedwithinareformulationofKeynesÕstheoryinadifferentanalyticalframework,aswasthecasewiththeso-calledneoclassicalsynthesis,butnottointerpretÔwhatKeynesreallymeantÕ.16ÔThemonetarytheoryofproductionÕwasthetitleofthelecturecourseswhichKeynesgavein1932and1933:cf.Keynes1973,vol.13,pp.411Ð12and420Ð1.

400TheWealthofIdeasNN∗ZDD, ZFigure14.1TheanalyticalstructureoftheGeneraltheoryrestedonthreepillars:thenotionofeffectivedemand,themultipliermechanismandthetheoryofinterest.17Allthesearewell-knownaspects,buttheyoccasionallysuffersomedistortionÐtheÞrstandthirdinparticularÐwhenillustratedinuniversitytextbooks,soletustakeabrieflookatthemhere.Thethirdofthetwenty-fourchaptersoftheGeneraltheoryisdevotedtotheprincipleofeffectivedemand.TheÔpointofeffectivedemandÕ(Þgure14.1)isdeÞnedbyKeynesasthepointofencounteroftwocurves:anaggregatesupplyfunctionandanaggregatedemandfunction.Apoint17OnemightwithgoodreasonmaintainthatthetheoryofeffectivedemandÐwhichamongotherthingsleftunsolvedvariousanalyticaldifÞcultiesÐwasnotessentialtotheresultconstitutingthecentralobjectiveofKeynesÕsanalysis,namelythepossibilityofunderemploymentequilibrium.Rather,itwasthetheoryofinvestmentsandsavingswhichwascrucialinthisrespect.However,inKeynesÕsargumentthenotionofeffectivedemanddidinfactplayacrucialrole.

JohnMaynardKeynes401tostresshereisthatthesetwocurvesareconceptuallydifferentfromtra-ditionalsupplyanddemandcurves.AtÞrstsight,theyarestilltwofunc-tionsrelatingpriceandquantity;asamatteroffact,however,thesetwofunctionsrelatethenumberofemployedworkerstotheentrepreneursÕevaluationsregardingcosts,ontheonehand,andreceiptsontheother.Moreprecisely,theaggregatesupplyfunctionrelatesN,thenumberofemployedworkers,representedonthehorizontalaxis,toaZvariable,representedontheverticalaxis,anddeÞnedasÔtheaggregatesupplypriceoftheoutputfromemployingNmenÕ,whiletheaggregatesupplyfunctionrelatesNtoavariableD(representedlikeZontheverticalaxis),deÞnedasÔtheproceedswhichentrepreneursexpecttoreceivefromtheemploymentofNmenÕ(Keynes1936,p.25).Inotherterms,ZindicatestheminimumexpectedproceedsnecessarytopersuadeentrepreneurstoemployNworkers.ForeachgivenvalueofN,ZisthusequaltothetotalcostthatentrepreneursexpecttohavetobeariftheyemployNworkers.Totalcostobviouslyincludesnotonlywagesbutalsorawmaterialcosts,andoverheadsincludingamortisationofÞxedcapital,augmentedbyaproÞtsufÞcienttoinduceentrepreneurstocontinuetheiractivity.ConverselyDindicateshowmuchentrepreneursexpecttoearnbysellingonthemarkettheproducttheyhopetoobtainthroughtheemploymentofNworkers.BothcurvesthusexpressthepointofviewÐtheevaluationsÐofthesamecategoryofeconomicagents,theentrepreneurs,notoftwodistinctandopposedgroupsofbuyersandsellers(consumersandproducers).18Bothexpectedcostsandexpectedproceedsincreasewiththenumberofemployedworkers.Thusbothfunctionsareincreasingones,thatisbothZandDincreasewithN.However,Zincreasesevermorerapidly(itssecondderivativeispositive),whileDincreasesevermoreslowly(itssecondderivativeisnegative).ThisfeatureofthetwofunctionsmaybejustiÞedinvariousways.AsfaraseffectivedemandDisconcerned,Keynesremarkedthatitismadeupoftwocomponents,consumptionandinvestment;becauseofaÔpsychologicallawÕ,theÞrstcomponentincreasesbutlessthanincome,andhencethanemployment,whilethesecondcomponentdependsontheentrepreneursÕlongrunexpectations,soitmaybeconsideredasgiveninthecontextofdeterminationofthepointofeffectivedemand.AsfarasZisconcerned,intheMarshalliancontextofKeynesÕstheoryitwasnaturaltoassumethatwhenthenum-berofemployedworkersincreased(while,intheshortperiodcontext,18ItisclearthatKeynesÕsconstructleftopenthecrucialproblemoftheconstructionofaggregatecurves,referringtotheevaluationsofallentrepreneursasawholeandnotofanindividualentrepreneur.

402TheWealthofIdeasitisassumedthattheproductiveequipmentremainsunchanged),themarginalcostturnedouttobeincreasing.19TheÔpointofeffectivedemandÕistheoneatwhichD=Z.Itthustellsuswhichistheexpectedlevelofemployment,andhenceofproduction,giventheentrepreneursÕshortrunexpectationsregardingcostsandpro-ceeds.20AssumingshortperiodexpectationsbefulÞlled,analysisfocusedonthenotionofaggregatedemandanditsconstituentelements,con-sumptionandinvestment.21TotheseelementsKeynesdevotedbook3(chapters8Ð10)andbook4,i.e.thecentralpartoftheGeneraltheory,afterabook2devotedtoÔdeÞnitionsandideasÕandbeforetwoconclusivebooksdevotedtoÔmoney-wagesandpricesÕandÔshortnotessuggestedbythegeneraltheoryÕ.Aswehaveseen,Keynesmadeasharpdistinctionbetweendecisionsconcerningconsumptionanddecisionsconcerninginvestment.Thetwokindsofdecisionsaretakenbydifferentcategoriesofeconomicagents19Thisimpliedaninverserelationbetweenrealwageandemploymentanalogoustotheonepostulatedbyallversionsofmarginalisttheory.ThiswasanassumptionthatKeynesderivedfromMarshall,whomaintainedthatinthecourseofthetradecycletherealwagewouldincreaseinperiodsofcrisisanddiminishinperiodsofrecovery.Withinmarginalisttheory,asweknow,thisassumptionplayedacentralrolesincethemechanismofadjustmentensuringautomatictendencytofullemploymentequilibriumisbasedonit.WithinKeynesÕstheory,whichrejectedthisadjustmentmechanism,theassumptionofaninverserelationbetweenrealwageandemploymentwasnotessential,andcouldhavebeenabandoned,asinfactKeyneswasreadytodowhenconfrontedwithDunlopÕs1938andTarshisÕs1939empiricalcriticisms.Indeed,asisobvious,abandonmentofthatassumption(followingasizeablemassofempiricalevidenceonthepro-cyclicalnatureofrealwagemovements)reinforcestheKeynesiancritiqueofthethesisofanautomatictendencytowardsfullemploymentequilibrium.20Therefore,itshouldnotbeinterpretedasapointofequilibriumbetweentwooppositeforcesofdemandandsupply,letaloneasastableequilibrium.Inordertoproceedinthisdirection,asallmacroeconomicsmanualshavelongdone,itisnecessarytosubsti-tuteentrepreneursÕevaluationswithanaggregatedemandfunction(consumptionplusinvestments,inthesimpliÞedcaseofaneconomyclosedtotheoutsideworld)opposedtoanaggregatesupplyfunction(production).Totheleftofthepointofequilibrium,aggregatedemandishigherthansupply,witharesultingfallininventories;entrepreneursaretheninducedtoincreaseproduction,thusmovinginthedirectionofequilibrium.Inthissituationitisusualtodistinguishbetweenexpostinvestments(whichincludetheundesiredchangeininventories,andarethoseconsideredbynationalaccountingstatis-tics)andexanteinvestments(thoseplannedbyentrepreneurs).Asfarastheformerareconcerned,equalitywithsavingsisanaccountingidentity;instead,whenwerefertothelatter,theaccountingidentitybecomesaconditionofequilibriumwhichmaybeveriÞedornot,andwehaveatheoryaimedatexplainingtheequilibriumlevelofemployment.AllthisconstitutesareformulationofKeynesÕstheoryinacontextwhichmayperhapsbesimilarto,butcertainlydoesnotcoincidewith,theoriginalone.TheconnectionmayberealisedthroughtheassumptionthatshortperiodexpectationsarealwaysfulÞlled.Inthiswayexpectationsexitthescene,whileKeynesÕsthesisthatsupply(production)adaptstodemandremains.21TheGeneraltheoryanalysedthesimpliÞedcaseofaclosedeconomy,andhenceignoredexports.Asaninitialapproximation,moreover,publicexpenditureisalsoignored.

JohnMaynardKeynes403(respectively,familiesandÞrms),andthusfollowtwocompletelydif-ferentlogics.Consumption(andsavings,deÞnedastheircomplementtoincome)essentiallydependonincome,andarethusendogenoustothecircularßowgoingfromÞrmstofamilies(income)andbacktoÞrms(expenses).22Investments,ontheotherhand,dependontheentrepreneursÕdecisions(henceontheirexpectations),andarethusexogenoustothecircularincomeßow.Asaconsequence,itisinvest-mentdecisionswhichdeterminetheequilibriumlevelofincome.Moreprecisely,equilibriumincomehastobesuchastogenerateanamountofsavingscorresponding(inthesimpliÞedsystemwithouttaxesandpublicexpenditure,andwithnorelationswithforeigncountries)totheamountofinvestmentsgeneratedbyentrepreneursÕdecisions.ItthusdependsbothonthelevelofinvestmentsI,andonthepropensitytosaves(s=S/Y,whereSaresavingsandYisincome);moreprecisely,ontheequilibriumconditionI=S(equalitybetweeninßowsandoutßowsinthecircularincomeßow)andonthedeÞnitionofthepropensitytosavewegetY=I/s.Themultiplier,namelythatmultiplicativecoefÞcientwhich,whenappliedtothelevelofinvestment,givesequilibriumincome,isequalÐascanbeseenfromtheaboveequationÐtotheinverseofthepropensitytosave.23WehavealreadyseenthatthemultipliermaybeconsideredasthesecondofthethreepillarsoftheGeneraltheory.Thosewhomaintainthisthesis,ineffect,arenotsimplyreferringtotheequationconnectingthelevelofincome(oritschanges)toautonomousexpenditure(ortoitschanges),buttothe(active)roleattributedtoinvestmentsandthe(passive)roleattributedtoconsumptionandsavingsindeterminationofincome.Forthetheoryofinvestment,asforthatofeffectivedemand,KeynesbasedhisargumentonillustrationoftheentrepreneurÕspointofview.Thelatterdecideswhethertoinvest,attemptingtoevaluateexpectedreturnsoninvestmentandcomparingthemwiththemonetaryrateofinterest22Otherfactorswhichinßuenceoverallconsumption,suchasincomedistributionwithintheeconomy(consumptiongrowswiththeincreaseofdistributiveequality),wealth,andfacilityofconsumercredit,KeynessawascomplicationswhichcouldhavebeenaddedwithoutdifÞcultytothesimpliÞedbasicrepresentationofthecircularßow,withoutmodifyingitsessentialfeatures.23KahnÕs1931originalworkconcernedeffectsonemployment(notonincome)ofincreasesinpublicexpenditure.IntheKeynesianrepresentationofthecircularincomeßow,publicexpendituremaybeassimilatedtoinvestments,sinceitdoesnotdependonincome.ThechangeinincomeYwillthenbeequaltothechangeinautonomousexpenditureImultipliedbyacoefÞcient(theÔmultiplierÕ)equaltotheinverseofthemarginalpropensitytosave,deÞnedastheratiobetweenchangeinsavingsandchangeinincome,S/Y,aswemayreadilyseefromtheconditionofequilibriumS=I.

404TheWealthofIdeasindicatingreturnonÞnancialinvestments,whichconstituteanalterna-tiveemploymentofavailablefunds.24Aspointedoutabove,expectationsrelevanttoinvestmentdecisionsarequalitativelydifferentfromthoserel-evanttodecisionsonproductionandemploymentlevels.TheformerconcerntheÔlongperiodÕ,sincetheycoverthewholeforeseenlifeoftheproductiveequipmenttheacquisitionofwhichisunderconsideration,anddecisionstakenontheirbasismayberevisedwithinsuchatimeintervalonlyathighcosts,whilethelatterconcerntheÔshortperiodÕ,inthesensethatdecisionsadoptedareopentoreadyrevisionwithrela-tivelylowifnotzerocosts.NotethatKeynesdidnotconsiderlongperiodexpectationsstableforsufÞcientlylongintervalsoftime;onthecontrary,preciselybecausetheyconcernsolonganintervaloftimeastoeludesufÞcientlypreciseandreliableevaluation,theymaybeconsideredfarlessstablethanshortperiodexpectations.ThethirdpillarofKeynesÕsGeneraltheorywas,aswesaw,representedbythetheoryofmonetaryandÞnancialmarkets,andmorepreciselybythetheoryoftherateofinterestconceivedaspremiumforforgoingliq-uidity.Here,too,manycommentatorsand,aboveall,thetraditionallinedominantinmacroeconomictextbooks,havemisinterpretedatleastoneofthecrucialaspectsoftheKeynesiananalyticalconstruction.Essen-tially,thesecrucialaspectsboildowntotwo.Firstly,onceagain,wehavetheselectionofagroupofprotagonists:behindthemassoflargeandsmallsaversdecidinginwhatformtokeeptheirÞnancialassetsloomÞnanciers(andÞnancialinstitutions),andtothemthedecision-makingprocessdescribedbyKeynesshouldmoreproperlybereferred.Thedecision-makingprocessitselfÐandthisisthesecondcrucialaspectofKeynesÕsmonetarytheoryÐdoesnotconcernßows,buttheallocationofstocks.Itisthusdominantinrelationtotheelement(transactiondemandformoney)regardingßows,whichtraditionaltheoryfocusedon.Onceagain,itistheexpectationsofthedecision-makingagentsthatplaytheleadingrole.Indeed,inthiscasechangesinexpectationsproducetheireffectsimmediately,oratanyrateinaveryshorttimespan.Onwell-developedÞnancialmarketstransactioncostsareverylow,anditispossibletorevisedaily,orevenfromonehourtothenext,decisionsontheallocationofÞnancialholdingsbetweenthevariouspossibleassets.Simplifyingtheissue,Keynesconsideredtwokindsofassets:money,24ObviouslythemonetaryrateofinterestalsoindicatesthecostofÞnancinginvestment.However,thepointKeynesfocusedattentionon,inhisanalysis,wastherelationbetweendifferentwaysofmovingwealthintothefutureavailabletoeconomicagentsinamon-etaryproductioneconomy:investmentinproductiveassets,inÞnancialassets,andinnon-reproduciblegoods.Hencetheroleofindicatoroftheopportunity-costattributedtotherateofinterest.

JohnMaynardKeynes405extremelyliquidsincecommonlyacceptedforallkindsoftransactionsbutnotyieldingincome,andbondsyieldingapredeterminedyearlycoupon.Asweknow,themarketpriceofpre-existingbondsincreaseswhentherateofinterestdecreases,andviceversa.Asaconsequence,thosewhoexpectafallininterestratesbythesametokenalsoexpectanincreaseinbondprices,andwillbebuyersonthebondmarket,whilethoseexpectinganincreaseintheinterestrateoperateintheoppositedirection,offeringbondsinexchangeformoney.InthepresenceofdifferentopinionsontheprospectsfacingthemonetaryandÞnancialmarkets,therateofinterestissetateachinstantatthatlevelwhichcorrespondstoequilibriumbetweenthetwooppositeranks,theÔbullsÕandtheÔbearsÕ.Thus,everythingdependsontheexpectationsoftheÞnancialoper-ators.IfforamomentweassumethattheseremainÞxed,itisclearthatwhentherateofinterestdecreases,thenumberofoperatorswhoexpectasubsequentincrease(andthusofferbondsinexchangeformoney)rises:thedemandformoneythusturnsouttobeaninversefunctionoftheinterestrate.However,thisrelationshiphasverythinfoundations,sinceexpectationsregardingÞnancialeventsareextremelyvolatile.Itisquitepossible,forinstance,forareductionintheinterestratetoinducemanyoperatorstorevisetheirexpectationsandforeseefurtherinterestratereductions,preferringbondstomoneyevenmorethanbefore:adirect,ratherthaninverse,relationshipwouldthenholdbetweenchangesintherateofinterestandchangesinthedemandformoney.TheimportantplaceoccupiedbythistheoryinKeynesÕstheoreticalediÞceliesinanaspectlargelymisunderstoodinthetraditionofmacro-economictextbooks.Thepointisthis:withinKeynesÕsanalyticalframe-work,thetheoryofspeculativedemandformoneyÐfarmorerealisticthanthetraditionaltheoriesininterpretingtheworkingofmonetaryandÞnan-cialmarketsÐdistancedinterestratedeterminationfromthetraditionalmechanismofcomparisonbetweensavingsandinvestments,respectivelyunderstoodassupplyofanddemandforloanablefunds.AccordingtoKeynes,decisionstosaveshouldbekeptlogicallydistinctfromthosecon-cerningthekindofÞnancialasset(moneyorbonds)inwhichtoinvestthesavings.Contrarytotheinterpretationadvancedbymanycommen-tators,themainpointwasnotthattheamountofsavingsdependedmoreonincomethanontherateofinterestÐapointalsoacknowledgedbyatheoreticianlikePigou,chosenbyKeynesasparadigmofthetraditionaltheoryhewasattacking.25Thepointwastheseparationbetweenthetwokindsofdecisionsconcerning,respectively,theamountofsavingsandthe25Cf.RoncagliaandTonveronachi1985.

406TheWealthofIdeasÞnancialassettoinvestthesavingsin;itwasthislatterdecisionwhich,accordingtoKeynes,concurredtogetherwiththemonetarypolicyfol-lowedbymonetaryauthoritiesindeterminingthecurrentleveloftheinterestrate.Thus,ifwewishtoincludethislattervariableamongthefactorsdeterminingtheamountofsavings,weshouldinanycaseconsideritasexogenouslygivenrelativetosavingsdecisions.HicksÕsidea,embodiedinhisfamousIS-LMmodel(Hicks1937),tosettransactiondemandandthespeculativedemandformoneysidebyside,coordinatingthem,orinotherwordstreatingthemasiftheywereonthesameplane,lostsightofthefundamentaldifferenceinnaturebetweenthetwokindsofdecisions.InfacttheÔspeculativeÕchoicescon-cerntheallocationofthestocksofsavingscumulatedovertime,andthusclearlydominateoverliquidityrequirementstoÞnancetheßowofcurrentexchanges.Thisisallthemoreevidentwhenthestocksofsav-ingstobeallocatedbetweenbondsandmoneyareconfrontednotwithyearlyincomeandexchangesbut,asisinthenatureofcontinuallyrevisedÞnancialchoices,withdailyßows.Wethushaveahierarchyofinßuences:Þnancialexpectationsdominatethesceneconcerningtheallocationofthestockofsavings,andhencethedeterminationofinterestrates,relegatingtoasecondarylevelallotherfactors,includingthetransactionsdemandformoney.Itis,then,theinterestratesthusbroughtabout,togetherwithlongrunexpectations,whichdeterminethelevelofinvestments,whilethelatterinturn,throughthemultipliermechanism,determinesincomeandemployment.Thisschemeofhierarchicalrelationswasinsharpcontrasttogeneraleconomicequilibriumschemes,inwhicheachvariabledependsonallothervariablesandonalltheparametersofthesystem.ItispreciselyinthisaspectthatKeynesÕstheory,followingthroughwiththeÔshortcausalchainsÕmethodology,fullyrevealeditsdeepMarshallianfounda-tions,emphasisedbythepragmatismcharacterisingallKeynesÕswork.And,indeed,itisthisaspectwhichhasbeensubmergedintheinterpre-tationsofKeynesÕsthoughtdominatingsuccessivegenerationsofmacro-economicstextbooks,fromtheHicksianÔgeneralequilibriumÕschemetorecentinsistenceonthemicrofoundationsofmacroeconomics.Butthesearepointswewillreturntolateron.2626Cf.below,17.5.Wewillalsobemakingsomereferencelater,in7,toKeynesÕsideasconcerningtheinternationaleconomicinstitutions.Letusrecallhere,onlybrießy,alas,thatmanyofKeynesÕswritingsconcernedissuesofeconomicpolicy:examinationofthemwouldshowhowlimitedistheidentiÞcationofÔKeynesianpoliciesÕwithÞscalandmon-etarypoliciesaimedatthecontrolofaggregatedemand(eveniftheseareundoubtedlypartoftheeconomicpolicytoolboxconsideredbyKeynes).Inparticular,Keynespaidgreatattentiontotheproblemofinstitutionsandcustomswhichregulatetheworkingof

JohnMaynardKeynes4076.DefenceanddevelopmentAswehaveseen,theGeneraltheoryimmediatelyarousedgreatinterest.IncontrasttotheresponseaccordedtotheTreatiseonmoneyonpubli-cation,therewasnohead-oncriticism:Hayek,whoselengthyreviewoftheTreatise(Hayek1931Ð2)hadgivenrisetosigniÞcantdebatedespite,orperhapsalsothanksto,theharshpolemicaltones,forborereactingtotheGeneraltheory.IntheenvironmentoftheLondonSchoolofEco-nomics,whereHayekÕsinßuencehadkindledanattitudefavourabletotheÔcontinentalÕapproachofgeneraleconomicequilibriumamongyoungeconomistsmoreinclinedtopuretheory,weÞndnotdirectcriticismbutamostinsidiousreinterpretationofKeynesÕsanalysisintermsofasimpli-Þedgeneralequilibriummodel,namelythefamousIS-LMmodel(Hicks1937)mentionedabove,whichwewillreturntolateron.AmorecomplexdebatearosebetweenKeynesandtheKeynesiansontheonehandandthemainrepresentativesoftheSwedishschool,successorstoWicksell,ontheother.ThisseriesofdiscussionspromptedfurthercontributionsfromKeynesinclariÞcationandelaborationofhisanalysis,albeittothelimitedextentallowedbythesheermultiplicityofhisinterestsandtheslowerpacehisworktookonafteraheartattackinMay1937.Letusbrießyrecallheretwoelements.Firstly,anarticlepublishedin1937intheQuarterlyJournalofEconomicsillustratedinbroadoutlinethecoreideasoftheGeneraltheory.AparticularfeatureofthisarticleisthesharpfocusKeynesbroughttobearonthecrucialroleofexpectationsandthehierarchyofcausesandeffectsmentionedattheendoftheprevioussection.Secondly,thereistheproblemofKeynesÕsrelationswiththeSwedishschoolofLindahl,MyrdalandOhlin,whohaddevelopedasystemofthemarketandconditionthedegreeofuncertaintyinwhicheconomicagentsoperate.AnotherofKeynesÕsproposalswastheÔsocialisationofinvestmentsÕ:aformulaheusedtorefertotheadvantagesofkeepingreadytohandinvestmentprojectsininfrastruc-tures,oftencharacterisedbyrelativelymodestandaboveallgreatlydeferredreturns,tobeimplementedÐpossiblybypublicÞrms,managedwithentrepreneurialcriteria,seekingmaximumproductiveefÞciencyÐinperiodswhenitwasfoundopportunetoprovidepublicsupportforaggregatedemand.ThesearebutafewexamplesofKeynesÕsfervidimagination,rangingfromissuessuchasthetemporaryreductionofworkingtimetoÔÞnancialengineeringÕproposalstofacilitatetherealisationoflarge-scaleinvestments.So-calledÔfunctionalÞnanceÕ,i.e.applicationofthemonetaryandÞscallevertocontrolaggregatedemand,wasdevelopedonlyafterKeynesÕsdeath,inthecontextoftheÔneo-classicalsynthesisÕ,inparticularbyAbbaLerner(1905Ð82),anenthusiasticadvocateofKeynesismandÔfunctionalÞnanceÕ.Lernerhimself,however,sawÞscalandmonetarypoliciessupportedwithothertools,suchasingeniousanti-inßationaryschemesbasedonautomaticdisincentivestopriceandmoneywageincreases(cf.LernerandColander1980).

408TheWealthofIdeassequentialanalysisbasedonthedistinctionbetweenexanteandexpostinthe1920sand1930s.ThiswasalineofresearchwhichsharedwithKeynes(albeitmorewiththeKeynesoftheTreatiseonmoneythantheKeynesoftheGeneraltheory)rejectionoftheequilibriummethodinfavourofprocessanalysis.However,Keynesrejectedthetechniqueofsequentialorperiodanalysisoutofhand,Ôowingtomyfailuretoestab-lishanydeÞniteunitoftimeÕ.27Inotherterms,sequentialanalysiswouldpresupposethepossibilityofestablishingtheboundariesofsuccessiveperiodsoftimeinasufÞcientlyobjectiveway(forinstanceinthesequenceofaweekforlabourandaÞnaldayoftheweekforthemarket,asintheMarshallianÐHicksianmodeloftheÞshmarket),whileinrealitynotonlydoproductiveprocesseshavedifferentdurations,butalsotheverydeci-sionsoftheentrepreneursandÞnancialoperators,themomentsintimeinwhichexpectationsarerevisedandnewdecisionsadopted,cannotÞtintoafullyspeciÞedsequentialscheme.Anelementcommonlyattributedtosequentialanalysis,butinfactindependentofit,was,however,centraltoKeynesÕsanalysis.ThiswasthedistinctionbetweenfulÞlledandunfulÞlledexpectationsÐadistinctionthatwithinsequentialanalysiswasconnectedtothedistinctionbetweenexanteandexpostmagnitudes.ForKeynes(asKregel1976,showed)thedistinctionbetweenthedifferentsituationsmightbeorganisedaroundalogicalsequenceofmodels:thestaticequilibriummodel,thestation-aryequilibriummodel,andtheshiftingequilibriummodel.IntheÞrst,shortrunexpectations(thoseinßuencingdecisionsconcerningproduc-tionlevels)arefulÞlled,whilelongrunexpectations(thosedetermininginvestments)areconsideredasgivenandconstant,anddonotinteractwithshortrunexpectations.Inthestationaryequilibriummodel,theassumptionsconcerninglongrunexpectationsstillhold,butshortrunexpectationsmayproveunsatisÞed,withtheconsequentneedtorevisedecisionspreviouslytaken.Finally,intheshiftingequilibriummodel,notonlydoshortrunexpectationsproveerroneousingeneral,butlong27Cf.Keynes1973,vol.14,p.184;thepassageisquotedbyKregel1976,p.223.Inadifferentcontext(thatoftheAustriantheorydiscussedabove,chapter11),thetech-niqueofsequentialorperiodanalysis,alreadyutilisedbyHayekandHicksinthe1930sand1940s,wastakenupbyHicks1973andinhiswakebyagroupofÔneo-AustrianÕauthorsinthe1970sand1980s.Sequentialanalysis,withitsalternationofstagesofproductionandmarket,implicitlyreferredtothenotionofthemarketasamomentintimeandspaceinwhichsupplyanddemandmeet,anotionwhichÐaswehavealreadyremarkedÐopposedtheclassicalonewhichconsideredthemarketasconsistinginawebofrelationsandrepetitiveßowsofexchange,connectedtotheproductiveinterrela-tionsamongeconomicsectorswithinasystembasedonthedivisionoflabour.KeynesÕsremark,consideringalsothecontextinwhichitwaspresented,impliedthiswidernotionofthemarket.

JohnMaynardKeynes409runexpectationsmaychangeovertime,andinterdependencemayexistbetweenthemandtheshortrunexpectations.Thedistinctionbetweenthesethreekindsofmodelsnotonlyindi-catesalineofresearchalreadypresentintheGeneraltheoryandtakenupagaininthediscussionsimmediatelyfollowingitspublication,butalsotheextraordinaryscopeofKeynesÕstheoryinitsoriginalversion,proposingacomplexmethodofanalysisoftheactualvicissitudesofacapitalistecon-omy,withthefocusontheevaluationsanddecision-makingprocessesofitsactiveprotagonists.7.TheasymmetriesofeconomicpolicyinanopeneconomyandinternationalinstitutionsTheGeneraltheoryanalysedthecaseofaclosedeconomicsystemÐaworldeconomy,usefulbothasatheoreticalsimpliÞcationandtoestab-lishsomeprinciplesholdingfortheindustrialisedcountriesingeneral.28However,atthelevelofeconomicpolicy,resultsconcerningaclosedeconomycannotautomaticallybeextendedtoanopeneconomy.Inpar-ticular,inanopeneconomyareductioninrealwagescanhaveaposi-tiveeffectonemployment,byenhancingthecompetitivenessofnationaloverforeignproducts.Inthiswaytheinverserelationshipbetweenwagesandemploymentcouldbere-established,andundertheassumptionthatunemploymentleadstoreductioninrealwagesweagainhaveatourdis-posalamechanismofconvergencetofullemployment.Thatis,acountrycanfavouritsowndevelopmentbysubtractingmarketoutletsfromothercountrieswiththeso-calledbeggar-thy-neighbourpoliciesÐazerosumgame,withadvantagesforonecountrycorrespondingtolossesforsomeothercountry.Policiesofthiskindhadbeenfollowedbyanumberofcountriescom-ingupagainstformidabledifÞcultiesintheyearsoftheGreatCrisis.Keyneshimselfhadoccasionallyadoptedthispointofviewwhendis-cussingthepoliciesmostsuitedtoGreatBritaininthe1920sand1930s.However,astheSecondWorldWardrewtoacloseandtheleadersofthemajorWesterncountrieswereatlastabletolookbeyondit,KeynesfoundhimselfinvolvedinanÔenlightenedÕattempttooutlinerulesfortheinternationaleconomicgamefavouringcooperationamongcoun-tries.ThedebatecametoitscelebratedculminationwiththeconferenceheldinBrettonWoods,asmalltownintheUnitedStates,inJuly1944:28Whilestillassumingaclosedsystem,KeynesdevelopedthenotionofÔinßationarygapÕ,proposedinHowtopayforthewar(1940)inordertoexplaintheinßationarypressuresarisingwhenaggregatedemandovershootsaggregatesupply,ashappensinacountryinaperiodofwar,withconspicuousmilitaryexpenditures.

410TheWealthofIdeashereKeynesÕsideaswerewatereddown,ifnotdefeated,byAmericanconservatism.KeynesÕscentralidea,asoutlinedinvariousmemorandaandsecondarycontributionsofthe1930sand1940s,wasthattheunemploymentprob-lemisrecurrentlyandinevitablyraisedinacapitalisteconomybytech-nicalprogress,makingitpossibletoobtainthesamequantityofproductwithaneverdecreasingnumberofworkers.29Waxingacute,theproblemcanbecomesociallyexplosiveintheabsenceofadequatepoliciestoman-agetheeconomy.Inotherterms,KeynesperceivedunemploymentasaÔsystemicÕproblem,whichpersistsandrecursagainandagainovertime.Moreover,thethoughtexperimentoftheclosedeconomyadoptedintheGeneraltheoryallowedKeynestomaintainthatbeggar-thy-neighbourpoliciesinvolveasimpleredistributionofthecostsofaworldcrisiswith-outofferinganycontributiontoitssolution,andindeedwiththeriskofbringingtoaheadnationalisticantagonismsthathadalreadybeenseethinginthepre-warandwaryears.KeynesÕsideawasthattheinternationaleconomicsystemshouldbeorganisednotonlyinsuchawayastofacilitatethedevelopmentofcom-merce(henceinacontextoffreetrade,currencyconvertibility,stableexchangeratesandmechanismsforÞnancinginternationaltransactionsappliedbyinternationalorganisationstohelpovercometemporarydis-equilibriaintradebalances),butalsotoprovidesystematicsupporttoworldproductionlevels.Tothisend,therulesoftheinternationalgameshouldavoidanyasymmetryinstimulatingcorrectiveactiononthepartofcountrieswithapositivebalanceoftradeorwithanegativeone.Coun-trieswithanegativebalanceoftradearedrivenbydwindlingcurrencyreservestoadoptdeßationarymeasuresinordertoreduceimportsandfavourexports,orrestrictivemonetarypoliciesinordertostimulatecap-italimports,butwiththeadditionalresultofdiscouraginginvestmentsinnewproductivecapacity.Conversely,thecountrieswithanactivebal-anceoftradecouldlookoncalmlyascurrencyreservesaccumulated,ormightlimitthemselvestolowinterestratepoliciestofavourcapitaloutßows.Keynesthoughtthatabalancedinternationalmonetarysystemshouldgoverninternationalliquidity(throughtheissue,onthepartofasuper-nationalorganisation,ofaninternationalcurrency,theBancor)bylighteningthepressureforadoptionofdeßationarypoliciesoncoun-trieswithanegativebalanceoftrade;conversely,countrieswithanactivebalanceoftradeshouldbestimulatedbytherulesoftheinternationalgame(forinstanceregulationsonforeigncurrencyreserves)toadoptreßationarypolicies.29Cf.GugerandWalterkirschen1988.

JohnMaynardKeynes411AmongtheprojectsfollowinginthewakeofKeynesÕswemayalsorecalltheÔbufferstocksÕofrawmaterials,servingmainlytoavoidheavyrepercussionsonthegrowthprocessofthedevelopingcountriesderivingfromoscillationsintheworlddemandforrawmaterials,whichrepresentanimportantshareoftheirexports.WorkinginasimilardirectionweretheprojectsforaÔlinkÕbetweentheissueofasupranationalcurrencyandexploitationoftherightsofissuetoÞnancedevelopmentinthethirdworldcountries.ItwasnomerechancethatbothproposalsweremadebyKeynesÕspupilsandfollowers,inparticularbyRichardKahn,NicholasKaldorandJoanRobinson.308.MichalKaleckiWhenKeynespublishedtheGeneraltheory,ayoungPolisheconomist,MichalKalecki(1899Ð1970)boughtthebookandrealisedthathisfamousEnglishcolleaguehadrediscoveredatheoryofemploymentandthetradecyclethathehadpublishedinPolishalittleearlier.Thisinter-pretationoftheevents,putintocirculationbyJoanRobinson,31certainlyhasanelementoftruth,butitobscuressubstantialdifferencesofapproachbetweenthetwogreattheoreticians.KaleckigrewupintheMarxiantraditionandwasinßuencedbythegrowthschemesofthesecondbookofMarxÕsCapital,takenupbyTugan-Baranovsky(1905),andbyRosaLuxemburgÕs(1913)under-consumptiontheories.ItwasthuseasierforhimthanforKeynestoescapetheholdoftraditionalmarginalistanalysisbasedonthenotionofequilibriumbetweensupplyanddemand,andasaconsequenceonthethesisofanautomatictendency,undercompetitiveconditions,towardsfullemployment.Thesetofrelationsbetweenincome,consumption,savingsandinvestmentsthatKaleckiproposedthusofferedatheoryofthelevelofincomeandemploymentverysimilartoKeynesÕs,bothinconsideringfullemploymentasaborderlinecaseratherthanthegen-eralone,andinattributingthedrivingroletoautonomousexpendi-tureandinparticulartoinvestmentdecisions.Thenecessityofactivepolicyinterventionsinfavouroffullemploymentisanotherimportantsimilarity.3230OntheKeynesianderivationofbufferstocksproposalscf.Sabbatini1989.OntheÔlinkÕ,cf.,forinstance,Kahn1973.31Cf.,forinstance,Robinson1977.32Inthiscontext,letusrecallKaleckiÕsimportantroleinthepreparationofTheeconomicsoffullemployment(1944),abookmadeupofsixessayswrittenbysixdifferentauthorsattheInstituteofStatisticsofOxfordUniversity.

412TheWealthofIdeasThedifferenceswere,however,signiÞcant.Theroleofuncertaintyandexpectations,crucialinKeynes,wasvirtuallyabsentinKaleckiÕswork,whereafullyworked-outtheoryofÞnancialmarketswasalsolack-ing.33ConverselyKalecki,despiteshowingsignsÐespeciallyinhisearlywritingsÐofaMarshallianinßuence,embodiedinhisanalysismecha-nismssuchasthefullcostprinciple34whichallowforlinkswithmoderntheoriesofnon-competitivemarkets.Moreover,Kaleckiextendedhisfor-malstructuretodealwithproblemsoftradecycleanddevelopment,andconnectedsuchtheorieswithanalysisofincomedistributionamongthesocialclasses.35ManyofKaleckiÕsmaincontributionsconcernedtheplannedandmixedeconomy.36Thoughhewasamovingspiritoftheliveliesteco-nomicsresearchandteachingcentreofEasternEuropeancountries,namelyWarsaw,Kaleckispentthelastyearsofhislifemarginalisedbythepoliticalauthoritiesofhiscountry.ComparisonwithKeynesshowsjusthowmuchimportancenationality,conditionsofbirthandÔdegreeofpoliticalantipathyÕmayhaveindeterminingtheimpactofaneconomistÕsideasandanalysis.33KaleckiproposedaÔprincipleofincreasingriskÕtoaccountforthelimitstothepos-sibilitiesofÞnancinginvestmentsonthesideofeachindividualÞrm.ThisthemewastakenupanddevelopedbyKaleckiÕscollaborator,theAustrianJosefSteindl(1912Ð93),inhistheoryoftheÞrm:cf.Steindl1945andthewritingscollectedinSteindl1990,pp.1Ð73.SteindldevelopedKaleckianthemesalsoinhisbest-knownwork,MaturityandstagnationinAmericancapitalism(1952;2ndedn1976),wherehemaintainedthethesisofatendencytostagnationincapitalisticeconomiesduetothegradualemer-genceofoligopolisticmarketforms.Asimilarthesis(transmissionoftheeffectsoftech-nicalprogressgeneratesdevelopmentinacompetitivesystem,butnotinasystemofoligopolies)waspresentedbySylosLabini1956.AtendencytostagnationwasalsomaintainedbytheAmericanAlvinHansen(1887Ð1975)onmoredirectlyKeynesiangrounds(Hansen1938);ineffect,HansenplayedanimportantroleincirculationofKeynesianideasintheUnitedStates,bothintheuniversitiesandineconomicpolicyinstitutions.34Cf.,forinstance,Kalecki1943.ThefullcostprincipleisapricingcriterionfrequentlyadoptedbyÞrmsenjoyingsomemarketpower,henceespeciallyinoligopolisticsectors,andconsistsinsettingthepricesoftheirproductsonthebasisofvariablecosts,addingtotheseaproportionalmargindestinedtocoverÞxedcostsandgeneralexpensesandtoguaranteethemarginofproÞtusualwithinthesector.StudiedbyPhilipAndrews(1914Ð71;seethewritingscollectedinAndrews1993),thefullcostprinciplewasthenintegratedwithinoligopolytheorybySylosLabini1956.35ParticularlyinterestingishistheoryoftheÔpoliticalcycleÕ(Kalecki1971,pp.138Ð45).36AselectionofKaleckiÕsmainwritings,editedbytheauthorhimselfbutpublishedposthu-mously,isdividedbetweentwoslimvolumes,oneoncapitalisticeconomies(Kalecki1971,whichincludesthethreearticlesinPolishof1933,1934and1935whichantici-patedimportantaspectsofKeynesiantheory),andoneonsocialistandmixedeconomies(Kalecki1972).OnKaleckiandonhisrelationshipwithKeynesthereisanextensiveliterature;cf.,forinstance,Chilosi1979,theworksquotedthere,andsubsequentlytheessayscollectedinSebastiani1989,andSebastiani1994.

JohnMaynardKeynes4139.ThenewCambridgeschoolNaturallyenough,theimpactofKeynesÕsGeneraltheorywasparticularlystronginCambridge.Itwasnotacaseoftotalconquest:atleastatthebeginning,apartfromÔtheprofessorÕ,ArthurCecilPigou(cf.above,13.9),theMarshallianorthodoxystillfounddefendersofthecalibreofDennisRobertson,whoin1939movedtoLondonbutthenreturnedin1944asPigouÕssuccessortotheeconomicschair,whichhehelduptoretirementin1957.However,theroleofKeynesÕsdirectpupils,likeKahnandJoanRobinson,graduallygrew,anditwasreinforced,aftertheendoftheSecondWorldWar,byotherÔconvertsÕ,suchasNicholasKaldorwhoarrivedfromtheLondonSchoolofEconomicswhere,inanearlyphase,hehadfollowedHayekÕsstar.AseparatecasewasthatofPieroSraffawho,thoughnearertoKeynesthanmanycommentatorsrecognise,followedanautonomousresearchpath(illustratedbelowinchapter16).Alltheseprotagonists,andmanyothers,fromtheBritishMarxistMauriceDobb(1900Ð76)totheAmericanRichardGoodwin(1913Ð96),37constitutedtheÔnewCambridgeschoolÕ(socalledtodistinguishitfromtheÔoldCambridgeschoolÕ,ofMarshallandhispupils),ahighlylivelyintellectualgroup,particularlyinthe1950sand1960s.KeynesÕsclosestcollaborator,hispupilandsubsequentlyliteraryexecutor,wasRichardKahn(1905Ð88).AstudentandthenteacherinCambridge,intheearly1930sKahnwasthemovingforceoftheÔCircusÕwhich,aswesawabove,stimulatedKeynesÕstransitionfromtheTreatiseonmoneytotheGeneraltheory.Healsocontributedacrucialele-ment(Kahn1931)toKeynesÕsanalyticalapparatuswithhistheoryofthemultiplier,whichconnectedchangesinemploymenttochangesinautonomousexpenditure(investments,publicexpenditure,exports)andtothepropensitytosave:arelationshipwhichpresupposedtheexistenceofunemployedworkers.Thiswas,foralltheeconomistsofthosetimes,a37Dobb,SraffaÕscollaboratorintheÞnalstagesoftheworkfortheeditionofRicardoÕsworks,wastheauthorofimportantwritingsontheory,economichistoryandhistoryofeconomicthought,includingavolumeontheSovietUnion(1928andsubsequenteditions),avolumeofStudiesinthedevelopmentofcapitalism(1946)inwhich,amongotherthings,theissueofthetransitionfromfeudalismtocapitalismwasdiscussed,andavolumeofhistoryofeconomicthought(Dobb1973).ByGoodwin(whosepapersarekeptattheUniversityofSiena,wherehetaughtafterhisretirementfromCambridge)wemayrecalltheworksonthemultiplierandthecycle;inparticular,Goodwin1967presentedamodelofeconomiccyclebasedontheevolutionaryschemepreyÐpredatororiginallystudiedbythemathematicianVitoVolterra(1860Ð1940);wemayalsocon-siderasacompendiumofhisviewavolumewiththeironictitle,Elementaryeconomicsfromthehigherstandpoint(1970),whichmakesuseofhighlyreÞnedgraphicillustrations(GoodwinwasalsoareÞnedpainter);foranautobiographicalinterviewandabiography,cf.Goodwin1982.

414TheWealthofIdeasfactoflife,butitwasalsoanelementthatÐletusrepeatonceagainÐcon-tradictedacentraltenetofthedominanttheory,namelytheautomatictendencyundercompetitiveconditionstowardsfullemployment.KahnhadbegunagradualdeparturefromthistheorythroughhisresearchesonÔtheeconomicsoftheshortperiodÕ(thetitleofhis1930fellowshipdissertation,whichwastoremainunpublishedformorethanÞftyyears:Kahn1983),wherehehadtakenupthethemeofmarketimperfections,alreadypresentinMarshallÕsworkbutleftsomewhatinthebackgroundinPigouÕsMarshallianvulgata.Theauthorofrelativelyfew,deeplypon-deredpages,38Kahnalsomadeimportantcontributionsonmonetarytheory,bothwithsignedworks(asinthepaperentitledSomenotesonliquiditypreferencepublishedin1954)andthroughhisinßuenceonthefamousRadcliffeReport(1959),whichdevelopedaKeynesianviewoftheworkingofÞnancialmarketsandtheroleofmonetarypolicytools.KahnÕsinßuencecouldalsobeseeninJoanRobinsonÕsresearchonthetheoryofimperfectcompetition.JoanVioletRobinsonn«eeMaurice(1903Ð83;herhusbandwasAustinRobinson,1897Ð1993,aKeynesianaswellandaninßuentialeconomicsprofessorinCambridge,butmoreinterestedinappliedpolicyissues)wasthestandard-bearerofKeynesianism:alivelyandproliÞcwriter,passion-ateandbrilliantorator,vigorouspolemist,shelefthermarkinuniversi-tiesallovertheworld.Amonghercontributions,togetherwithvariousexpositionsofKeynesiantheory,wemayrecallTheeconomicsofimperfectcompetition(1933).Aswehaveseen(13.10),itwaswiththisworkthatJoanRobinsonstartedwhathasbeencalledÔtheimperfectcompetitionrevolutionÕ,albeitwithsomeexaggerationsinceitsubstantiallyremainedwithinaMarshallianframework;somuchso,indeed,thatRobinsonher-selftookacertaindistancefromitintheprefacetoaneweditionin1969.RobinsonalsoattemptedtoextendKeynesÕsanalysistothelongperiod,inparticularwithTheaccumulationofcapital(1956).Anaspectofthebookthatattractedparticularinterestwasthetaxonomyofgrowthmodels,whiletheanalysisoftheinterrelationbetweeneffectivedemandandproductivecapacityremainedintheshade,althoughitoccupiedacentralpositioninRobinsonÕswork,asindeedithadinHarrodÕsfamousmodel(1939).AÔconvertÕtoKeynesianism,aswesawabove,wasNicholasKaldor(1908Ð86),borninBudapestintheAustro-Hungarianempireandsubse-quentlyaBritishcitizenandlordformeritsacquiredaseconomiccounsel-lortoLabourgovernments.BeforeKeynespublishedtheGeneraltheory,theyoungKaldorwasalreadyabletoboastsomeimportantarticleson38ThemaincontributionsarecollectedinKahn1972.

JohnMaynardKeynes415thetheoryofcapitalandtheÞrm(withanoriginalsynthesisofHayekÕsandMarshallÕsideas).AnexpertontheUNCommissionforEuropeintheimmediatepost-warperiod,consultanttomanydevelopingcountriesand,onvariousoccasions,totheBritishgovernment,KaldorcontributedtothetheoreticalcorpusoftheCambridgeschoolatheoryofincomedistribution,inwhichdistributionbetweenwagesandproÞtsdependedonthecapitalistsÕpropensitytosaveandthegrowthrateoftheecon-omy.39ThistheorywasthenßankedwiththeoriesofaccumulationbasedonKeynesianandclassical(Ricardian)ideasinsuccessiveversionsofagrowthmodel(Kaldor1957,1961)wherehesetouttorepresentthemainÔstylisedfactsÕofdevelopedcapitalisticeconomies.Kaldoralsocon-tributedtothedevelopmentofKeynesianmonetarytheory(fromthe1959RadcliffeReport,toalongseriesofcontributionswherehecriticisedFriedmanÕsmonetarismanditsThatcheritevulgata).Ontheappliedside,RichardStone(1914Ð91,Nobelprizein1984)gaveadecisivecontributiontothedevelopmentofnationalaccountingonKeynesianlines(cf.below,17.7).Internationaltradetheory,alsoalongKeynesianlines,isaÞeldofresearchtowhichJamesMeade(1907Ð94,Nobelprizein1977)gaveimportantcontributions.TheÔCambridgeteamÕalsoincluded,insuccessivestages,manyItaliansattractedtherebytheKeynesiantraditionandbythefameofSraffa:fromLuigiPasinettitoPierangeloGaregnani,fromLuigiSpaventatoMarioNuti,protagonistsinthedebateonthetheoryofcapitalwhichinthe1960ssawCambridge,EnglandvictoriouslyopposedtoCambridge,Massachusetts.ThisdebatestemmedmainlyfromSraffaÕscontribution,asweshallseebelow(16.8).Cambridgeconstitutedforyearsacen-treofattractionforeconomistsallovertheworld:GeoffreyHarcourtfromAustralia,AmitBhaduri,KrishnaBharadwaj,AmartyaSenandAjitSinghfromIndia,TomAsimakopulosfromCanada,BertramSchefoldfromSwitzerland,JanKregelfromtheUnitedStates,andmanyothersamongthecontemporaryeconomistsmentionedinthisbook.39Originallypresentedinanarticleof1956,thistheorywastakenupanddevelopedbyPasinetti1962;insubsequentdebateswithSamuelsonandModigliani,Kaldor1966connectedittotheÞnancialchoicesoftheÞrm,andhencetothenewstreamofresearchesonmanagerialcapitalism(cf.below,17.3).ForasurveyofthedebateandofotheraspectsofKaldorÕsthought,andforabibliographyofhiswritings,cf.Targetti1988.

15JosephSchumpeter1.Life1JosephAloisSchumpeter(1883Ð1950)isoneofthemostfrequentlyquotedeconomistsinourdays.Aboveall,manyrecallhisideathattheprocessofeconomicdevelopmentisgeneratedbyasuccessionofinno-vationsachievedbyentrepreneurswiththepurchasingpowersuppliedtothembybankers.TheattractivenessofSchumpeterÕsideasstems,atleastinpart,fromtheirtwofoldpoliticalimplications.Ontheonehand,theybringtotheforeentrepreneursandbankers,theleadingactorsofthedevelopmentprocess;atthesametime,SchumpeteropposedKeynesian-typepolicyactivismandconsideredcrisesanecessaryevil,neededtostimulatetheveryvitalityofcapitalism.Ontheotherhand,theviewofadynamicprocessendogenoustotheeconomyandsociety,andofthedecayofcapitalismastheinevitableoutcomeofsuchdynamics,seemstoalignSchumpeterwithMarxagainstthetraditionaltheorisingofeconomicequilibrium.SchumpeterÕsthoughtis,however,farmorecomplexandricherinlightsandshadowsthanthesecontrastingevaluationsmightsuggest.Whatremainstrulyalivetodayistheobjectivehepropoundsforeco-nomicscience,namelytostartfromsolidtheoreticalfoundationsandaccomplishatheoryofsocialchange.Asweshallseein2,inordertomakeheadwayalongthisroadSchumpeterproposedasmethodologicalcanonthemaximumpossibleßexibility:histheoreticalbuilding,exten-siveandcomplex,ismadeupofÔanalyticalbricksÕboundtogetherbyacommonpre-analyticalview:notbyaformallyuniÞedscheme,butbyabroadrepresentationofeconomiclife.Thushewasfreetoapplyinhisthe-oreticalbuildingarangeoftools:fromthoseofeconomicanalysisstrictly1VariousbiographicalandbibliographicalstudieshavebeendevotedtoSchumpeter;letusmentionherethelivelybiographybySwedberg1991andthemeticulousbibliographybyAugello1990.TheinterpretationpresentedinthefollowingpagesdrawsonRoncaglia1987.416

JosephSchumpeter417speaking,tothoseofsociologicalanalysis,economichistoryandthehis-toryofeconomicanalysis.ItispreciselytheproposalofthisobjectiveandmethodthataccountsforthedeepfascinationofSchumpeterÕsthought,togetherwiththesubtleheterodoxymarkinghimoutfromthetenden-ciesprevailingineconomicresearchinthesecondhalfofthetwentiethcentury.Likehiscontributiontoeconomicscience,hispersonalitywasalsorichandcomplex.Albeitwithmanyvicissitudes,SchumpetertraversedtheÞrsthalfofthetwentiethcenturyintheroleofaleadingprotagonistofeconomicdebates.SchumpeterwasborninTriesh,inMoravia(thenpartoftheAustro-Hungarianempire),on8February1883.Hisfather,asmallentrepreneurinthetextilesector,diedwhenJosephwasonlyfouryearsold.Hismother,thedaughterofadoctorandawomanofstrongcharacterandconsid-erableculture,foundherselfawidowwhentwenty-sixyearsold;shemarriedagainin1893withahigh-rankingofÞcerintheAustrianarmy,alreadyretiredandthirty-threeyearsolderthanher.Thismarriageendedindivorcethirteenyearslater;butinthemeantimethestepfatherhadanoticeableinßuenceontheformationoftheyoungJoseph,whowassenttostudyintheTheresianuminVienna,theschooloftheyoungaris-tocrats.Herehereceivedaneducationcentredonhumanisticstudies,includingGreekandLatinalongsideFrench,EnglishandItalian:alluse-fultoolsforSchumpeterÕsresearchworkuptohislastventure,theHistoryofeconomicanalysis.From1901to1906heattendedtheFacultyofJurisprudenceatViennaUniversity.HereB¬ohm-Bawerkwasoneoftheprofessors;athissemi-narsSchumpetercameintoheateddebatewithOttoBauerandRudolfHilferding,twofutureleadersofAustriansocialism,andoneofthecham-pionsofliberalism,LudwigvonMises.Aftergraduating,SchumpetervisitedEngland,wherehemetMarshallandEdgeworth.HealsomethisÞrstwife,thedaughterofanAnglicanpriest,hiselderbytwelveyears;however,themarriagelastedonlyafewyears.In1907SchumpetermovedtoCairo,earninghislivingasalawyerandmanagingtheestateofanEgyptianprincess.InthemeantimeheworkedontheÞrstofhisbooks,Theessenceandtheprinciplesoftheoreticaleconomy,published(inGerman)in1908.HethenbecameillwithMalteseßu,andin1909hadtogobacktoVienna.Here,thankstothebookhehadjustpublishedandthehelpofhisprofessor,B¬ohm-Bawerk(afewyearslatertheywouldbewranglingoverinteresttheory),hewasappointedtoaprofessorshipatCzernowitzUniversity.ThenthecapitalofAustrianBucovina,onthefareasternfringeoftheempire,todaypartofUkraine,

418TheWealthofIdeasthetownwascertainlynocentreofculturallife:yearslater,Schumpeterrecalleditsbalmynightsandbeautifulwomen,butin1911hewasquitehappytomovetoGrazUniversity,whereheheldachairupto1921.TheyearsbeforethewarwerecharacterisedbyintensescientiÞcactivity:in1912Schumpeterpublished(inGerman)Thetheoryofeco-nomicdevelopment,andin1914,againinGerman,theEpochsinthehistoryofdoctrinesandmethods;in1913Ð14hevisitedtheUnitedStates,wherehegavelecturecoursesandseminarsatColumbiaUniversityinNewYorkandreceivedanhonorarydegreewhenonlythirtyyearsold.Decidedlyanon-conformist,duringthewarSchumpeterdisplayedpaciÞstandpro-Westernviews;in1918Ð19,notwithstandinghisownconservativeviews,hetookpartinacommitteechairedbyKautskyandinstitutedbytheAustriansocialistgovernmenttoorganisethenational-isationofprivateÞrms.2In1919hebecamememberoftheAustriangovernmentledbyRenner,asocialist,andsupportedbyanalliancebetweensocialistsandsocial-Christians(Catholicsandconservative):asanexpertexternaltobothparties,hetooktheunpopularofÞceofministerofÞnance,chargedwiththeimpossibletaskofsolvingtheproblemofthepublicdebtinheritedfromthewar.Hisexperienceasministerlastedonlyafewmonths,from15Marchto17October,butgaverisetoheateddebate,ontheonehandragingoverpointsinhispolicy(extraordinarywealthtax,incentivestotheinßuxofforeigncapitals,inßationaimedatreducingtherealvalueofthepublicdebt)thatdrewtheÞreofthemid-dleclasses,and,ontheotherhand,overhisoppositionÐborderingonboycottÐtothenationalisationprogrammeofÞciallyadoptedbythegov-ernmenthebelongedto,thusarousingthehostilityofsocialists.Indeed,thesocialistsaccusedSchumpeterofhavingfavouredacquisitionofthebiggestAustrianironÞrm,theAlpineMontan-Gesellschaft,byforeign(Italian)interests,andsecuredhisresignation.Schumpeterwentbacktotheuniversity,butby1921hehadalreadyresignedfromhisprofessorshiptobecomechairmanofasmallpri-vatebankofsolidtraditions,theBiedermannBank,andheadedituntilbankruptcystruckin1924.ThebankwasruinedbytheÞnancialcri-sisfollowinguponthestabilisationpolicyenactedbythegovernment.Manyofitsclientswerehitbyheavylosses;Schumpeterlostallhisestateandhispastsavings,and,inaddition,overthefollowingyearspartofhisincomehadtobeusedtopaybackdebtsincurredasaresultofthebankruptcy.2SchumpeterÕsownjustiÞcation(asreportedbyHaberler1950,p.345)wasthatÔifsome-bodywantstocommitsuicide,itisagoodthingifadoctorispresentÕ;onhisstandingwithinthecommission,however,therearedifferentinterpretations(cf.Swedberg1991,pp.55Ð8).

JosephSchumpeter419Attheageofforty-two,withthecontroversialexperiencesofminis-terandbankerbehindhim,Schumpeterwentbacktouniversityteach-ing.TheÞrstoffercamefromaJapaneseuniversity,butSchumpeterchosetheUniversityofBonn.Herehetaught(withsomeinterruptions:oneyearatHarvard,in1927Ð8Ðreturningthereinautumn1930ÐandsomemonthsinJapan,wheremanyofhiswritingsweretranslatedandwhereheenjoyedconsiderableprestige)uptohisÞnalmovetoHarvardin1932.TheÞrstyearinBonnwaspossiblythehappiestinhislife.BeforeleavingViennahemarriedamostbeautifulyounglady,daughterofhismotherÕsdoor-keeper,whosestudieshismotherhadcontributedtoÞnan-cially.Butafteronlyoneyear,in1926,hisyoungwifediedinchildbirth,andthesameperiodalsosawthedeathofhisbelovedmother.TheseeventsleftSchumpeterÕscharactermarkedbyadarkveinofpessimism.IntheBonnyearsSchumpeterworkedamongotherthingsonalengthytreatiseonmoney;however,itremainedincomplete,andwaspublishedposthumouslyonlyin1970.SchumpeterputitasideafterÞveyearsÕworkwhen,in1930,KeynesÕsTreatiseonmoneyappearedÐacontributionsettingoutalineofthinkingcompletelydifferentfromhisown.Mostlikely,SchumpeterbelievedthatwithoutfurtherintensiveresearchhisworkwouldpaleincomparisonwithKeynesÕs,andpreferredtowaitfornewfruitsfromhisresearches.AfterhismovetotheUnitedStatesin1932SchumpeterÕslifebecamemoreregular,measuredoutbythepublicationofhisnewwritings.In1939themonumentalworkonBusinesscyclesappeared,in1942theprovocativeandsuccessfulCapitalism,socialism,democracy,whileathisdeaththegreatHistoryofeconomicanalysiswasstillincomplete(itwastobepublishedposthumouslyin1954,editedbyhisthirdwife,theeconomistElisabethBoody,whomhehadmarriedin1937).Alongwithhisimpressiveresearchactivity,Schumpetertookonaheavyloadofteachingandacademicwork.AmonghisstudentsweÞndmanyofthegreatesteconomistsofthetwentiethcentury,fromLeontievtoSamuelson,fromSweezyandGoodwintoMinsky,fromTsurutoSylosLabini.Sweezy(1951,p.xxiv;italicsintheoriginal)recalled:ÔHedidnÕtcarewhatwethoughtaslongaswedidthink.ÕInhisresearchwork,however,heremainedaÔlonewolfÕ.Notwithstandingacademicrecogni-tion(presidentoftheEconometricSocietyin1937Ð40,3oftheAmerican3TheoriginalproposaltolaunchanEconometricSocietywasduetotheNorwegianRagnarFrish;Schumpeterwasenthusiasticaboutit,andsomeofthepreparatorymeetingswereheldinhishouseinBonn;hewasalsothechairpersonofthemeetingof29December1930atCleveland(Ohio),wheretheEconometricSocietywasofÞciallyborn.

420TheWealthofIdeasEconomicAssociationin1948,designatedÞrstpresidentoftheInterna-tionalEconomicAssociationatthemomentofitsfoundation),hispublicimageboretheweightofhispositionasanultra-conservative,opposedtoRooseveltÕsNewDealand,aboveall,consideredtoosoftonnaziGermanyduringthewaryears.Lonelyandwornoutbywork,SchumpeterdiedofastrokeinhiscountryhouseatTaconicinConnecticut,inthenightbetween7and8January1950.2.MethodThequestionofmethodisnotonlytheÞrstthemethatSchumpetertack-ledinhisscientiÞcproduction,butalsothenecessarystartingpointforanyinterpretationofhisviews.OneofhisveryÞrstwritings(Schumpeter,1906)wasabriefarticleonthecrucialimportanceofthemathematicalmethodineconomictheory;questionsofmethodoccupiedmanypagesinhisÞrstimportantwork,thevolumeonTheessenceandtheprinciplesofeconomictheory,publishedin1908.InthisvolumeSchumpeterwasalreadytakingapositionthatwouldbereÞned,butnotsubstantiallychanged,inhismatureworks:asortofmethodologicalliberalismthathasmanyafÞnitieswithsomeofthemostrecentdevelopmentsinepistemology(forinstance,inoneaspectoranother,withthepositionsofavariegatedrangeofauthorsinclud-ingKuhn,LakatosandFeyerabend:cf.above,1.3),whilealsoreßect-ingideascirculatingintheculturalcontextofhiseducation.Tosumup,withSchumpeterÕsownwords(1908,p.156,italicsadded),itisÔadvantageousnottosetthemethodologicalassumptionsonceandforallourpurposes,buttoadaptthemtoeachobjectiveand,oncesuchspeciÞcassumptionsappearadequatetothepurpose,tobeasliberalaspossibleÕ.Schumpeter(1908,p.3)startedfromthestatementthatÔallsciencesarenothingbut[…]formsofrepresentationÕofreality,andemphaticallydeclared:ÔwedonotacceptapriorithestatementthateconomicrealityshowsasystematicregularityandthatthereforetheformulationofexactÒlawsÓispossibleÕ(ibid.,p.12).ThismethodologicalpositionwasnotverydifferentfromKeynesÕs:itconceivedtheoriesandformalisedmod-elsastoolsfororientationwithinreality.Aboveall,thismethodologicalpositionwasradicallydifferentfromtheoneprevailingintheinitialstageofdevelopmentofmodernscience,whenitwasbelievedthatmathemat-icallawsexpressedtheintrinsicessenceofthings,andthatthetheoreti-cianÕstaskwastoÔuncoverÕsuchlawsfromtheaccidentalphenomena

JosephSchumpeter421enshroudingthem(cf.above,3.1):aviewstillwidespreadatthetime.AcontroversialaspectinSchumpeterÕsmethodologicalpositioncon-cernedtheneedtochecktheoryagainstempiricalreality.SchumpeterrecalledthelimitstothearbitrarycharacterofthetheoreticianÕsactivity:Ôinconstructingoursystemweproceededarbitrarily,butalsorationallydrawinguphypotheseswiththefactsalwaysinmindÕ.ÔThisdoesnotmean[…]thatsuchstatementsareÒlawsÓprescribedfortheuniverseor,even,thattheyregulatetheworldofphenomena[…];itonlymeansthattheygivegoodresultsinanappreciablemeasure,insoappreciableameasureastobeworthhavingbeenformulatedÕ(Schumpeter1908,pp.424Ð5).ThesecondofthetwopassagesquotedÞndsanechoinFriedman(1953),whoarguesthatassumptionscanbeunrealisticpro-videdthattheresultsareuseful(inparticular,providedthattheforecastsdeducedfromtheassumptionsthankstothetheoreticalconstructionprovecorrect);buttheÞrstofthetwopassagescontradictssuchaninter-pretation.ItwasfromtheviewpointofhisÔmethodologicalliberalismÕthatSchumpetercriticisedassterilethefamousdebateonmethodstillunderwayinthoseyears(cf.above,11.2)betweenthosewho(likeMenger)consideredeconomicsanÔexactÕscienceandthosewho(likeSchmoller,theleaderofthehistoricalschool)sawitasclosertothehistorical-socialsciences:Ôthehistoricalschoolandtheabstractonearenotincontrastand[…]theonlydifferencebetweenthemistheirinterestindifferentissuesÕ(ibid.,p.22)or,perhapsbetter,indifferentaspectsofthesamerealityÐanextremelycomplexrealitythatcannotbereducedexclusivelytooneproblemoranother.Schumpeterreproposedthismethodologicalpositioninvariouswrit-ings,alsoofhismatureperiod,stressingagainandagainthateconomiclifehassomanydifferentaspectsthatitmayusefullybeanalysedfromamultiplicityofviewpoints.AcorollaryofSchumpeterÕsÔmethodologicalliberalismÕwashiscau-tiousattitudetowardsmethodologicalindividualism,orinotherwordsthatmethodofanalysiswhichstartsfromtheindividualÐfromhisorherpreferencesandendowmentsÐandwhichwasattherootofneo-classicaleconomictheory.Schumpeter(1908,p.83)stressedinaclear-cutwaythedistinctionbetweenindividualisminscientiÞcmethodandpoliticalindividualism(liberalism),statingthatÔthereisnoparticularlycloserelationshipbetweenindividualisticeconomicscienceandpoliticalindividualismÕandthatÔfromtheoryinitselfwecandrawargumentsnei-therinfavournoragainstpoliticalindividualismÕ.Inthishefollowedtheseparation,repeatedlyassertedinhiswritingsandstronglyadvocatedby

422TheWealthofIdeasWeberaswell,betweentheoreticalpropositionsthatfallwithintheÞeldofscienceandvaluejudgementsthatfallwithintheÞeldofpolitics.43.Fromstaticstodynamics;thecycleInthe1908book,infact,methodologicalissueswereasecondarycon-cern.SchumpeterÕsmainaimwastoillustratewhatheconsideredthefoundationsofeconomictheory,namelythestaticsystemofeconomicequilibrium,orÐinhisownwordsÐÔthefundamentalconceptsthatconstitutethepresentofpureeconomicsÕ(ibid.,p.6).Inhisopinion,itwasnecessarytobringorderagaininapicturethatÔappearedconfused,almostchaoticandnotatallsatisfactoryÕ(ibid.,p.7).SchumpeteradoptedtheÔprincipleofvalueÕfromthemarginalisttra-dition,accordingtowhichthevalueofeconomicgoodsisexpressedbydemandforthemrelativetotheirscarcity.However,herejectedJevonsÕsutilitarianism,basedonthedeÞnitionofeconomicgoodsÔasthingsoftheexternalworldthatareinacausalrelationwiththesatisfactionofneedsÕ(ibid.,p.64),andhencewiththeidentiÞcationofvaluewiththe(subjective)measureoftheabilityofgoodstosatisfysuchneeds.Infact,Ôpsychologicaldeductionissimplyatautology.Ifwesaythatsomebodyispreparedtopaysomethingmorethansomebodyelsebecausehevaluesitmore,withthiswedonotgiveanexplanation,sinceitispreciselyfromhisevaluationthatweinferthefactthatheofferstopayahigherpriceÕ(ibid.,p.64).Asaconsequence,theso-calledprincipleofdecreasingmarginalutilityaccordingtoSchumpeterÔineconomics[…]isnotalaw[…]butabasicassumptionforthegeneralisationofgivenscientiÞcfacts.AssuchthisassumptionisinprinciplearbitraryÕ(ibid.,p.71).Similarly,andinconformitytothemethodologicalprinciplesillustratedintheprevioussection,ÔthehomooeconomicusÐthehedonisticcomputerÐ[…]isaconstructionthehypotheticalcharacterofwhichisnowknownÕ(ibid.,pp.80Ð1).SchumpeterconsideredthetheoryofpricesasÔthecoreofpureeco-nomicsÕ(ibid.,p.106),describingitwithgrandiloquentovertones:ÔAchainofequationssurroundsthesphereoftheeconomicactivityof4Thisisalsothebackgroundforthedistinctionbetweeneconomicliberalismandpoliticalliberalism.TheformerisidentiÞedwithÔthetheorythatthebestwayofpromotingeco-nomicdevelopmentandgeneralwelfareistoremovefettersfromtheprivate-enterpriseeconomyandtoleaveitaloneÕ,whilepoliticalliberalismisidentiÞedwithÔsponsorshipofparliamentarygovernment,freedomtovoteandextensionoftherighttovote,free-domofthepress,divorceofsecularfromspiritualgovernment,trialbyjury,andsoonÕ(Schumpeter1954,p.394).

JosephSchumpeter423theindividualÕ(ibid.,p.116).However,hisillustrationofthistheoryisnotwithoutdefects;inthisrespectPantaleoniÕsjudgementisindicative:accordingtohimthebookÔisveryusefulfortheGermansmostofwhomknownothingoftheneweconomicsÕ,butÔisprolix,notnew,elementary,oftenalsoimpreciseÕ.5InSchumpeterÕsopinion,thepointofarrivalofthetheoryofeconomicequilibriumiswhathecalledÔthemethodofvariationsÕ.Infact,ÔwecanneverexplainanactualstateofequilibriumoftheeconomyÕ(ibid.,p.361);whatthetheorycanexplainiswhatconsequencesachangeinoneofthedatahasonequilibrium:ÔThisistheonlyreasonforwhichsuchlawshavebeenconstructedÕ(ibid.,p.360).SuchamethodÐwhatisnowadayscalledcomparativestaticsanalysisÐmaybeusedonlyinaverylimitedambit,withrespecttoinÞnitesimalchanges:Ôrigorouslyspeaking,oursystemexcludesanychangewhatso-everÕ(ibid.,p.375).However,theeconomicequilibriumapproachisusefulbecausewithitlightcanbeshedonaparticularaspectofeco-nomicrealitiessubjecttocontinuouschange:habit,repetitiveness,thethousandsofÔmechanicalÕactionsofeverydaylife.Inordertoclarifyhisposition,Schumpeterusedanumberofmetaphors:thephotograph(ibid.,pp.123Ð4),thecentreofgravitation,theseaandthewaves(ibid.,p.458).Forexample,hewrites:ThestateofequilibriumisacentreofgravityofÔeconomicforcesÕ,abstract,yes,butalwaysexistingperpetually.Infactwedonotdescribeanactualstateoftheeconomy,butonlyaformalstateofaffairswhichwemayalwaysobserveeveninanyofthemostactivemomentsofdevelopment,andwhichinrealityremainsunchangedevenwhentheactualdatachange.However,wecannotsaythatourstateofequilibriumresemblesthesurfaceofaseawhichisalwaysinmotionalthoughalwaystendingtoresettle,andwhich,ifobservedatasufÞcientdistance,alwaysappearsßat:thewavesoftheseainfactalwaysreturntothesamelevel,butnotthewavesofeconomiclife.6ThemainpointofdifferentiationbetweenSchumpeterandtraditionalmarginalisttheoryemergedinadebateonthetheoryofinterest.SchumpetercriticisedthetheorydevelopedbyhisprofessorB¬ohm-Bawerk,whoÔdeÞnesinterestasthepremiumofpresentgoodsoverfuturegoodsÕ(ibid.,p.329).Schumpeteropposedthistheorynotsomuchwith5InalettertoPareto,inPareto1960,vol.3,p.360.Forinstance,thedemonstration(inwords,notsymbols)ofthetheoremoftheequalisationofweightedmarginalutilitiesiswrong(Schumpeter1908,p.115);forotherexamplescf.Roncaglia1987,p.53.6Schumpeter1908,p.458.Themetaphoroftheleveloftheseaandthewaves,towhichSchumpetermakescriticalreference,isutilisedforinstancebyWalras1874,p.381.Tobeprecise,Walras,professoratLausanne,lookingoutofthewindowofhisstudyspokeofaÔlake[…]stirredtoitsverydepthsbyastormÕ.

424TheWealthofIdeasanewtheoryaswithadifferent,ÔdynamicÕ,approach:ÔTheessentialphenomenonistheinterestderivingfromcreditwhichservesforthecreationofnewindustries,newformsoforganisation,newtechniques,newconsumptiongoodsÕ(ibid.,p.355).Andagain:ÔTheoriginofthephenomenonofinterestliesindevelopmentandincredit;herewemustlookforitsexplanationÕ(ibid.,p.338).Inthestaticsystem,accordingtoSchumpeter,themoneymarketplaysonlyasecondary,passiverole,whileitbecomesanactorwithanimportantroleonlywithintheprocessofeconomicdevelopment.Interest,asamonetaryphenomenon,canonlybeexplainedwithintheÞeldofadynamictheory.ThisthesiswasdevelopedbySchumpeterinhisTheoryofeconomicdevelopment.TheÞrsteditionofthisfamousworkÐamassivevolumeinGerman,prolixandrichindisquisitionsonhistoriographyandmethodol-ogyÐwaspublishedin1912;aseconddecidedlyslimmerGermaneditionappearedin1926.Thepopularityoftheworkis,however,mainlyduetotheEnglishedition,preparedbyRedversOpieunderSchumpeterÕsdirectcontrolandpublishedin1934.Thiseditionwasyetfurthershort-ened,althoughSchumpetermaintainedinhisprefacethatnosubstantialchangehadbeenmadetoit.Thedichotomybetweenstaticsanddynamicswassubstitutedinthisworkwithadichotomybetweentheoryofthecircularßowandtheoryofdevelopment.Thecircularßowcorrespondstothestationarystate,inwhichtheeconomyreproducesitself,periodafterperiod,withoutstructuralchange;Schumpeteralsoadmittedinthiscontextapurelyquantitativegrowth,fromwhichchangesinproductiontechnologiesandconsumersÕtasteswereexcludedbydeÞnition.Development,bycontrast,ischaracterisedbychange.Theroleofactiveagentintheprocessofchangeisattributedtotheproducer,whileconsumersfollowpassivelyandÔareeducatedbyhimifnecessaryÕ(Schumpeter1912,p.65).HavingrecalledthatÔtoproducemeanstocombinematerialsandforceswithinourreachÕ(ibid.),SchumpeternotesthatÔDevelopmentinoursenseisthendeÞnedbythecarryingoutofnewcombinationsÕ(ibid.,p.66),namelybyÔtheintroductionofanewgoodÕ,byÔtheintroductionofanewmethodofproductionÕ,byÔtheopeningofanewmarketÕ,byÔtheconquestofanewsourceofsupplyofrawmaterialsorhalf-manufacturedgoodsÕ,andbyÔthecarryingoutoftheneworgan-isationofanyindustry,likethecreationofamonopolyposition[…]orthebreakingupofamonopolypositionÕ(ibid.).Theintroductionofnewproductivecombinationsistheworkoftheentrepreneurs,whoaresuchonlyinsofarastheyrealiseinnovativechoices.ThenotionoftheentrepreneurisakeycategorywithintheSchum-peteriantheory:astheoriginatorofchange,theentrepreneurgenerates

JosephSchumpeter425capitalisticdevelopment(whilewithintheclassicaleconomistsÕapproachitistheprocessofdevelopmentthatgeneratesthedrivetochange,andconsequentlytheveryÞgureoftheentrepreneur);hismotivationisnotthatofthehomooeconomicus(amongotherthings,becausehemaynotbetheowneroftheÞrmorthepersonwhoappropriatestheproÞtsderiv-ingfromtheinnovation)butratherÔthedreamandthewilltofoundaprivatekingdom[…]thewilltoconquer[…]thejoyofcreating,ofgettingthingsdone,orsimplyofexercisingoneÕsenergyandingenuityÕ(ibid.,p.93).Alongsidetheleadingroleoftheentrepreneurintheprocessofdevel-opmentSchumpeterextolledtheroleofthebanker,consideredequallynecessary.ThisthesisstemmedfromtwocrucialassumptionsinthebasicSchumpeterianmodel.First,innovationsÐatleastthemostimportantonesÐarenotrealisedbydivertingtosuchanendtheresourcesprevi-ouslyusedaccordingtotraditionalschemesbythesameentrepreneur-innovator.Secondly,inconformitytotraditionalmarginalistequilibriumtheory,therearenounusedresourcesonwhichentrepreneur-innovatorscanrely.Thusentrepreneurscanrealisetheirinnovationsonlyiftheyhaveattheirdisposalsomeadhocpurchasingpower,withwhichtheyareabletodrawtheresourcesrequiredtostartnewproductiveprocessesfromÔoldÕÞrms(thatis,fromthesetoftraditionalproductiveactivities)andfromconsumers.AccordingtoSchumpeter,suchpurchasingpoweriscreatedexnovobythebanks:thus,theinnovativeandexecutivecapac-ityofentrepreneursneedstobeaccompaniedbythefar-sightednessandabilityofbankerstoevaluatearightthepotentialitiesofnewinitiatives.Bankerstoo,likeentrepreneurs,havetoacceptthechallengeofuncer-tainty(andtheconsequentrisksoflossesandfailures)thataccompaniesanythingwhichisnew.Entrepreneurssetoninnovationapplytobankerswho,iftheydecidetoÞnancetheinnovation,agreetotheloanandthuscreatethemeansofpaymentwithwhichentrepreneurscanenterthemarketsforproduc-tiveresources.Byassumption,inequilibriumallavailableproductiveresourcesarealreadyutilised;asaconsequence,theadditionaldemandcannotbesatisÞedbyanincreaseinsupply.Thus,thereisanincreaseinprices,whichautomaticallyreducesthepurchasingpowerofconsumersandtheÔtraditionalÕÞrms:namely,thoseÞrmsthat,operatingalongthetraditionallinesofthecircularßow,goonrestoringthestocksofproduc-tiveresourcesthroughcurrentreceipts.TheinßationaryprocessallowsnewÞrms,Þnancedbybankswithnewlycreatedmeansofpayment,todrawproductiveresourcesfromtheirtraditionaluses.ThisisatheoryofÔforcedsavingÕ:anelementcommontovarioustheoriesdevelopedwithintheAustrianschool,fromvonMisestoHayekwho,aswesaw

426TheWealthofIdeas(11.6),madeuseofitinhistheoryofthetradecycle.Suchtheoriesareconnectedtotheideathattheeconomytendstofullemployment.MonetaristtheoriesmaintainingthatprivateinvestmentsareÔcrowdedoutÕbypublicexpenditure,developedinthe1950sand1960sasareac-tiontoKeynesiantheoriesfavouringactiveÞscalpoliciesinsupportofaggregatedemand,arebutvariantsofthetheoryofforcedsaving.Thetradecycleislinkedtotheprocessofdevelopment.ThephasesofexpansiontakeplacewhentheinnovationisimitatedbyaswarmofnewÞrmsattractedbythetemporaryproÞtsrealisedbytheentrepreneur-innovator,andwhentheinßationinducedbythebankÕscreationofnewpurchasingpowerstimulatesproductiveactivity.Thephasesofrecessionarrivewhenrepaymentoftheloansprovokescreditdeßation;further-more,ifÞrmsareabletopaybackthebanks,itisthankstosaleonthemarketofproductsobtainedwithnewtechnologies,butthisexertsadownwardpressureonthedemandfor,andpricesof,theoldproducts,whichleadstobankruptcyforÞrmsthathaveremainedanchoredtooldproductiontechnologies,andespeciallythosemostdirectlyhitbycompe-titionfromthenewproducts.Infact,withinthesectorwhereinnovationhastakenplace,pricesfallbelowproductioncostsforthoseÞrmsthathavenotadoptednewproductiontechniques(andcostshaveincreasedinthemeantime,asaconsequenceofincreasesinthepricesofproduc-tiveresourcescausedbyexcessdemandforthem);thus,thosewhofailtokeeppacebyadaptingtotheinnovationsareexpelledfromthemarket.Ifinnovationswereuniformlydistributedovertime,takingplacenowinonesectoroftheeconomy,nowinanother,thephasesofexpansionandrecessionwouldconcerndifferentsectorsindifferentperiodsoftime,astheycometobeaffectedbytheinnovativeprocess,whileonaveragedevel-opmentwouldfollowaregularpathfortheeconomyasawhole.However,accordingtoSchumpeterthedevelopmentprocessisdiscontinuous.Infact,innovationimpliesabreakinthetraditionalwayofproceeding:inotherwords,thebarriersrepresentedbytheforceoftraditionshouldbeovercomeinordertoimplementtheinnovativechange,andsuchbarri-ersareeasiertoovercomethemorewidespreadthechangeiswithintheeconomy.Thusinnovationsdonotconstitutearegularßowovertime,butappearasgroupedinÔswarmsÕ.7SchumpeterÕstradecycletheorythushasanessentialcharacteristic:theendogenousnatureÐthatis,internaltothetheoryÐoftherelation-shipbetweencycleanddevelopment.InthisrespecttheSchumpeteriantheoryisanalogoustotheMarxianone,inthatwithinboththeoriesthe7Schumpeter1912,p.223.ÔSchumpeterianÕmathematicalmodelsofthetradecyclehavebeenworkedoutassuminganirregularßowofinnovations:cf.forinstanceCalzoniandRossi1980.

JosephSchumpeter427samemechanismbehindthecycleÐinthecaseofMarx,thealternatingvicissitudesoftheconßictbetweencapitalistsandworkers;inthecaseofSchumpeter,theirregularßowofinnovationsÐalsoliesbehindtheprocessofeconomicdevelopment.Withinboththeories,theconnectionbetweencycleanddevelopmentisshownbythefactthatthesituationattheendofacyclemustbedifferentfromthesituationatthebeginningbecauseoftechnologicalchange,whichisanessentialpartinthecyclicalmovementoftheeconomy.Thebasicmodelofdevelopmenttheorypresentedinthe1912bookdidnotchangeinsubstanceintheponderousworkonBusinesscycles,publishedinEnglishin1939,intwovolumesandmorethanathousandpagespackedwithtextandfootnotes.Asamatteroffact,thefameofSchumpeterÕstheoryofthecycleowesmoretohisyouthfulworkthantoBusinesscycles.Inthislatterwork,substantiallythesametheoriesarerepeated,illustratedanddiscussedfromdifferentpointsofview,astheverysubtitleoftheworkindicates:ÔAtheoretical,historicalandstatis-ticalanalysisofthecapitalistprocessÕ.Thereare,however,somenewcontributionsworthnoting.Oneofthesecontributionsdealtwithanalysisofmarketformsotherthanperfectcompetition,whichJoanRobinson(1933)andChamberlin(1933)hadworkedonafterSraffaÕs1926article(cf.below,16.3).8Intheirwake,SchumpeterrecognisedtheexistenceofunusedproductivecapacitybutdidnotcomeroundtoacceptingtheKeynesianideas:asinhis1912book,analysisinthe1939workwasalsocarriedoutasiftheassumptionoffullutilisationinequilibriumofavailableresourcesdidinfactalwayshold(andindeedtheÔreserveÕproductivecapacityrecalledbySchumpeterisdesiredbyentrepreneurs).Anothercontributionconcernedanaspectofthedevelopmentpro-cessstressedbySchumpeter,namelythesimultaneouspresenceofmanycycles.Inhishistorical-statisticalanalysis,inparticular,Schumpeterutilisedaschemewiththreecycles,short,longandverylongrun(respec-tivelynamedKitchin,JuglarandKondratieffcyclesfromthenamesofthescholarswhoÐaccordingtoSchumpeterÕsownreconstructionÐhadÞrstidentiÞedandanalysedthem),theÞfty-yearorKondratieffcyclehavingtodowithÔepoch-makinginnovationsÕthataffectthewholeofthe8WithanarticleSchumpeterintervenedinthedebateonthetheoryoftheÞrm,startedbyClaphamÕs1922articleintheEconomicJournal,andinwhichSraffaalsotookpartwithhis1926article.SchumpeterÕs1928contributionwasessentiallyanattempttopresenttoEnglishreadershisowntheory;however,theneedtoabridgehisreasoninginafewpagesandtoincludereferencetothedebateonMarshalliantheoryandreturnstoscale,togetherwiththeratherGermanstyle,madeforaconvolutedexpositionandlimitedtheimpactofthearticle.

428TheWealthofIdeasproductivesystem:railwayswiththetransportrevolution,electricity,orelectronicsinourowntimes.94.ThebreakdownofcapitalismThesecondamongthethreemainworksofSchumpeterÕsmaturity,Capi-talism,socialismanddemocracy,publishedin1942,ispossiblyhisnowmostfrequentlyquotedwork:eventhosewhohavenotreaditoftenrecallitsmainthesis,accordingtowhichcapitalismcannotsurviveandisdestinedtobesupplantedbysocialism.However,alltoooftenitisforgottenthat,unlikeMarx,Schumpeterdidnotseethisasatriumphalmarchofhumanprogress,butratherasanadvanceontheroadtodecadence.10PoliticalscientistsandsociologistsmainlyfocusattentiononSchumpeterÕsprophecy,whilemoderneconomictheory,whichseemstoconsiderthepossibilityofmathematicalformalisationascrucial,appearstoplacethedecayofcapitalismthesisoutsideitsÞeldofenquiry.11How-ever,thismeansundervaluingtherolethatSchumpeterattributedtoanessentiallyeconomicelementinhisargumentation,namelychangeinthemarketformsdominatingtheeconomy.ThecentralthesisofthebookhadalreadybeenforeshadowedbySchumpeterinhis1928articleintheEconomicJournal:Capitalism,whilsteconomicallystable,andevengaininginstability,creates,byrationalisingthehumanmind,amentalityandastyleoflifeincompatiblewithitsownfundamentalconditions,motivesandsocialinstitutions,andwillbechanged,althoughnotbyeconomicnecessityandprobablyevenatsomesacriÞceofeco-nomicwelfare,intoanorderofthingswhichitwillbemerelymatteroftasteandterminologytocallSocialismornot.129AsamatteroffactexaltationoftheÔlongwavesÕ,commonlyattributedtoSchumpeter,andbyhimtoKondratieff,wasoriginallyduetoPareto,asSylosLabini1950remarked.Thistheoryrecentlycamebackintovogue,Þrstasanexplanationofthelongstagnationofthe1970sand1980sandthen,intheoppositedirection,toextolthepotentialitiesoftheÔmicroelectronicsrevolutionÕ.10McCordWright1950,pp.195Ð6,consideredthebookÔoneofthemostabledefencesofcapitalismeverpublishedÕ,andmaintainedthatinitSchumpeteradoptedthetech-niqueofMarkAntonyÕsspeech,ÔbycomingÞrstÒtoburyCaesarnottopraisehimÓ(capitalismisdoomed)Õ,whilereadytostatethatÔÒBrutusÓmoreoverisÒanhonourablemanÓ(socialismisÒworkableÓ).ÕThecorrectnessofthisinterpretationisconÞrmedbyarelativelyunknownarticleof1946(broughttomyattentionbyPaoloSylosLabini),inwhichSchumpetersummarisedthethesesofhis1942bookandproposedthatÔfreemenÕreacttothetendenciesthereinillustrated,whichriskleadingtotheÔdecompositionÕofsocietyandthevictoryofÔcentralisedandauthoritarianstatalismÕ,withaÔmoralreformÕdrawingonthecorporativeprinciplesoftheencyclicalQuadragesimoAnnoofPopePiusXI(Schumpeter1946,pp.103Ð8).11Thereis,however,aconsiderableliteratureonthisissue.Cf.forinstancetheessayscollectedinHeertje1981.12Schumpeter1928,pp.385Ð6.

JosephSchumpeter429Thus,SchumpeterÕsthesishadalreadytakenshapebeforetheGreatCrisis:ithadnothingtodowiththestagnationtheoriesbasedonthedis-solutionofinvestmentopportunities,whichafterKeynesweretakenupanddevelopedbyHansen(1938),butratherlookedbacktotheWeberianviewofcapitalism(cf.above,11.3)asanall-embracingrationalisa-tionprocessaffectingbothproductiveactivityandculture.13Accord-ingtoSchumpeter,thereisacontradictionbetweentheÔeconomicÕandÔpoliticalÕcomponentsofcapitalisticdevelopment:theÔeconomicstabil-ityÕofcapitalismrequiresincessantdevelopment,butthiscreatesgrowingdifÞcultiesforitsÔpoliticalstabilityÕ:beyondacertainpointsuchdifÞcul-tiesmakethebreakdownofcapitalisminevitable.ThecoreofSchumpeterÕsargumentistheconnectionbetweentheprocessofeconomicdevelopmentanddestructionofthepolitico-socialfoundationsofcapitalism.Theconnectionhastwoaspects:ontheposi-tiveside,growthofanoppositiontocapitalismassociatedmainlywiththespreadofrationalisticwaysofthinkingandtheswellingranksofintellectuals;onthenegativeside,theweakeningofcapitalismÕsÔpro-tectivestrataÕ,consistingmainlyoftheranksofsmallandaverage-sizedentrepreneurs,facedwiththegrowthofthebigbureaucratisedÞrms.TheformeraspectconcernswhattheMarxisttraditionconsiderstheÔsuper-structureÕofcapitalisticsocieties,thelattertheÔstructureÕ;asiscustomaryinSchumpeteriananalysis,thetwoaspectsinteractintheprocessofsocialtransformation.14BureaucratisationoftheeconomyhindersboththeinnovativeactionofentrepreneursandtheÔcreativedestructionÕ,i.e.bankruptcyofslow-movingÞrms,whichfreesresourcesfortheinnovatingÞrmsandcon-tinuouslyselectstheranksofÞrmownersandmanagersandindeedcharacterisestheprocessofdevelopmentinacompetitiveeconomy.Bureaucratisationistheresultofchangesindominantmarketformsthroughaprocessofindustrialconcentration(anaspectalreadystressedbyMarx)whichimplies,amongotherthings,transformationoftheactiv-ityoftechnologicalinnovationintoroutine.(MuchthesamehadalreadybeenarguedbyKarlRennerandRudolfHilferding,leadingrepresenta-tivesofAustriansocialismandcompanionsofSchumpeterÕsatViennaUniversity).TheSchumpeteriantheoryofmarketformsisnotwellspeciÞedbut,givenitsintrinsicallydynamiccharacter,itstandsoutdistinctlyfromthe13LetusrecallthatWeberÕs1904Ð5fundamentalworkhadbeenreprintedonlysixyearsearlier,andhadhadconsiderableimmediateimpactonGermanculture.14SchumpeterfollowedWeberinrejectingMarxianmaterialism,accordingtowhichtheevolutionoftheÔsuperstructureÕisessentiallydeterminedbywhathappenswithintheÔstructureÕofhumansocieties;thecausalrelationwasnot,however,inverted,butleftroomforrecognitionofacomplexinterdependencebetweenthetwoaspects.

430TheWealthofIdeastraditionalmarginalisttheory.AgainstÔthetraditionalconceptionofthemodusoperandiofcompetitionÕ,whichtakesplaceinastaticcontextandleadstotheso-calledlawoftheoneprice,Schumpeter(1942,pp.84Ð5)argued,thecompetitionfromthenewcommodity,thenewtechnology,thenewsourceofsupply,thenewtypeoforganization(thelargest-scaleunitofcontrolforinstance)ÐcompetitionwhichcommandsadecisivecostorqualityadvantageandwhichstrikesnotatthemarginsoftheproÞtsandtheoutputsoftheexistingÞrmsbutattheirfoundationsandtheirverylives.Thiskindofcompetitionisasmuchmoreeffectivethantheotherasabombardmentisincomparisonwithforcingadoor[…It]actsnotonlywheninbeingbutalsowhenitismerelyanever-presentthreat.Itdisciplinesbeforeitattacks.ThebusinessmanfeelshimselftobeinacompetitivesituationevenifheisaloneinhisÞeld.Competition,aswecansee,isassociatedwiththefreedomofentryofnewinnovativeÞrmsintothemarket.Thismeansattributinglittleimportancetothebarrierstocompetitionstemmingfrommarketdif-ferentiation,uponwhichSchumpeterÕscolleagueatHarvard,EdwardChamberlin(1933),somuchinsists.Italsoforeshadowsaradicalcri-tiqueofanti-monopolisticpoliciesbasedonthenumberofÞrmsactiveinthemarket.Theprocessofindustrialconcentrationalsogeneratesdrasticchangeinthesocialstructure:ÔTheperfectlybureaucratizedgiantindustrialunitnotonlyouststhesmallormedium-sizedÞrmandÒexpropriatesÓitsowners,butintheenditalsoouststheentrepreneurandexpropri-atesthebourgeoisieasaclasswhichintheprocessstandstolosenotonlyitsincomebutalsowhatisinÞnitelymoreimportant,itsfunctionÕ(ibid.,p.134).Economicandsocialtransformationsareaccompaniedbyequallyradi-calchangesincultureandideology:ÔDematerialized,defunctionizedandabsenteeownershipdoesnotimpressandcallforthmoralallegianceasthevitalformofpropertydidÕ(ibid.,p.142).ÔThesocialatmosphereofcapitalismÕthuschanges:Ôcapitalismcreatesacriticalframeofmindwhich,afterhavingdestroyedthemoralauthorityofsomanyinstitutions,intheendturnsagainstitsown;thebourgeoisÞndstohisamazementthattherationalistattitudedoesnotstopatthecredentialsofkingsandpopesbutgoesontoattackprivatepropertyandthewholeschemeofbourgeoisvaluesÕ(ibid.,p.143).InthisrespectSchumpeterofferedsomeprovocativeremarksontheÔsociologyoftheintellectualÕ(ibid.,p.145),ofteninvokedinrecentyearsÐparticularlysince1968Ðinattemptstointerpretwavesofstu-dentuprisings:ÔIntellectualsareinfactpeoplewhowieldthepowerofthespokenandthewrittenword,andoneofthetouchesthatdistinguishes

JosephSchumpeter431themfromotherpeoplewhodothesameistheabsenceofdirectrespon-sibilityforpracticalaffairsÕ(ibid.,p.147).However,Ôfromthecriticismofatexttothecriticismofasociety,thewayisshorterthanitseemsÕ(ibid.,p.148).Inthissituation,intellectualsfavourthespreadofcrit-icalattitudestowardscapitalistsociety,andinparticularanattitudeofrejectiontowardstheheroicroleoftheentrepreneurandthatbasicinsti-tutionofcapitalismwhichisprivateproperty.ÔThatsocialatmosphereorcodeofvaluesaffectsnotonlypoliciesÐthespiritoflegislationÐbutalsoadministrativepracticeÕ(ibid.,p.155);hencetheÔdecompositionÕ(ibid.,p.156)ofthecapitalisticsociety.Suchananalysisclearlymovesalongtheborderlinebetweeneco-nomics,sociologyandpoliticalsciences,butthisisnotasufÞcientreasontoconsideritalientotheÞeldofscientiÞcresearch;onthecontrary,pre-ciselyinvirtueofitsinterdisciplinarynatureitstillconstitutesanimpor-tantreferencepointforreßectionsonthepossiblepathsofevolutionofmarketeconomies.5.ThepathofeconomicscienceAfterTheessenceandtheprinciplesofeconomictheoryandafterThetheoryofeconomicdevelopment,thethirdgreatworkoftheyoungSchumpeterisalongessaypublishedin1914,onEpochsinthehistoryofdoctrinesandmethods.Inthiswork,Schumpetersetoutnotonlytoretracethepathfollowedbyeconomicenquiryfromthebeginningtohisowntimes,butalso,andmainly,tointerpretthepath,orinotherwordstoofferatheoryofthedevelopmentofeconomicscience.Similarly,inhismaturity,afterBusinesscyclesandCapitalism,socialismanddemocracy,thethirdgreatworkistheHistoryofeconomicanalysis,leftunÞnishedandpublishedposthumouslyin1954.(AnotherimportantcontributioninthisÞeldisthevolume,publishedposthumouslyin1951,Tengreateconomists:fromMarxtoKeynes,whichcollectedbiographicalessayswrittenindifferentperiods.)Again,havingmovedforwardinhisanalysisofcapitalismanditsprospects,Schumpeterfelttheneedtoturnhismindtothepathfollowedbyeconomicscience.Inthiscase,however,thedimensionsoftheworkaffordedhimthescopetopursueatwofoldobjective:bothahistoryofeconomicanalysis,inthetraditionalsenseofillustratingthepathfollowedbyeconomicenquiries,andatheoryofthishistory,inthesenseofinterpretationofthepath,aswesawabovereferringtotheEpochs.WithhishistoricalenquirySchumpeter(1954,p.6)alsosetouttotackleanepistemologicalissue:tostudyÔwhatmaybecalledtheprocessoftheFiliationofScientiÞcIdeasÐtheprocessbywhichmenÕseffortsto

432TheWealthofIdeasunderstandeconomicphenomenaproduce,improveandpulldownana-lyticstructuresinanunendingsequenceÕ.Thestudyofsuchaprocessisanessentialpartoftheefforttopushscienceahead:Schumpeterconsid-eredsimplisticthethesisthatÔcurrentwork[…]willpreservewhateverisstillusefuloftheworkofprecedinggenerationsÕ(ibid.,p.4),andmain-tained,onthecontrary,thatÔwestandtoproÞtfromvisitstothelumberroomprovidedwedonotstaytheretoolongÕ(ibid.;thequaliÞcationseemsironicalifweconsiderthesheermagnitudeofhiseffort).ThereasonwhytheÔvisitstothelumberroomÕareusefuldoesnotresideinthefactthatÔtoalargeextent,theeconomicsofdifferentepochsdealwithdifferentsetsoffactsandproblemsÕ(ibid.,p.5);infact,fortheÞeldofeconomicanalysisSchumpetersawnogoodreasontostressthehistoricallyrelativenaturetypicalofsocialsciences(althoughherecog-nisedthatÔeconomicanalysisanditsresultsarecertainlyaffectedbyhis-toricalrelativityÕ,ibid.,p.13).Thereasonsinfavourofanenquiryintothehistoryofthetheoreticaldevelopmentsholdforeconomicanalysisasforanyotherscience:ifwelimitourselvestothestudyofthemostrecenttreatise,withoutanyhistoricalreßectionwhatsoever,ÔasenseoflackingdirectionandmeaningÕwillspreadamongthestudents(ibid.,p.4).AccordingtoSchumpeter(ibid.),ScientiÞcanalysis[…]isnotsimplyprogressivediscoveryofanobjectivereality[…]Ratheritisanincessantstrugglewithcreationsofourownandourprede-cessorsÕmindsanditÔprogressesÕ,ifatall,inacriss-crossfashion,notaslogic,butastheimpactofnewideasorobservationsorneeds,andalsoasthebentsandtemperamentsofnewmen,dictate.Theclosinglinesofthequotationstresstheroleofthehumanelement:anelementthatSchumpeteremphasisedinhisbiographicalessays,butthatwasalsorelevantintheEpochsandintheHistory.WemightevensuggestaparallelbetweentheheroinSchumpeterÕstheoryofdevelop-ment,theentrepreneur-innovator,andtheeconomistwhocontributestotheprogressofherorhisscience.Instudyingthezigzagpathofeconomicscience,Schumpeterfocusedattentionontheoriesandanalyticaltools,leavingasidevisionsoride-ologies,orÔsystemsofpoliticaleconomyÕ.15Indeed,itisonlywhenwe15Schumpeter1954,p.38,explicitlystressedhischoicetoproduceaÔhistoryofeconomicanalysisÕ,notahistoryofÔsystemsofpoliticaleconomyÕ(thatis,Ôanexpositionofacomprehensivesetofeconomicpoliciesthatitsauthoradvocatesonthestrengthofcertainunifying(normative)principlessuchastheprinciplesofeconomicliberalism,ofsocialism,andsoonÕ),norahistoryofÔeconomicthoughtÕ(Ôthatis,thesumtotalofalltheopinionsanddesiresconcerningeconomicsubjects,especiallyconcerningpublicpolicybearinguponthesesubjectsthat,atanygiventimeandplace,ßoatinthepublicmindÕ).

JosephSchumpeter433succeedinisolatingtheanalyticalaspectineconomicenquiriesfromtheelementsofvisionandideologyÐSchumpetermaintainedÐthatwecanspeakofÔÒscientiÞcprogressÓbetweenMillandSamuelsonÕinÔthesamesenseinwhichwemaysaythattherehasbeentechnologicalprogressintheextractionofteethbetweenthetimesofJohnStuartMillandourownÕ(ibid.,p.39).Aswaspointedoutinchapter1,accordingtoSchumpetertheana-lyticalworkdoesnotconsistsolelyinworkingoutformaltheorems,butalsoinworkingoutaconceptualapparatusfortherepresentationofreal-ity,andindeedthislatteraspectcomesÞrstinimportance.Aswesaw,ÔconceptualisationÕconstitutesthesecondstageofresearchwork,afterthepre-analyticalstageinwhichtheproblemtobetackledandthedirec-tionofanalysisaremoreorlessvaguelydeÞned,andbeforethestageofconstructionofformalmodels.Letusnowturntoanotherquestion:whatinterpretativelinedoweÞndrunningthroughSchumpeterÕsresearchesonthehistoryofeco-nomicthoughtandeconomicanalysis?ToanswerthequestionletusstartfromsomeanomalousevaluationsoftheAustrianeconomist:hisadmirationforAristotleandtheScholastics(ofwhomhesaid:ÔitistheywhocomenearerthandoesanyothergrouptohavingbeentheÒfoundersÓofscientiÞceconomicsÕ:ibid.,p.97),hisunderestimationofSmithÕscontribution,16andhispositiveappraisalofbothMarxandWalrasatthesametime.Thereisaparallelherewithhismethodolog-icalliberalism,andwithhisideathatweshouldstudyastwodistinctaspectsequilibrium(Walras)andeconomicdevelopment(Marx);simi-larly,concerningtheScholasticswemayrecall(asStolper1951,p.176does)ÔthebeliefthatonecouldunderstandBeingonlybysimultaneouslyunderstandingitsOrderandMotionÕ.However,thisisonlyoneamongtheinterpretativelinesthatSchumpeterofferedinhishistoricalreconstruction.Anotherimportantinterpretativeline,explicitlyindicatedbyhim,isthatwhichidentiÞedinthechainÔphysiocratsÐSmith-JohnStuartMillÐneoclassicaltheoryÕthedominantlineofdevelopmentineconomicresearch.Schumpetercon-trastedwiththischaintheRicardoÐMarxline,consideredadeviationalongwhichsightislostofthecentralroleplayedbydemandandsup-plyinthedeterminationofequilibrium,andofthefactthattheissueof16ÔTheWealthofnationsdoesnotcontainasingleanalyticidea,principle,ormethodthatwasentirelynewin1776Õ(Schumpeter1954,p.184;italicsintheoriginal).SchumpeterÕsstatementseemstorepeat,withasomewhatexcessivegeneralisation,aremarkmadebyMarx(1867Ð94,vol.1,p.367n.):ÔAdamSmithdidnotbringforwardasinglenewpropositionconcerningthedivisionoflabour.Õ

434TheWealthofIdeasincomedistributioninessenceconcernsdeterminationofthepricesofproductivefactors.17Acentralelementinthechainconnectingtheclassical(includingDavidRicardo,inthisrespect)totheneoclassicaleconomistsisconstitutedbythenotionofhomooeconomicus:Theconsciouswilloftheindividual,ßeeingfrompainandseekingsatisfaction,isthescientiÞcnucleusofthisstrictlyrationalistandintellectualistsystemofphilos-ophyandsociologywhich,unsurpassedinitsbaldness,shallownessanditsradicallackofunderstandingforeverythingthatmovesmanandholdstogethersociety,waswithacertainjustiÞcationalreadyanabominationtothecontemporariesandtoanevenlargerextenttolatergenerationsinspiteofallitsmerits.18TheAustrianeconomistwasimplicitlysuggestingherewhatinotherwritingsbecamehiscentralcontribution:thepossibilityofadifferentÐandmoreattractiveÐviewoftheeconomicagent,namelytheactiveÞgureoftheentrepreneur-innovator(andofthebanker).Aswasthecasewithmanytheoreticians(beginningwithSmithinbookIVoftheWealthofnations),sotooforSchumpeterreconstructionofthehistoryofeconomicthoughtwasinasensepartofhistheoreticalcontribution,inthetwofoldsenseofclarifyingitsmethodologicalandconceptualfoundationsthroughcontrastsandanalogies,whilestressingtheinnovativequalitiesmarkingitoutfromthewholeoftheprevioustradition.17TheinterpretativelineadoptedbySchumpeterisclearlyquitedifferentfromthelinetakeninthepresentvolume.18Schumpeter1914,p.87;cf.alsop.97andpp.177Ð8.

16PieroSraffa11.Firstwritings:moneyandbankingPieroSraffa(1898Ð1983)isoneoftheleadingintellectualsofthetwenti-ethcentury:notonlyforhisstrictlyeconomiccontributions,butalsoforhisinßuenceonothers,fromAntonioGramscitoLudwigWittgenstein.IntheÞeldofeconomicsciences,SraffaÕsculturalprojectisanextremelyambitiousone:ÔtoshuntthecarofeconomicscienceÕinadirectionoppositetothatindicatedbyJevons,oneoftheprotagonistsoftheÔmarginalistrevolutionÕ.Withhiswritings,infact,Sraffaaimstoexposetheweakpointsofthemarginalistapproachasdevelopedby,forinstance,Jevons,Menger,Walras,Marshall,B¬ohm-Bawerk,HayekandPigouandatthesametimetoreproposetheclassicalapproachofAdamSmith,DavidRicardoand,incertainrespects,KarlMarx.Inordertobetterunderstanditsnatureandimpact,itmaybeusefultofollowthegradualdevelopmentofthisculturalproject,fromtheÞrstwritingsonmoneyandbankingtotheeditionofRicardoÕsworksandthesmallbutdensevolumeonProductionofcommoditiesbymeansofcommodities(1960).PieroSraffawasborninTurinon5August1898.Hisfather,AngeloSraffa(1865Ð1937),wasawell-knownprofessorofcommerciallawandsubsequently(from1917to1926)DeanoftheBocconiUniversityinMilan.Followinghisfatherashemovedfromoneuniversityseattoanother,theyoungSraffastudiedinParma,MilanandTurin.Hereheattendedtheclassicallyceum(attheLiceoDÕAzeglio,aforgeofanti-fascistyouth)andthen(since1916)thefacultyoflaw.FromMarch1917toMarch1920hedidhismilitaryservice;inNovember1920hegraduatedwithadissertationonLÕinßazionemonetariainItaliaduranteedopolaguerra(MonetaryinßationinItalyduringandafterthewar),discussedwithLuigiEinaudi.21Inthefollowingpagestheresultsofpreviousworksaresummarised;thereaderisreferredtothemforawidertreatmentoftheissuesdiscussedinthischapter:cf.Roncaglia1975,1983b,1990a,2000.2LuigiEinaudi(1874Ð1961),apragmaticliberal,professorofpublicÞnanceatTurinsince1902,memberoftheSenatesince1919,withdrewfrompubliclifeunderfascismandwas435

436TheWealthofIdeasThedegreedissertationalsoconstitutedhisÞrstpublication(Sraffa1920).Therapidincreaseinpriceswasassociatedwiththeexpansioninthecirculationofmoney,inlinewiththedominanttraditionofthequantitytheoryofmoney.However,SraffaÕsempiricalanalysisdiffer-entiateditselfpragmaticallyfromthequantitytheoryofmoney(inthethendominantFisherianversion),toconsiderthediverseevolutionofdifferentpriceindexes,themeaningsofwhichwereconnectedtothedifferentviewpointsofthevariousgroupsofprotagonistsofeconomiclife,inparticularthesocialclassesofworkersandentrepreneurs.Implicitinthispositionwastheideathatageneralpriceindex(acrucialnotionnotonlyfortheFisherianversionofthequantitytheoryofmoney,butmoregenerallyforalltheoriesthatconceivemoneysimplyasaÔveilÕ,withnoinßuenceonrealvariables)ismisleadingpreciselyinthatitobscuresthecentralroleofsocialconßictsineconomiclife.3Thispointisworthstressingsince,aswesawabove(14.3),itwaspreciselythenon-univocalnatureoftheconceptofthegeneralpricelevel(andthusofitsinverse,thepurchasingpowerofmoney)thatunderlayKeynesÕscriticismofthequantitytheoryofmoneyintheopeningchaptersofhisTreatiseonmoney(Keynes1930).ThemostsigniÞcantoriginalcontributionofferedbySraffaÕsthesis,anyhow,liesinthedistinctionbetweenstabilisationoftheinternalandinexiletoSwitzerlandduringtheÞnalstagesoftheSecondWorldWar;hethenbecameGovernoroftheBankofItalyin1945,ministerforthebudgetin1947,andpresidentoftheItalianRepublic(1948Ð55).OnhimseeFaucci1986.Herewelimitourselvestorecallingtwoaspects:hispolicyÐaverydrasticone,andcrownedwithsuccessÐofstabilisationoftheinternalvalueofthelirain1947Ð8;andhiscontroversywithCroceontherelationshipbetweeneconomicandpoliticalliberalism.Onthislatterissuecf.CroceandEinaudi1957;thewritingsbyCrocetowhichwereferdatefrom1927,thosebyEinaudidatefrom1928and1931.EinaudiandCroceagreedonthefactthateconomicliberalismcannotbeanabsolutetenet,differentlyfrompoliticalliberalism,butonlyapracticalrule.However,Einaudistressedtheinstrumentalroleofeconomicliberalisminfavouringthediffusionofeconomicpower(thatotherwisewouldbeconcentratedinthehandsofthestate,orofthepoliticalelite).Thefactremainsthatnoonecouldcallhimselfaliberalifhewereexclusivelyinterestedinthemostwidespreadlaissez-faireintheeconomicarena.Thoughholdingconservativeviews,Einaudithusopenedthewaytothedevelopmentofareformistorsocialistliberalism,suchasthatofPieroGobetti,CarloandNelloRosselli,andthepoliticalmovementÔJusticeandfreedomÕ(Giustiziaelibert`a).Sraffa,asastudentattheDÕAzeglioLyceumandacousinoftheRossellibrothers,participatedinthisculturalclimateand,thoughorientedtowardsGramsciÕsMarxism,alwayshadverygoodrelationswithmanyprotagonistsofthedemocraticstreamsofanti-fascism.3Inasimilardirectionwent,afewyearslater,oneofthecritiquesthatSraffa(1932)developedofHayek.AccordingtothetheoryofforcedsavingsutilisedbyHayek,aperiodofinßationmaycorrespondtoanaccumulationofcapitalquickerthanwhatisjustiÞedbythebasicparametersoftheeconomy,butthesystemthenautomaticallygoesbacktoitslongperiodequilibriumthroughadeßationaryprocess.Incriticisingthistheory,Sraffastressedthatthere-establishmentofasituationofmonetaryequilibriumdoesnotbringbackeachindividualeconomicagenttotheinitialconditions.

PieroSraffa437theexternalvalueofmoney,orinotherwordsbetweenstabilisationoftheaveragelevelofdomesticpricesandstabilisationoftheexchangerate.Thetwothingscoincide,accordingtothetraditionaltheoryofthegoldstandard;however,atleastinprincipletheyshouldbekeptseparate.Thedistinctionbecomesessential,then,whenconsideringbothshortrunproblemsandinconvertiblepapermoneysystems.Suchadistinctionthushadcrucialimportanceforthepolicychoicesofthetime.4Moreover,itwasalsoconnectedtothedevelopmentofKeynesiantheory:wemayrecall,infact,thatKeynesdidnotuseitinIndiancurrencyandÞnance(1913),butdidbringitintohisTractonmonetaryreform(1923),havinginthemeantime(inAugust1921)metSraffa.5SraffaÕsearlypublicationsagainaddressedmonetaryissues:anarti-cleof1922intheEconomicJournalonthecrisisoftheBancaItalianadiSconto,andoneonthebankcrisisinItalyÐagainof1922ÐintheManch-esterGuardianSupplementontheReconstructioninEurope.Thetwoarticlesrevealathoroughcommandoftheinstitutionalandtechnicalaspectsofbanking(probablythanksatleastinparttothepracticalexperiencetheyoungSraffahadacquiredinaprovincialbranchofabankimmediatelyaftergraduating)andastrikinglywell-informedapproachandawarenessoftheinterestsatstake.TheÞrstofthesetwoarticles(Sraffa1922a)reconstructedthevicissi-tudesoftheBancaItalianadiScontofromitsbirthattheendof1914toitsbankruptcyinDecember1921.Sraffaconcludedwithsomepessimisticremarksontherisksinvolvedindirectrelationsbetweenbanksandenter-prises,ontheinevitabilityofsuchrelationsgiventhebackwardnessofItalyÕsÞnancialmarketsandonthedifÞcultyofbringingaboutachangeinthesituation,dueintheÞrstplacetoalackofrealwillatthepolit-icallevel.6Thesecondarticle(Sraffa1922b)highlightedtheweaknessofItalyÕsthreeleadingcommercialbanks(BancaCommerciale,CreditoItalianoandBancadiRoma),castingseriousdoubtsonthecorrectnessoftheirofÞcialaccountsandoftheinstitutionalexpedient(resortingtoaÔConsorziopersovvenzionisuivaloriindustrialiÕ)adoptedtoside-stepthelawsettinglimitsonthesupportissuingbankscouldgivetocommercialbanks.74Cf.DeCecco1993;CioccaandRinaldi1997.5AmongotherthingsSraffawastheeditoroftheItalianeditionoftheTract,publishedin1925underthetitleLariformamonetariabytheFratelliTrevespublishersinMilan.KeynesandSraffametinCambridgeinAugust1921:SraffainthatperiodwasstayinginLondonforafewmonths,attendingcoursesattheLondonSchoolofEconomics.6Explicitinthissensewastheconclusionofthearticle:ÔButeveniftheselawswerenotfutileinthemselves,whatcouldbetheiruseaslongastheGovernmentispreparedtobetheÞrsttobreakthemsosoonasitisblackmailedbyabandofgunmenoragroupofboldÞnanciers?Õ(Sraffa1922a,p.197).7ThepublicationofthisarticleprovokedaharshreactionfromMussolini:cf.Roncaglia1983bandNaldi1998c.

438TheWealthofIdeasMonetaryissuesweresubsequentlytore-emergeamongSraffaÕsinter-ests.Abrief,bitingattackonanarticleinPopolodÕItaliaonthemove-mentsoftheexchangerateofthelirawaspublishedinPieroGobettiÕs(1901Ð26)Rivoluzioneliberalein1923;twoimportantlettersonthereval-uationofthelirawerepublishedbyAngeloTasca(1892Ð1960)inStatooperaioin1927;from1928to1930SraffagavecoursesatCambridgeUniversityontheItalianandGermanÞnancialsystems,alongwithhismorecelebratedlecturesonthetheoryofvalue.The1932controversywithHayek,towhichweshallreturn,wasalsoaboutproblemsinmone-tarytheory.Apartfromtheirintrinsicvalue,SraffaÕsÞrstpublicationsstandasatestimonialtohispersonalityasanall-roundeconomist,inwhomthedominantinterestinpuretheorywasaccompaniedbyasolidknowledgeoftheinstitutionaldetailsandbyexemplaryanalysesofspeciÞcreal-worldissues.2.FriendshipwithGramsciInMay1919,attheUniversityofTurin,SraffametAntonioGramsci(1891Ð1937).TheywereintroducedbyUmbertoCosmo(1868Ð1944),whohadbeenSraffaÕsteacherofItalianliteratureatuppersecondaryschool,andGramsciÕsteacherattheuniversity.In1919GramscifoundedLÕordinenuovo(Theneworder);Sraffacollaboratedwithsometransla-tionsfromGermanandthreeshortarticleswhichhesentfromLondonontheoccasionofhisvisittherein1921.Thesameyearof1921sawthefoundationoftheItalianCommunistPartyinLivorno;Gramscibecameitssecretaryin1924.Sraffaneverjoinedtheparty,fullymaintaininghisindependenceofviews,whilekeepingupacloseintellectualrelationshipwithhisfriend.AnimportantpieceofevidencedocumentingthetwofriendsÕpoliti-calexchangesisofferedbyaletterfromSraffathatGramscipublished(unsigned,initialledS.)intheApril1924issueofLÕordinenuovowithhisreply(GramsciandSraffa1924).InhisletterSraffastressedthefunctionplayedbybourgeoisforcesofoppositioninthestruggleagainstfascismandtheimportanceofdemocraticinstitutionsforthesocialandpoliticaldevelopmentoftheproletariat.InSraffaÕsopinion,inthesituationofthetime,characterisedbytheriseofafascistdictatorship,theworkingclasswasabsentfromthepoliticalscene.TheunionsandtheCommunistPartywereincapableoforganisingpoliticalaction,whiletheworkerswerecompelledtofacetheirproblemsasindividuals,ratherthanasorganisedgroups.ÔThemainissue,takingÞrstplaceoveranyother,isoneofÒfree-domÓandÒorderÓ:theotherswillcomelater,butfornowtheycanbe

PieroSraffa439ofnointeresttotheworkers.Nowisthetimeforthedemocraticforcesofopposition,andIthinkwemustletthemactandpossiblyhelpthemÕ(ibid.,p.4).Inhisanswer,GramscirejectedSraffaÕssuggestions,maintainingthattheywouldbringtheliquidationoftheCommunistParty,subjectedasitwouldhavebeentothestrategyofthebourgeoisforcesofopposition,andcriticisedhisfriendforÔhavingsofarfailedtoridhimselfoftheideo-logicalresidueofhisliberal-democraticintellectualbackground,namelynormativeandKantian,notMarxistanddialecticalÕ(ibid.).Weshouldkeepinmind,though,thatGramsciÕspositionnecessarilymirroredthattakenbyAmadeoBordiga,thensecretaryoftheCommunistParty:apartyinwhichtheprincipleofcentralistleadershipprevailed,withtheexclusionofanydissentfromtheofÞcialpartyline.Indeed,theveryfactthatSraffaÕsletterwaspublished,probablyafterheart-searchingdiscussionsbetweenthetwofriends,amountedtoarecognitionoftheimportanceoftheproblemstherediscussedandofthepoliticalideasproposedbytheyoungeconomist.TotheseideasGramscidrewattention,displayinggreateropennesstowardsthem,inaletterreservedforcomradesclosertohisposition,andthuslesssubservienttotheBordigaorthodoxy.8TheepisodesuggeststhatSraffaplayedsomeroleinthedevelopmentofGramsciÕspoliticalthinking,awayfromBordigaÕsline,atleastawayfromtheideaofthetotaloppositionoftheCommunistPartytoalltheotherpoliticalforcesforthesakeoftheBolshevikRevolution.Yearslater,GramsciÕspoliticalreßectionsappearedclosetothepositionSraffahadtakenupasearlyas1924,whenGramsciinturnproposedapactbetweentheanti-fascistpoliticalforcesforthereconstructionofademocraticItalyafterthehoped-forfallofthefascistregime.Indeed,wemayconsidersigniÞcantinthisrespectthefactthat,apparentlyintheirlastmeetinginMarch1937,itwastoSraffathatGramscientrustedaverbalmes-sageforthecomradesstillenjoyingfreedom,andonethatheattachedgreatimportancetoÐthewatchwordfortheconstituentassembly,whichsynthesisedtheproposalhintedatabove.Alongwiththisfundamentalpointinthepoliticaldebate,wemustalsorecallthehelpSraffagaveGramsciafterhisarrestin1926.Itwashewhotookpainstogetbooksandmagazinestohisfriendinprison;itwashewhoexploredthepossiblepathstofreedom(onthebindingcondition,thatGramsciinsistedon,andwhichSraffaadheredto,thatnoconcessionsbemadetothefascistregime,suchasapetitionforpardonwouldhaveimplied);itwashewholiaisedwithcommunistleadersin8Cf.Togliatti1962,pp.242ff.

440TheWealthofIdeasexileandgaveGramscifurtherfoodforthought(throughthelatterÕssister-in-law,TatianaSchucht)inthereßectionsthatweretotakeshapeintheQuadernidelcarcere.SomedocumentationoftheseactivitiescannowbefoundinaposthumouslypublishedvolumeoflettersfromSraffatoTatiana(Sraffa1991).3.CriticismofMarshalliantheoryThus,intheyearsfollowinggraduationSraffaÕsinterestsrangedfrompoliticstoquestionsofappliedeconomics,inparticular,monetaryeco-nomics.Hisinterestintheoreticalissuesprobablydevelopedafterthebeginningofhisacademiccareer,inNovember1923,aslecturerinpolit-icaleconomyandpublicÞnanceattheUniversityofPerugia,FacultyofLaw.Wemayhypothesisethat,havingtogiveageneral,introduc-torycourseoflecturesinpoliticaleconomy,SraffafoundhimselfhavingtoconfronttheacademicframeworkthendominantinItaly,namelymarginalismintheMarshallianversionofMaffeoPantaleoni(cf.above,13.6),whomSraffahimself(1924,p.648),inabeautifulobituary,calledÔtheprinceof[ItalyÕs]economistsÕ.ThefruitsofSraffaÕsreßectionsÐaradicalcritiqueoftheMarshalliantheoryoftheequilibriumoftheÞrmandtheindustryÐweresetoutinalongarticlepublishedinItalianin1925,ÔSullerelazionifracostoequantit`aprodottaÕ(Ontherelationsbetweencostandquantitypro-duced).FiveyearshadpassedsincepublicationoftheeightheditionofMarshallÕsPrinciplesofEconomics,andoneyearsincehisdeath.SraffaÕsarticlefellwithinadebateontheÔlawsofreturnsÕsparkedoffbyapaperbyJohnHaroldClapham(1873Ð1946)publishedin1922intheEconomicJournal.ThepointinquestionwasofvitalimportancefortheMarshalliantheoreticalconstructionandmoregenerallyforthetheoriesofvaluebasedonequilibriumbetweendemandandsupply.Withinthisapproach,inparticularwithintheMarshallianmethodofpartialequi-libriums,adecisiveroleisplayedbyconstructionofasupplycurveforeachproduct,expressingproductioncostsasafunctionofthequan-tityproduced,bothfortheindividualÞrmandfortheindustryasawhole.Marshalliantheorysingledoutthreecasesaccountingforalleventualities:constant,increasingordecreasingreturns,accordingtowhethertheaverageunitcostremainsconstant,decreasesorincreaseswhenthequantityproducedincreases.Clapham,aprofessorofeconomichistory,tackledtheproblemoftheconcreteapplicationofthesetheoreti-calcategories,andcametoaprovocativeconclusion:thetheoreticalappa-ratusunderconsiderationissterile,sincethethreecategoriesofconstant,

PieroSraffa441increasinganddecreasingcostsareÔemptyeconomicboxesÕ(thiswasalsothetitleofhisarticle),impossibletoÞllwithconcreteexamplesofrealindustries.ClaphamÕsarticleprovokedimmediateresponse,withanarticleinthefollowingissueoftheEconomicJournalbyArthurCecilPigou,paladinofalineofMarshallianorthodoxythathadledtotheÔgeometricalmethodÕofdemandandsupplycurvesfortheÞrmandtheindustry,fortheshortandthelongperiod.Thisconstruct,aswesawabove(13.3and13.7),didnotfullycorrespondtoMarshallÕsviewoftheworld;infact,walkingatightroperichinambiguitiesandcorrectionsofdirection,insubse-quenteditionsofhisPrinciplesMarshallhadattemptedtoreconcileanevolutionary,andthusintrinsicallydynamic,conceptionwithananalyt-icalapparatusbasedontherequirementofequilibriumbetweensupplyanddemand,andthusnecessarilystatic.GreaterÞdelitytoMarshallÕsideaswasshownbyDennisRobertson(1890Ð1963),whoinacontribu-tiontothedebate(Robertson1924)raisedfurtherdoubtsaboutPigouÕsanalyticalapparatus.InthefollowingyearsthedebatewentonintheEconomicJournal,withcontributions,amongothers,byAllynYoung,ArthurCecilPigou,LionelRobbins,GeraldShove,JosephSchumpeterandRoyHarrod.9Withhis1925article,SraffajoinedthedebateClaphamhadbegunbyarguingthattheproblemoftheÔemptyboxesÕdoesnotconcernhowtoapplythecategoriesofconstant,increasinganddecreasingreturnstorealsituations,butrathertheexistenceoftheoreticalinsurmountabledifÞcultieswithinthetheoryofÞrmandindustryequilibrium.Underlyingallthis,Sraffapointedout,therewasaconceptualconfusion:inclassical9AllynYoung(1876Ð1929)wastheauthor,in1928,ofanimportantcontributiononÔIncreasingreturnsandeconomicprogressÕ,buthisinßuenceonthedevelopmentofeconomicthoughtwasoftenanindirectone;forinstance,thecelebratedbooksbyKnight(1921)andChamberlin(1933)werebornasdoctoraldissertationsunderhissupervision.GeraldShove,MarshallÕspupil,notwithstandingthefewpageshehadpublished,wasaninßuentialmemberoftheÔCambridgeschoolÕ.LionelRobbins(1898Ð1984)dominatedtheLondonSchoolofEconomics(wherehewasaprofessorfrom1929)inthecentraldecadesofthetwentiethcentury;asupporterofHayekagainstKeynes,heparticipatedasaprotagonistinthepolicydebatesoftheperiod;from1960hewaschairmanoftheFinancialTimes;hisbest-knownworkisAnessayonthenatureandsigniÞcanceofeconomicscience(1932),famousforhisdeÞnitionofeconomics(ÔeconomicsisthesciencewhichstudieshumanbehaviourasarelationshipbetweenendsandscarcemeanswhichhavealternativeusesÕ:ibid.,p.16),buthewasalsotheauthorofimportantworksinthehistoryofeconomicthought.Healsohadimportantrolesasartsadministrator(atsuchinstitutionsastheNationalGalleryandtheRoyalOperaHouse),andchairedtheCommitteeonHigherEducationwhichproduced,in1963,theso-calledÔRobbinsReportÕ,withfar-reachingproposalsfor,amongotherthings,astrongexpansionofuniversityeducationwhich,Robbinsmaintained,couldtakeplacewithoutaloweringofthestandards(ontheseexperiences,cf.Robbins1971,pp.241Ð67and272Ð83).OnPigou,SchumpeterandHarrodcf.respectively13.9,chapter15and17.6.

442TheWealthofIdeaspoliticaleconomytheÔlawÕofdecreasingreturnswasassociatedwiththeproblemofrent(namely,withthetheoryofdistribution),whiletheÔlawÕofincreasingreturnswasassociatedtothedivisionoflabour,orinotherwordsgeneraleconomicprogress(namely,withthetheoryofproduc-tion).MarshallandotherneoclassicaleconomiststriedtoputthesetwoÔlawsÕonthesameplane,co-ordinatingtheminasingleÔlawofnon-proportionalreturnsÕ.Theywerethusabletoexpresscostsasafunctionofthequantityproduced,forÞrmandindustryalike,andthentousethesefunctionsinthetheoryofprices.Wethusgetasupplycurveforeachprod-uct,tobesetagainstthecorrespondingdemandcurvededucedfromtheÔlawÕofdecreasingmarginalutility(whereeachofthesetwocurvesÔmaybecomparedtoonebladeofapairofscissorsÕ,asMarshall1890,p.820,said).However,thismeanttransposingincreasinganddecreasingreturnstoanambitdifferentfromtheoriginalones;andthisfactmadeitdifÞculttoapplyinthenewambitthejustiÞcationsoriginallyusedtoaccountforthevariationsincostsfollowingfromthevariationsinthequantitiespro-duced.SraffaillustratedthesedifÞcultiesanalysingtheliteratureonthesubject.Inparticular,Sraffastressedthatdecreasingreturnsareconnectedtochangesintheproportionsoffactorsofproduction,whileincreas-ingreturnsstemfromexpandingproductionandincreasingdivisionoflabour.TheformercaseÐdecreasingreturnsÐoccurswhenafac-torofproductionisscarce.Now,unlessweidentifytheindustrywithalltheÞrmsusingascarcefactor,variationsinaveragecostassociatedwithincreasedproductionintheindustryunderconsiderationwillbeofthesameorderofmagnitudeasvariationsincostssimultaneouslyexpe-riencedbyotherindustriesusingthesamefactorofproduction.Theceterisparibusassumptionthatunderliespartialequilibriumanalysisisthusviolated.Asforincreasingreturns,theycannotbepresentatthesametimeinboththeindustryandtheÞrmswithinit,sinceotherwiseÞrmswouldgoonexpanding,untiltheyreachasizeincompatiblewiththeassumptionofcompetition;norcantheybefoundinvariousindustriesatthesametime,otherwisetheceterisparibusclausewouldbebreachedonceagain.Marshall,wellawareofthis,haddevelopedthecategoryofeconomiesofproductionexternaltotheindividualÞrmbutinternaltotheindustry;generalisingsuchacategorymighthaveensuredconsistencybetweenincreasingreturns,theassumptionofcompetitionandthepartialequilib-riummethod.However,Sraffa,withgoodreasons,consideredsuchagen-eralisationtobewhollyunrealistic.Inconclusion,thetheoreticalbuildingoftheMarshalliantraditioncannotcomplywiththerequirementoflog-icalconsistencyexceptbyrecoursetounrealisticadhocassumptions,

PieroSraffa443thatobviouslyconstituteawhollyinadequatefoundationforatheorydesignedforgeneralinterpretativeapplication.4.ImperfectcompetitionandthecritiqueoftherepresentativeÞrmSraffaÕs1925ItalianpaperattractedtheinterestofEdgeworth,co-editorÐtogetherwithKeynesÐoftheEconomicJournal.AtthesuggestionoftheÞrstofthetwoco-editors,thesecondaskedSraffaforanarticlefortheirreview,andtheyoungItalianeconomistwasreadyandhappytoaccepttheiroffer.TheEnglishpaper(Sraffa1926)ismuchshorterthantheItalianone,andcorrespondinglymuchlessrichincollateralelementsofnoticeableimportance;theÞrsthalfofthearticleconsistsofasummaryofthemainpointsintheItalianarticle,whilethesecondhalfelaboratesanorigi-nallineofresearch.Aswealreadysawabove(13.9),theideaisthat,asaconsequenceoftheimperfectionspresentinallmarketsintherealworld,withineveryindustryeachÞrmisconfrontedwithaspeciÞc,neg-ativelysloped,demandcurve,evenwhenmanyÞrmsaresimultaneouslypresentintheindustry.Thereisthusacrucialdifferencewithrespecttothetraditionaltheoryofcompetition,accordingtowhicheachÞrmshouldconfrontahorizontaldemandcurve.ThetheorypropoundedbySraffawasthusatheoryofimperfectcompetition,thathadtheadvan-tageofbeingcompatiblealsowiththecasesofconstantorincreasingreturns,andamongotherthingstookovervariousrealworldelementssuggestedhereandthereinMarshallÕswork.However,Sraffastressedthelimitsofthisapproachalreadyintheclosinglinesofhisarticle.HeremarkedinfactÔthatintheforegoingthedisturbinginßuenceexercisedbythecompetitionofnewÞrmsattractedtoanindustrytheconditionsofwhichpermitofhighmonopolistproÞtshasbeenneglectedÕ.Basically,thismeantneglectingcompetitionintheclassicalsenseoftheterm,con-sistingintheshiftingofcapitalfromonesectortoanotherinpursuitofthemaximumreturns.InthefollowingyearsthetheoryofimperfectcompetitionconstitutedaßourishingÞeldofresearch(cf.above,13.9).Sraffahowever,thoughoriginatingthislineofresearch(stillinßuentialtoday),soonabandonedit.Asalreadysaid,itwasbasedonanotionofcompetitionÐtheoneonwhichthemarginalistapproachfocusedattention,connectedtothepresenceofmanyÞrmsinthesameindustryÐthatwasquitedifferentfromthenotiondevelopedbyclassicaleconomists,concerningthefreemovementofcapitalsamongthevarioussectorsoftheeconomy.ItwasinfacttheconclusionofSraffaÕs1926paperthatpavedthewayforthe

444TheWealthofIdeasmodernnon-neoclassicaltheoryofnon-competitivemarketforms,andinparticularPaoloSylosLabiniÕs1956theoryofoligopoly,basedonthepresenceofobstaclestotheentryofnewÞrmsintotheeconomicsectorunderconsideration.10Theclassicalnotionofcompetition,furthermore,constitutedthebasisforthelineofresearchthatSraffawasalreadydevel-opinginaÞrstdraft(discussedwithKeynesin1928)ofhis1960bookonProductionofcommoditiesbymeansofcommodities.SraffaÕsradicaldeparturefromthetraditionalframeworkofthethe-oryoftheÞrmandtheindustrywasthenevidentinhiscontributionstothesymposiumonÔIncreasingreturnsandtherepresentativeÞrmÕpub-lishedintheEconomicJournalinMarch1930.Theconclusionofthesebriefcontributionswasaclear-cutbreakwiththethenmainstreamviews:ÔMarshallÕstheory[…]cannotbeinterpretedinawaywhichmakesitlogicallyself-consistentand,atthesametime,reconcilesitwiththefactsitsetsouttoexplainÕ;thus,ÔIthink[…]that[it]shouldbediscardedÕ(Sraffa1930a,p.93).ItisworthnotingthathereSraffaÕscriticismwasdirectedagainstaver-sionoftheMarshalliantheorymorefaithfultoMarshallÕsownoriginalframeworkthanPigouÕs,namelytheevolutionaryversionRobertsonpre-sentedinhiscontributiontothesymposium(Robertson1930),basedontheconceptoftheÞrmÕsÔlifecycleÕwhichMarshallhademployedinanattempttomakeincreasingreturnscompatiblewiththeÞrmÕscompeti-tiveequilibrium(cf.above,13.3).Likeabiologicalorganism,theÞrmgoesthroughsuccessivestagesofdevelopment,maturityanddecline;theÔrepresentativeÕÞrmishalf-waythroughtheprocessofdevelopment,thusatastageofincreasingreturnstoscale.AsMarshallhimselfpointedout,aconceptofthistype,thatseestheexpansionofÞrmsdependingontheÔlifecycleÕofentrepreneurialcapacities,maybeplausibleinthecaseofdirectlyfamily-runconcerns,butcannotapplytomodernjointstockcompanies.ThusbiologicalanalogiesproveafalseexittotheblindalleyMarshalliananalysishadgotinto,hemmedinbythecontradictionbetweenincreasingreturnsandcompetitiveequilibrium.SraffahadaneasytaskinpointingoutthedeusexmachinanatureofthebiologicalmetaphorsthatRobertsonusedonMarshallÕswake,whichcannotÞllinthegapsinlogicalconsistencyintrinsictotheseanalyticstructures:ÔAtthecriticalpointsofhisargumenttheÞrmsandtheindustrydropoutofthescene,andtheirplaceistakenbythetreesandtheforest,thebones10BaumolÕsÔcontestablemarketsÕtheory,whichtookintoaccounttheÔbarrierstoexitÕconsistinginÔsunkcostsÕtogetherwiththebarrierstoentry(cf.below,17.3),maybeconsideredasavarianttothistheory.

PieroSraffa445andtheskeleton,thewater-dropsandthewaveÐindeedallthekingdomsofnaturearedrawnupontocontributetothewealthofhismetaphorsÕ(Sraffa1930a,pp.90Ð1).5.Cambridge:WittgensteinandKeynesThe1926paperpublishedintheEconomicJournalhadconsiderableimpact,especiallyinCambridge.KeyneswasthusabletoofferSraffaajobaslecturerattheuniversity,whichwasthenthemostprestigiouscentreforeconomictheoryintheworld.In1926SraffawasalsoawardedachairinItaly,atCagliari,butafterGramsciÕsimprisonmentandthethreatshehimselfreceivedasananti-fascist,11hedecidedtomovetoEngland,wherehelivedfrom1927untilhisdeathon3September1983.Aslecturerinaforeignuniversity,SraffawasallowedtoretainhischairinItaly;hedidso,passinghissalarytotheeconomicslibraryofCagliariUniversity.WhenItalianprofessorswerecalledupontoswearloyaltytofascism,heresigned,wishingneithertotakesuchanoathnortodissociatehimselffromthelinechosenbytheCommunistParty,whichwastofulÞlwhatmightbeseenasapurelyformalobligationinordertokeepchannelsofcommunicationopenwiththeyoungergenerations(alinethatmeantapainfulvolte-faceforthefamousLatinist,ConcettoMarchesi,amilitantcommunistwhotooktheoathafterapublicdeclarationthatheneverwould).12AfterayearspentsettlinginCambridge(despitehispreviousstaysinEngland,hisEnglishwasbynomeansperfectwhenhearrived),SraffalecturedforthreeyearsontheGermanandItalianÞnancialsystemsandonthetheoryofvalue.Thislattercoursemadeagreatimpact:Sraffadiscussedthetheoriesofclassicaleconomists,Ricardoinparticular,andthegeneraleconomicequilibriumtheoriesofWalrasandParetoÐlittleofwhichwasknownintheratherprovincialEnglandatthetimeÐaswellasadvancinghisowncriticismsoftheCambridge(MarshallÐPigou)tradition,inparticularthetheoryoftheÞrm.However,SraffaÐwhowasincreasinglyshyofspeakinginfrontofapublic,henceofgivinglessonsaswellÐbecameanassistantdirectorofresearchandÞnallylibrarianoftheMarshallLibraryattheEconomicsFaculty.SincehisarrivalhehadbeenattachedtoKingÕsCollege,whereKeynesreigned;in1939hebecameafellowofTrinityCollege,andremainedsountilhisdeath.InthequietCambridgeenvironment,Sraffadevelopedhisresearchesalongthreelinesconnectedinonegreatculturaldesign:theworkonthecriticaleditionofRicardoÕswritings,entrustedtohimbytheRoyal11Cf.Naldi1998a.12OnSraffaÕsacademicvicissitudes,cf.Naldi1998b.

446TheWealthofIdeasSocietyattheinitiativeofKeynesin1930;researchesintheÞeldofthetheoryofvalue,whichweretoleadafterthirtyyearsÕlabourtoProductionofcommoditiesbymeansofcommodities(Sraffarecalledintheprefaceshow-ingKeynesanoutlineofthecentralpropositionsasearlyas1928);andacollateralinterestinthedevelopmentofKeynesiantheory,inparticularintheearly1930s.Moreover,inCambridgeSraffamadetheacquain-tanceoftheAustrianphilosopherLudwigWittgenstein(1889Ð1951),whobecamehisfriendandonwhomSraffawastohaveasigniÞcantinßuence.SraffametWittgensteinin1929.TheAustrianphilosopherhadjustarrivedinCambridge,calledtherebyBertrandRussell,whoafewyearsbeforehadorganisedthepublicationofabasiccontributiontothedevelopmentofmodernphilosophy,theTractatuslogico-philosophicus(1921).Thisbookisgenerallyconsideredtheculminationoflogicalneo-positivism;Wittgensteinhadconceivedandwrittenitduringthewar,thathehadfoughtÞrstontheRussianandthenontheItalianfronts,andduringabriefperiodofimprisonmentinItalyattheendofthewar.IntheopinionofWittgensteinhimself,hiscontributionshouldhaveconstitutedthepointofarrivalofphilosophicalenquiry;therefore,aftercompletingit,heconsideredthathehadnootherworktodointhephilosophicalÞeld.Awithdrawn,difÞcultcharacter,WittgensteinthenretreatedtoteachinanAustriansmallvillageprimaryschoolandtoworkasamonasterygar-dener.Hiscontactswiththeworldofphilosophicalresearchwerescant:afewlettersandoccasionalmeetingswithBertrandRussellorwiththeyoungFrankRamsey,anotherCambridgephilosopherandmathemati-cianwhowasalsoafriendofSraffaÕs,andwhodiedattheearlyageoftwenty-sixin1930;aboveall,Wittgensteinretainedsomelinkswiththeso-calledViennaCircleanimatedbyMoritzSchlick.ItmaywellhavebeentheViennesediscussionsÐinparticularacel-ebratedlecturebyBrouweronthefoundationsofmathematicsÐthatÞnallypersuadedWittgensteinthatafteralltherewasstillsomeworktobedoneinthephilosophicalÞeld.Thus,earlyin1929WittgensteinarrivedinCambridge,tobecomefellowofTrinityCollegeafterafewmonths;thereheremained,exceptforafewbriefintervals,untilhisdeathinApril1951.WhentheywerebothinCambridge,WittgensteinandSraffagener-allyspentanafternooneachweektogether,talkingnotsomuchabouteconomicsandphilosophydirectlybutratheraboutawiderangeofissues,fromgardeningtodetectivestories.ThesetalkshadacrucialinßuenceontheAustrianphilosopher,andonthetransitionfromthelogicalatom-ismoftheTractatustothematurepositionssetoutinthePhilosophicalinvestigations,publishedposthumouslyin1953.

PieroSraffa447GeorgvonWright,apupilofWittgenstein,reportedhimasoncehavingsaidÔthathisdiscussionswithSraffamadehimfeellikeatreefromwhichallthebrancheshadbeencutÕ(Wright1955,pp.15Ð16).WittgensteinhimselfisstillmoreexplicitinhisprefacetothePhilosophicalinvestigations:ÔIamindebtedto[thecriticism]whichateacherofthisuniversity,Mr.P.Sraffa,formanyyearsunceasinglypractisedonmythoughts.Iamindebtedtothisstimulus[theitalicsareWittgensteinÕs]forthemostconsequentialideasofthisbookÕ(Wittgenstein1953,p.viii).BetweenWittgensteinÕsinitialandÞnalpositionstherewasaclearchange,longthoughtout.WithdrasticsimpliÞcation,letusfocusatten-tiononthemethodologicalresultsthatareofmoredirectinteresttous,evenatthecostofabstractingfromelementsquiteimportantinotherrespects.TheTractatusarguedthattherewasacorrespondencebetweentheworldandtheelementsthatconstituteit(theÔfactsÕ)ontheonehand,andourrepresentationoftheworld(whoseconstituentelementsaretheÔthoughtsÕ,expressedinÔpropositionsÕ)ontheother.OnthisbasisWittgensteinarguedthatitispossibletobuildalogical,axiomaticsetofpropositions,eachdescribingaÔfactÕwhiletogethertheydescribetheworld,orrather,ifnotalltheworld,allthatcanbedescribedinarationalform.Onthatforwhichnorationaldescriptioncanbeprovided(sentiments,religiousbeliefs,aestheticjudgements,etc.),saidWittgen-stein,ÔonemustbesilentÕ.However,inthePhilosophicalinvestigationsWittgensteinabandonedtheideaoflanguageasÔmirroringÕtheworld,andtheideaoftheÔunspeak-ableÕ.DiscussionswithSraffaseemtohaveplayedaroleinthis.ThereisananecdotethatWittgensteinhimselftoldhispupils.Oneday,astheyweretravellingtogetheronthetrainbetweenCambridgeandLondon,ÔSraffamadeagesture,familiartoNeapolitansandmeaningsomethinglikedisgustorcontempt,ofbrushingtheunderneathofhischinwithanoutwardsweepoftheÞngertipsofonehand.ÕThegesturecanonlyacquireaspeciÞcmeaningfromthecontextinwhichitisperformed;thusitcontradictedWittgensteinÕsideathateverypropositionhastohaveapreciseplaceintheaxiomaticorderofrationallanguage,independentlyofthecontextinwhichitmaybeemployed.13Followingthiscritique,inthePhilosophicalinvestigationsWittgensteindevelopedanewtheoryoflanguage,andoftherelationsbetweenit13AccordingtoMalcolm(1958,p.69),whorelatedtheanecdote,theobjectofthediscus-sionwasWittgensteinÕsideaÔthatapropositionandthatwhichitdescribesmusthavethesameÒlogicalformÓ,thesameÒlogicalmultiplicityÓÕ;accordingtovonWright,asMalcolmreportedinafootnote,theobjectofthediscussionwastheideathateachpropositionshouldhaveaÔgrammarÕ.Inaconversationwiththepresentauthor(21December1972),SraffaconÞrmedtheanecdote,tellingmethatvonWrightwasright.

448TheWealthofIdeasandtheworlditshoulddescribe.Thereisnotjustonetypeoflan-guage,Wittgenstein(1953,p.21)asserted,Ôbuttherearecountlesskinds:countlessdifferenttypesofuseofwhatwecallÒsymbolsÓ,ÒwordsÓ,ÒsentencesÓ.AndthismultiplicityisnotsomethingÞxed,givenonceforall;butnewtypesoflanguage,newlanguage-games,aswemaysay,comeintoexistence,andothersbecomeobsoleteandgetforgotten.ÕIngeneral,Wittgensteinwenton,ÔthemeaningofawordisitsuseinthelanguageÕ(ibid.,p.33).However,wordsdonotcorrespondtosimpleelementsofreality,andthesesimpleelementscannotbedeÞned;norisitpossibletoproduceageneraltheoryoflanguage.WittgensteindemonstratedthesetheseswithaseriesofexamplesofÔlanguagegamesÕÐnamely,theoreticalmodelsthatfocusedattentiononparticularaspectsofthereallanguage,presentingthemasthegenerallanguageofagroupofpeople.FromtheseexampleswemayconcludethatÔthereisnot[…]anyuniqueanalysisofpropositionsintotheirintrinsicallyunanalyzableelements.WhatsortofanalysiswillbeusefulandprovidearealclariÞcationdependsonthecircumstances,onjustwhatisproblematicaboutthepropositionsunderexaminationÕ(Quinton1968,p.13).WedonothaveanytextualsupportformaintainingthatSraffaagreedwiththepointofarrivalofWittgensteinÕsreßections.WeonlyknowthattheinitialpositionoftheAustrianphilosopherhadprovokedcriticismsonthesideoftheItalianeconomist,andthatthesecriticismshadplayedacrucialroleinWittgensteinÕssubsequentthinking.PerhapswemayperceiveSraffaÕspoliticalinterestsbehindhisoppositiontoanaprioritheoryoflanguageandhispreferenceforatheoryopentorecognisingtheroleofsocialfactors(theenvironmentinwhichtheÔlinguisticgameÕtakesplace),ofrulesandconventions.Moreover,wemayperhapsalsoperceivehereamethodologicalchoice:therejectionofall-embracingthe-oriesthatpretendtodescribeanyandallaspectsoftheworld,startingfromitselementaryconstitutingelements;thechoiceinsteadofßexibilityintheoreticalconstructions,aimedineachcaseatthespeciÞcproblemunderconsideration.AfterGramsciandWittgenstein,athirdprotagonistoftwentieth-centuryculturetohavefecundexchangewithSraffawasJohnMaynardKeynes,Þfteenyearsolder.KeyneswasagreathelptoSraffaonvariousoccasions:in1921heaskedSraffaforacontributionfortheManchesterGuardianSupplement;in1922hedecidedtopublishintheprestigiousEco-nomicJournalapaperbythethentwenty-four-year-oldItalianeconomist;in1926heaskedÐthoughactingatEdgeworthÕssuggestionÐforthepapercriticisingtheMarshalliantheoryoftheÞrmwhichwastobewritteninafewmonthsandpublishedinthesameyear,intheDecemberissueofthe

PieroSraffa449EconomicJournal;in1927hebroughtSraffatoCambridgeaslecturerandinthefollowingyearshelpedtoestablishhisItalianfriendintheAnglo-Saxonworld;in1930hehadtheRoyalEconomicSocietyentrustSraffawiththetaskofpreparingthecriticaleditionofRicardoÕswritings;andin1940hehadSraffareleasedfromthedetentioncampwhichtheItalianhadbeensenttoasanÔenemyalienÕwhenItalyenteredthewar.TheonlypublicationSraffasignedjointlywaswithKeynes:bothkeenbibliophiles,in1938theyeditedthereprintofanextremelyrarebooklet,Anabstractofatreatiseonhumannature(Hume1938),completewithalearnedintroductioncontainingdecisiveproofsforitsattributiontoHume,ratherthantoAdamSmithaswasgenerallysupposed.14SraffaalsotookcareoftheItalianedition(1925)ofKeynesÕsTractonmonetaryreform.MorerelevanttoourimmediateconcernistheculturalexchangeintheÞeldofeconomictheory.Fourepisodesmayberecalledinthisrespect;wehavealreadyhintedatthreeofthem:thelikelyinßuenceonKeynesofthedistinctionbetweenstabilisationofmoneyinrelationtothelevelofdomesticpricesandinrelationtotheexchangerateproposedbySraffainhisgraduatethesis(cf.above,1);hisparticipationintheÔCam-bridgeCircusÕandmoregenerallyinthedebatesthatstimulatedKeynesÕstransitionfromtheTreatiseonmoneytotheGeneraltheory(cf.above,14.4);andhiscriticalintervention(Sraffa1932)onHayekÕstheory(cf.above,11.6),fromwhichKeynesderivedthetheoryofowninterestratesthatisatthecentreoftheanalysisinchapter17oftheGeneraltheory.ThefourthepisodewasrecalledbySraffahimselfinhisprefacetoProductionofcommoditiesbymeansofcommodities.Sraffa(1960,p.vi)statedthatÔwhenin1928LordKeynesreadadraftoftheopeningpropositionsofthispaper,herecommendedthat,ifconstantreturnswerenottobeassumed,anemphaticwarningtothateffectshouldbegivenÕ.Keyneswastheonlyeconomisttobethankedinthepreface(SraffaÕsthanksalsowenttothreemathematiciansÐRamsey,WatsonandBesicovitchÐand,intheItalianedition,toRaffaeleMattioli,abankerwholongplayedaleadingroleintheBancaCommercialeItalianaaswellasbeingaveryclosefriendofSraffaÕsandamovingforceinthepreparationoftheItalianeditionofthebook).ThepointKeynesintervenedonisoffundamentalimportance,sincetheabsenceofanassumptiononreturnsconstitutesacruciallydistinctivefeatureofSraffaÕsbook,implyingamongotherthingstheabandonmentofthemarginalistnotionofequilibrium(cf.below,14AninterestingpointinthisintroductionconcernsthestresslaidonHumeÕsthesisthatÔÕTisnot[…]reason,whichistheguideoflife,butcustomÕ(Hume1938,p.xxx).

450TheWealthofIdeas7):thusitseemsquitelikelythathisdiscussionswithKeynesplayedanimportantroleinthedevelopmentofSraffaÕsideas.6.ThecriticaleditionofRicardoÕswritingsThedifÞcultieseconomistslikeRobertson(inthe1930symposium)andHayek(inthe1932controversy)hadinunderstandingjustwhatSraffawasaimingat,andmoregenerallyspeakingthewidespreadideaofSraffaasacriticalspiritbutnotreconstructiverevealtheextenttowhichthemarginalistapproachhadencroachedontheclassicaltraditionintheÞrsthalfofthetwentiethcentury.HencetheneedfortherediscoveryoftheclassicalapproachthatSraffapursuedwithhiscriticaleditionofRicardoÕsworks:SraffaÕslong-celebratedphilologicalrigourwasnotanendinitself,butthetoolforacriticalenquiryontheveryfoundationsofpoliticaleconomy.SraffabeganworkonRicardoÕswritingsin1930,andwentonwithitforoveraquarterofacentury,sidebysidewiththetheoreticalworkthatwastoleadtoProductionofcommoditiesbymeansofcommodities.OnceagainitwasKeynes,inhiscapacityasthesecretaryoftheRoyalEconomicSociety,whodeterminedtheassignmenttoSraffaofeditingthecriticaleditionofRicardoÕswritings.Repeatedly,inthefollowingyears,KeynesintervenedtodefendSraffafromthepublisherÕsprotestsatthedelaysinthecompletionofthework.Finally,itwaswithKeynesÕshelpthatSraffastartedameticulousdetectivesearchforthemanuscripts,andthefruitsofthissoonarrived.Alreadyin1930achestcontainingmanyletterswhichRicardoreceivedfromhiscorrespondentswasfoundinthehouseofoneofhisheirs.Manyothersearchesprovedunsuccessful,butstillotherswerefruitful,andSraffasucceededinamassingahugeamountofmaterialthankstowhichhewasabletodrawanextremelyrichandprecisepictureoftheculturalandhumanenvironmentinwhichRicardohadlived.Then,inJuly1943,afterthirteenyearsÕworkandwhensixvolumeswerealreadyatproofstage,anumberofextremelyimportantlettersfromRicardotoJamesMillwerediscoveredinanIrishcastle,togetherwithothermanuscriptsamongwhichwasthefundamentalessayonÔAbsolutevalueandexchangeablevalueÕ,onwhichRicardohadbeenworkingoninthelastweeksofhislife.Theleadproofs,partofwhichhadbeenforyearsinthewarehousesofCambridgeUniversityPress,hadtobemeltedduetochangesintheworkconnectedtotheadditionofthenewmaterial.IntheÞnalstagesofthework,whilepressurefromtheRoyalSocietyandthepublisherwasmounting,SraffawashelpedbyMauriceDobb,aMarxisteconomistandoneofhisbestfriends,whomKeynesandAustin

PieroSraffa451Robinsonsawastheonlyonewhocouldstanduptothemeticulousnessandtheworkinghours(lateintothenight)oftheItalianeconomist.Atlast,between1951and1955,thetenvolumesoftheWorksandcorrespon-denceofDavidRicardoappeared,tobefollowedin1973byapainstakinglycompiledvolumeofindexes.SraffaÕsphilologicalrigourplayedadecisiveroleintherediscoveryoftheclassicaleconomistsÕframework,centredonthenotionofthesurplus,afteracenturyofoblivionandmisleadinginterpretations.LetusrecallthatwhenSraffabeganhisworkthemostcommonlyacceptedinterpre-tationswerethatofMarshall(1890,Appendixi),accordingtowhomRicardowasasomewhatimpreciseandunilateralprecursorofmoderntheory(sincehetakesaccountofthecostofproduction,i.e.supply,butnotofdemand,inthedeterminationofprices),andthatofJevons(intheprefacetothesecondeditionoftheTheoryofpoliticaleconomy),whocon-sideredRicardoresponsibleforperniciouslydivertingeconomicsfromthepathoftruescience.15Fromeitherinterpretation,therewasnorea-sontowastetimeonRicardoÕsworks.Atmost,onecouldhaverecalledhistheoryofrentasforerunneroftheprincipleofdecreasingmarginalproductivity,orhistheoryofmoney,orhistheoryofinternationaltradebasedontheprincipleofcomparativecosts.Nevertheless,expectationsgrewaroundSraffaÕswork.Publicationwassignalledasimminentonanumberofoccasions:byLuigiEinaudiinRiformasocialein1931;byKeynesinhis1933essayonMalthus;bySraffahimselfinalettertoRodolfoMorandiin1934;inhisHistoryofeconomicanalysispublishedposthumouslySchumpeter(1954,p.471)expressedthehopethatÔSomeday,perhaps,wemayseecompletionofProfessorSraffaÕscomprehensiveeditionofRicardoÕsworks,whichwehavebeeneagerlyawaitingthesetwentyyears.ÕSuchexpectationsweremorethanjustiÞed.SraffaÕscriticaleditionofRicardoÕsWorksandcorrespondenceisunanimouslyrecognisedasamodelofphilologicalrigour.ItwasaboveallforthisthatSraffawasawardedin1961thegoldmedaloftheSwedishAcademyofSciences:anhonourthatamongtheeconomistshadbeengivenalsotoKeynesandMyrdal,andthatmaybeconsideredasananticipationoftheNobelprize,awardedonlyfrom1969on.Thewritingspublishedinthisedition,togetherwiththeapparatusofnotesand,aboveall,SraffaÕsintroduction15Inasubtlerway,JacobHollander(1904,1910)spokeofagradualretreatonthesideofRicardofromthelabourtheoryofvaluetowardsatheoryofpricesbasedoncostsofproduction,henceinadirectionopentothemarginalistdevelopmentsconnectedtotheprincipleofdecreasingmarginalproductivity,inturnconsideredasadevelopmentoftheÔRicardianÕtheoryofdifferentialrent.InhisIntroductiontoRicardoÕsPrinciples,Sraffa1951criticisedinadestructivewayboththisinterpretationandthatgivenbyMarshall.

452TheWealthofIdeastotheÞrstvolume,restoredRicardoÐandthroughhimthewholeclas-sicalapproachtopoliticaleconomyÐtoacentralpositionineconomictheory,freeingtheinterpretationofhisthought(insubstance,thatillus-tratedaboveinchapter7)fromtheaccretionsofmisleadingmarginalistreadings.Sraffastressedinparticulartheimportanceofthenotionofthesur-plus,andoftheconceptionoftheeconomicsystemasacircularßowofproductionandconsumption.Thesizeofthesurplus(theSmithianprob-lemofthewealthofnations),itsdistributionamongthevarioussocialclasses(theproblemonwhichRicardofocusedattentioninhisPrinci-ples),anditsutilisationinunproductiveconsumptionoraccumulation,constitutedtheissuesuponwhichtheclassicaleconomistsfocusedtheiranalyses.Divisionoflabour,surplusandthecircularßowofproduc-tionandconsumptionwerethustheelementsthatcharacterisedclassicalpoliticaleconomy:ÔinstrikingcontrastÕÐasSraffa1960,p.93,pointedoutÐÔtotheviewpresentedbymoderntheory,ofaone-wayavenuethatleadsfromÒFactorsofproductionÓtoÒConsumptiongoodsÓÕ.7.ProductionofcommoditiesbymeansofcommoditiesAswesawabove(chapter7),theanalyticrepresentationRicardoofferedhadaweakpointintheassumptionthatrelativepricesareproportionaltothequantityoflabourrequiredfortheproductionofthevariouscom-modities.InProductionofcommoditiesbymeansofcommodities(1960)Sraffacameupwithasolutiontotheproblemframedintermsoftheclassicalconception.ThereisthereforeacloselinkbetweenthecriticaleditionofRicardoÕswritingsandthetheoreticalresearchSraffahimselfwasengagedon.Inthe1930sand1940sworkproceededinparallelonthetwofronts;inthelatterhalfofthe1950s,oncetheworkonRicardowascompleted(apartfromthevolumeofindexes,publishedonlyin1973),Sraffaconcen-tratedonpreparingforpublicationhismorestrictlyanalyticcontribution,publishedalmostsimultaneouslyinEnglishandItalianin1960.Inanalogytothelineofenquiryfollowed,accordingtohisowninter-pretation,byclassicaleconomists,Sraffaputatthecentreofhisanal-ysisaneconomicsystembasedonthedivisionoflabour.Insuchasystem,theproductofeachsectordoesnotcorrespondtoitsrequire-mentsformeansofproduction(inclusiveofthemeansofsubsistencefortheworkersemployedinthesector).Eachsectortakeninisolationisnotabletocontinueitsactivity,butneedstogetintouchwithothersectorsintheeconomybyobtainingfromthemitsownmeansofproduc-tion,inexchangeforpartatleastofitsproduct.Wethushavethewebof

PieroSraffa453exchangesthatcharacterisestheeconomiesbasedontheinter-industrydivisionoflabour.AsSraffashowed,theproblemofquantitativedeter-minationoftheexchangeratiosthatgetestablishedamongthevarioussectorsistobetackled,inacapitalisticeconomy,simultaneouslywiththeproblemofincomedistributionbetweenthesocialclassesofworkers,capitalistsandlandlords.Theintersectionbetweenthesetwoproblemsconstituteswhatintheclassicaltraditionwascalledtheproblemofvalue.InthisrespectitmaybeusefultostressthespeciÞcmeaningthattheconceptofvalueimplicitlyassumedwithintheSrafÞananalysis.Valuedoesnotstandforthemeasureoftheimportancethatacertaingoodhasforman(ashappensforinstancewithinmarginalisttheory,wherevalueisconnectedtoutility);neitherdoesittakeonethicalelementsasinthenotionofthejustprice;noranoptimalitycharacter,astheresultofthemaximisationofsometargetfunctionunderconstraints.Thevalueofthecommoditiesmirrorstherelationshipthatconnectsamongthemsectorsandsocialclasseswithintheeconomy.Moreover,SraffaÕsanalysissuggestsanimplicitreferencetoaspeciÞcmodeofproduction:capital-ism.Infact,itisbasedonassumptions(theÔlawoftheonepriceÕ;divisionintothesocialclassesofworkers,capitalistsandlandowners;auniformrateofproÞts)thatmirroritsfundamentalcharacteristics.Inparticular,thelastamongtheseassumptionsÐtheequalityoftherateofproÞtsinallsectorsoftheeconomyÐexpressesinthesimplestpossibleanalytictermsacentralaspectofcapitalism:connectionamongthedifferentpartsinwhichtheeconomicsystemarticulatesitself(anecessaryconnection,sinceaswesawnosectorcansubsistinisolationfromtheothers)isensuredbythemarketnotonlyforwhatconcernsexchangeofproducts,butalsoforwhatconcernspartitionofproÞtßowsamongthedifferentsectors.Inotherterms,theinternalunityofacapitalisticsystemisguar-anteedbothbytheproductiveinterdependenceconnectingthedifferentsectorsandbythefreeßowofcapitalfromonesectortoanotherinpursuitofthemostproÞtableuse.TheproblemthatSraffatackledpresentedananalyticaldifÞcultythefailedsolutionofwhichwasfatalfortheverysurvivalofclassicalpoliticaleconomy:whencommoditiesareatoneandthesametimeproductsandmeansofproduction,thepriceofonecommoditycannotbedeterminedindependentlyoftheothers,northesetofrelativepricesindependentlyofincomedistributionbetweenproÞtsandwages.Wemustthereforeconsiderthesystemasawhole,withalltheinterrelationsconnectingthevarioussectorsonaccountofrequiredmeansofproduction,andwemustconsidersimultaneouslyincomedistributionandthedeterminationofrelativeprices.ThiswaspreciselythelineofenquirydevelopedbySraffainhis1960book.

454TheWealthofIdeasIntheprefacetoProductionofcommoditiesbymeansofcommoditiesSraffastressedthathisanalysisoftherelationsconnectingpricesanddistribu-tivevariablesdidnotrequiretheassumptionofconstantreturnstoscale.Thisfact,asweshallseemoreclearlybelow,iscrucialforunderstandingthemeaningthatSraffaattributedtotherelationsheanalysed,inpartic-ulartothenotionofpricesofproduction(andatthesametimeagreeswiththecriticismsSraffaformulatedinhis1925and1926articlesoftheMarshallianattemptstoutiliseÔlawsofreturnstoscaleÕ,namelyfunc-tionalrelationsconnectingcostandquantityproduced,inthedetermi-nationofequilibriumpricesandquantities).However,alsointheprefaceSraffastressedthat,ÔasatemporaryworkinghypothesisÕ,Ôanyoneaccus-tomedtothinkintermsoftheequilibriumofdemandandsupplymay[…]supposethattheargumentrestsonatacitassumptionofconstantreturnsinallindustriesÕ(Sraffa1960,p.v).Thankstotheassumptionofconstantreturns,infact,SraffaÕsanalysisoftherelationshipbetweenrelativepricesandincomedistributionmaybeconsideredaspartofamarginalistmodelofgeneraleconomicequilibrium,inwhichtheinitialendowmentsofproductivefactorsaregiveninsuchawayastobecom-patiblewiththeÞnaldemandofeconomicsubjects.Itispreciselyinthisway,thankstothepossibilityofÔtranslatingÕitintoaparticularcaseofthemarginalistanalysis,thatSraffaÕsanalysismayserveasthefoundationforaninternalcriticismoflogicalinconsistencyofthetraditionalmarginalisttheoriesofvalueanddistribution.Asamatteroffact,however,inSraffaÕsbooknothingissaidontherelationshipbetweendemandandsupplyforeachcommodity:theassumptionthatequilibriumpricescorrespondtotheequalitybetweensupplyanddemand,whichcharacterisedmarginal-isteconomictheory,isabsentfromSraffaÕsexposition.Inotherterms,SraffaÕsanalysisshouldnotbeinterpretedasanenquiryaimedatthedeterminationofastaticequilibriumforprices,whichwouldrequireeithersimultaneousdeterminationofpricesandquan-titiesortheassumptionofconstantreturnstoscale.ItisratheranenquiryintotheÔconditionsofreproductionÕofacapitalisteconomy,basedontheassumptionofauniformrateofproÞtsandontheÔphoto-graphÕoftheproductivestructureoftheeconomyatagivenmomentintime.1616Onthispoint,cf.Roncaglia1999,ch.2;moregenerallyontheinterpretationofSraffaÕswork,andonthedebatesitaroused,cf.Roncaglia1975,wherethemetaphoroftheÔpho-tographÕwasÞrstpublished(ibid.,p.119).TheinterpretationofSraffaÕsschemeasaÔphotographÕ(orasaÔsnapshotÕ,asmyItalianwasatÞrsttranslated)isopposedbothtointerpretationsofSraffaÕsschemeasthesupplysideofageneralequilibriummodel(cf.forinstanceHahn1982a)andtoGaregnaniÕs1976bnotionofÔlongperiodpositionsÕ.

PieroSraffa455LetusnowseethelineofenquiryfollowedinProductionofcommoditiesbymeansofcommodities.Whencommoditiesareatoneandthesametimeproductsandmeansofproduction,thepriceofonecommoditycannotbedeterminedindependentlyoftheothers,northecomplexofrelativepricesindependentlyofthedistributionofincomebetweenproÞtsandwages(whichareexpressedintermsofthecommoditychosenastheunitofmeasurement,andarethusrealwages).Onemustthereforeconsiderthesystemasawhole,withalltheinterrelationsrunningbetweenthevariousproductivesectors,tacklingsimultaneouslyincomedistributionanddeterminationofrelativeprices.AsaÞrststep,Sraffa(1960,p.3)showedthatinasystemofproductionformeresubsistence,ÔwhichproducesjustenoughtomaintainitselfÕ,andwhereÔcommoditiesareproducedbyseparateindustriesandareexchangedforoneanotheratamarketheldaftertheharvestÕ(i.e.attheendoftheproductionperiod),Ôthereisauniquesetofexchangevalueswhichifadoptedbythemarketrestorestheoriginaldistributionoftheproductsandmakesitpossiblefortheprocesstoberepeated;suchvaluesspringdirectlyfromthemethodsofproductionÕ.Iftheeconomicsystemunderconsiderationisabletoproduceasur-plus,alsoÔthedistributionofthesurplusmustbedeterminedthroughthesamemechanismandatthesametimeasarethepricesofcommodi-tiesÕ(Sraffa1960,p.6).Ifthewagecanexceedsubsistencelevel,relativepricesandoneorotherofthetwodistributivevariablesÐwageorrateofproÞtsÐarejointlydetermined,oncethetechnologyandtheotherdistributivevariableareknown;thehigherthewageis,thelowertherateofproÞtswillbe.17Sraffa(1960,pp.12Ð13)thenwentontoanalyseÔthekeytothemove-mentofrelativepricesconsequentuponachangeinthewageÕ.AstheclassicaleconomistsandMarxalreadyknew,itÔliesintheinequalityoftheproportionsinwhichlabourandmeansofproductionareemployedinthevariousindustriesÕ.Indeed,Ôiftheproportionwerethesameinallindustriesnoprice-changescouldensueÕ,whileÔitisimpossibleforpricestoremainunchangedwhenthereisinequalityofÒproportionsÓÕ.Sraffa(1960,pp.18Ð33)alsoconstructedaparticularanalyticaltool,namelytheÔStandardcommodityÕ,thankstowhichhewasabletosolvetheRicardianproblemofaninvariablemeasureofvalue,afterhavingaptlyredeÞnedit.Ricardohadinfactattributedtwomeaningstothenotionofastandardmeasureofvalue,whichmustnotbeconfused:thatofhavinginvariablevalue(inrelationtothecomplexofthemeansofproductionnecessarytoobtainit)whenchangesoccurinthedistributionofincome17Thesystemofequationscorrespondingtothiscaseisgivenabove,in9.8.

456TheWealthofIdeasbetweenwagesandproÞts,thetechnologyremainingunaltered;andthatofhavinginvariablevalueinrelationtothechangesthetechnologygoesthroughinthecourseoftime(cultivationofeverlessfertilelandsontheonehand,andtechnologicalprogressontheother).HavingmadethedistinctionbetweenthetwoproblemsclearinhisIntroductiontoRicardoÕsPrinciples(Sraffa1951,pp.xlÐxlvii),inProduc-tionofcommoditiesbymeansofcommoditiesSraffawentontoshowhowtheformercanonlybesolvedintermsoftheÔStandardcommodityÕ.Thisisacompositecommodity(i.e.asetofcommoditiestakeninparticularproportions)sodeterminedthattheaggregateofitsmeansofproduc-tionhasitssamecomposition.Inotherwords,intheStandardsystemÐtheabstracteconomicsystemtheproductofwhichconsistsinacertainquantityofStandardcommodityÐtheaggregatemeansofproductionalsocorrespondtoacertainquantityofStandardcommodity.Thus,withtheStandardsystem(andundertheassumptionthatwagesareincludedinthecostsofproduction)itispossibletodeterminetherateofproÞts,analogouslytowhathappensintheÔcornmodelÕthatSraffaattributedtoRicardo,asaratiobetweentwophysicallyhomogeneousquantities:thesurplus,i.e.thequantityofStandardcommoditygivenbythedif-ferencebetweenproductandmeansofproduction,andthemeansofproductionadvancedbythecapitalists.ComingtothesecondproblemÐnamelyinvarianceinthefaceofchangesintechnologyÐmeasurementintermsoflabourembodiedclearlyretainssigniÞcanceasabroadindicatorofthedifÞcultyofproduction,butthereisalsoanevidentriskofbring-ingmetaphysicalorsubjectivistnuancesintoplaywithintheeconomicdiscourse(labourasÔtoilandtroubleÕ).WiththedistinctionhedrewbetweenthetwoproblemsSraffaofferedapreciseindicationofthelimitscircumscribinganyanalyticalsolutiontothequestionofthestandardmeasureofvalue,andbysodoingheimplicitlypointedouttheimpossibilityofestablishingascientiÞcbasisforanymetaphysicalnotionoflabourasabsolutevalue:thatis,asasubstanceembodiedinthecommoditieswhichcharacterisesunivocallythedifÞcultyofproduction.Proceedingalongthisroad,SraffaperhapscouldhavehopedtostimulateareinterpretationofMarxbyfreeinghimfromtheresidualHegelianelements.Theanalysisofpricesofproductioniscompletedwiththecaseofjointproductsand,withinthiscategory,Þxedcapitalgoodsandscarceornon-reproduciblemeansofproductionsuchasland.ThebookcloseswithachapteronthechoicebetweeneconomicallyalternativemethodsofproductioninrelationtovariationsintherateofproÞts,andwithfourappendicesincludingtheÔReferencestotheliteratureÕ,whereSraffaexplicitlyassociatedhisanalysiswiththatofclassicaleconomists.

PieroSraffa4578.CritiqueofthemarginalistapproachWhileadvancingatheoryofproductionpriceswithintheframeworkoftheclassicalconceptionofthefunctioningofaneconomicsystem,SraffaÕsbookalsoofferedthetoolsforaradicalcritiqueofthefoundationsofthemarginalisttheoryofvalueanddistribution.Inthisrespectwecanconcentrateontwochapters:oneontheaverageperiodofproduction,andtheÞnalchapteronthechoiceoftechniques.Preliminarily,however,weneedtoclearthepathfromaseriousmisunderstanding:namely,theinterpretationofSraffaÕscontributionasageneralequilibriumanalysisconductedundertheassumptionofcon-stantreturnstoscale,inwhichitwouldhavebeenpossibletoexplainpricesbyfocusingattentiononproductioncostsÐthesideofsupplyÐanddroppingthesideofdemand,thusthesubjectiveelementofcon-sumersÕpreferences.SraffarejectedexplicitlyandrepeatedlyÐthreetimes,intheprefacetohisbookÐtheideathathisanalysiswouldrequiretheassumptionofconstantreturns.ÔNoquestionarisesastothevariationorconstancyofreturns.Theinvestigationisconcernedexclusivelywithsuchproper-tiesofaneconomicsystemasdonotdependonchangesinthescaleofproductionorintheproportionsofÒfactorsÓÕ(Sraffa1960,p.v).SraffaimmediatelyafterwardsstressedthatÔThisstandpoint,whichisthatoftheoldclassicaleconomists[…],hasbeensubmergedandforgottensincetheadventoftheÒmarginalÓmethod.ÕBetweentheclassicalandthemarginalistapproachestherearebasicdifferences(synthesisedbySraffa1960,p.93,byopposingtheÔcircularßowÕoftheÞrstonetotheÔone-wayavenueÕofthelatterasanillustrationofthefunctioningoftheeconomy).Wecan,however,withanapparentbutnotsubstan-tiveambiguity,admitthattheanalyticalresultsreachedwithregardtopricesofproductionmaybetransposedintotheconceptualpictureofthemarginalistapproach,soastoserveasthefoundationforaninternalcriticismoflogicalinconsistencyofthemarginalisttheoryofvalueanddistribution.ThusSraffarecognised,asitwasrecalledabove,thatforreadersbroughtupwithinthemarginalisttraditiontheassumptionofconstantreturnstoscalemaybehelpful.Withrespecttosuchreaders,indeed,themostimportantaspectsofSraffaÕsanalysisarethosecon-cerningthecritiqueofthetraditionalmarginalistapproach,andsuchanassumptionallowsustoreadSraffaÕsresultsascriticismsoflogicalinconsistencyinternaltothemarginalistanalyticalstructure.However,asatheoryofpricesofproduction,andhenceasacontributiontothereconstructionoftheclassicalapproach,SraffaÕsanalysisdoesnotimplyanyassumptionwhatsoeverconcerningreturnstoscale.

458TheWealthofIdeasAsalreadyhintedabove,theresultsinSraffaÕsbookthatcanbedirectlyusedasthefoundationforacriticismofthemarginalisttheoriesofvalueanddistributionconcerntheaverageperiodofproductionandthechoiceoftechniques.TheconceptoftheaverageperiodofproductionhadbeenpropoundedbyaleadingrepresentativeoftheAustrianschool,B¬ohm-Bawerk(1889),asameasureofthecapitalintensityofproduction,inter-pretingcapitalasÔwaitingtimeÕ(cf.above,11.4).Sraffashowedthat,dependingasitdoesontherateofproÞts,theaverageperiodofproduc-tioncannotbeusedtomeasurethequantityofthefactorofproductioncapitalintheambitofanexplanationoftherateofproÞtstakenasthepriceofthisfactor(cf.alsoGaregnani1960).ThedifÞcultyhadalreadybeensensedbyWicksell(1901Ð6),butmodernexponentsoftheAustrianschool,includingHayek1931,werelatertoreturntothenotionoftheaverageperiodofproduction(cf.above,11.6).Harrod,too,inareviewofProductionofcommoditiesbymeansofcommodities(Harrod1961),per-sistedindefendingtheAustriantheoryofvalue,butSraffaÕs1962briefreplysufÞcestoclearupthepointonceandforall.18Withregardtotheproblemofthechoicebetweenalternativetech-niquesofproductionwhentherateofproÞtschanges,Sraffa(1960,pp.81Ð7)pointedoutthepossibilityofaÔreswitchingoftechniquesÕ;inotherwords,agiventechniquethatprovesthemostadvantageousforagivenrateofproÞtsmaybesupersededbyanothertechniquewhenweraisetherateofproÞts,butmayonceagainbepreferablewhentherateofproÞtsrisesstillhigher.Theimplicationofthisfactisthat,howeverthecapitalintensityofthetwotechniques(orinotherwordstheratiobetweenthequantitiesutilisedofthetwoÔfactorsofproductionÕ,capitalandlabour)ismeasured,thegeneralrulethatthemarginalisttheoryofvaluerestsonremainscontradicted.Sucharuletakesthedistributivevariables,wagerateandrateofproÞts,aspricesofthecorrespondingfactorsofproductiondeterminedbytheÔlawÕofdemandandsupply,sothatthequantityofcapitalemployedinproductionshoulddiminish(andthequantityoflabourincrease)astherateofproÞtsrises(andthewageconsequentlyfalls).WiththeÔreswitchingoftechniquesÕ,ifthishappenswhenonetechniquegiveswaytoanotherwitharisingrateofproÞts,thecontraryoccurswhenfromthesecondtechnologytheeconomyturnsagaintotheÞrstastherateofproÞtsrisesyethigher.18Harrod1961recalledthatforanyleveloftherateofproÞtswemayunivocallydeÞnetheaverageperiodofproduction,thoughinthepresenceofthemechanismofcompoundedinterest.Sraffa1962repliedthatthisfactisnotsufÞcienttorescuethemarginalisttheoryofincomedistributionbasedontheaverageperiodofproduction,sincewefallhereintoaviciouslogicalcircle:therateofproÞtsmustbeknowninordertodeterminetheaverageperiodofproductiontobeutilised,asameasureofthecapitalisticintensityofproduction,indeterminingtherateofproÞts.

PieroSraffa459Widedebateshavetakenplacearoundthiscriticism,19whilethecrucialquestionofitsrelevancereceivedrelativelyscantattention.Contrarytotheopinionsmanyseemtoentertain,itappliesnotonlytotheaggregateproductionfunction:atoolwhichcontinuestobeused,however,inallthevariousversionsofmainstreammacroeconomictheory,fromtheÔrealcycleÕtheoriestotheoverlappinggenerationsmodels(cf.below,17.5).SraffaÕscritiquealsoappliestoallthosecasesinwhich,whileacknowledg-ingthefactthatcapitalisinrealityacollectionofvarious,heterogeneousmeansofproduction,theattemptisstillmadetodeterminetherateofproÞtsasthepriceofafactorofproductionÔcapitalÕ,howeveritbedeÞned(aggregateofvalue,ÔwaitingÕ,averageperiodofproduction).Inparticu-lar,SraffaÕscritiqueunderminestheveryfoundationsoftheideaÐcrucialtomarginalistmacroeconomictheoryÐthatacompetitivelabourmarketinaclosedeconomywouldautomaticallytendtowardsfullemploymentequilibriumsincethedeclineinrealwageswhichshouldstemfromunem-ploymentwouldpromptanincreaseinthelabourÐcapitalratioandhence,giventheendowmentofcapital,anincreaseinthequantityoflabouremployed.Thisisaresultthatunderminestheveryfoundationsofprac-ticallythewholeofcontemporarymacroeconomictheory,basedasitisontheassumptionofatrade-offbetweenrealwagerateandthelevelofemployment.19MoreorlesssimultaneouslytothepublicationofSraffaÕsbook,Garegnani1960devel-opedadirectcritiqueofsomeamongthemaintheoreticalcontributionsinthemarginalisttradition.ThepublicationofSraffaÕsbookwasthenfollowedbyalivelydebate.AÞrstskirmish(Harrod1961;Sraffa1962),alreadyrecalledinthepreviousnote,clariÞedthatthepossibilityofmeasuringcapital,oncetheproÞtrateisgiven,didnotconsti-tuteareplytoSraffaÕsstrictures,sincethesereferredtothenecessity,forthetraditionalmarginalisttheoriesofdistribution,tomeasurecapitalindependentlyofincomedis-tributionbetweenwagesandproÞts(apointwhichGaregnani1960stressedaswell).AsecondclashbeganwithSamuelsonÕs1962attempttodepicttheaggregateproduc-tionfunction(alreadycriticisedbyJoanRobinsonin1953)asaÔparableÕnotbetrayingtheessentialcharacteristicsofamarketeconomy;andbyLevhariÕs1965attempttoshowthattheproblemsraisedbySraffa(suchasthepossibilityoftheÔreswitchingoftechniquesÕ)referredonlytothesingleindustry,andnottotheeconomicsystemasawhole.Thesepropositionswereimmediatelyrefuted:SamuelsonÕsbyGaregnani1970andSpaventa1968;LevhariÕsbyPasinetti1966followedbyotherauthors;Samuelson1966andLevhari(withSamuelson,1966)werethemselvestorecognisetheerroneous-nessoftheirtheses.Thisnotwithstanding,inthefollowingyearssomeotherskirmishestookplace,without,however,addinganythingsubstantialtothepreviousdebate:cf.forinstanceGallawayandShukla1974;Garegnani1976a;Burmeister1977,1979;andPasinetti1979a,1979b.LetusalsorecallthatPasinetti1969criticisedtherecourseonthesideofSolow1963,1967totheFisheriannotionoftherateofreturn,consideredbySolowhimself(1963,p.16)asÔthecentralconceptin[neoclassical]capitaltheoryÕ,sinceitwasassumedasindexoftheÔquantityofcapitalÕdeÞnableindependentlyfromtheproÞtrateandthusutilisableforexplainingthelatterone;forthediscussionensuingPasinettiÕscritiques,cf.inparticularSolow1970;Pasinetti1970;Dougherty1972;andPasinetti1972.Forsurveysofthesedebates,cf.e.g.Tiberi1969;Harcourt1969,1972;andKurzandSalvadori1995.

460TheWealthofIdeasTakinganoverallviewofSraffaÕswork,wecanseeitasthesumofthreeparts:thereconstructionoftherealnatureoftheclassicalapproachwithhiseditionofRicardoÕsworks;thecritiqueofmarginalisttheory,whetherintheMarshallianversion(withthepapersof1925,1926and1930)orinHayekÕsmacroeconomicversion(withthe1932paper),orasbasedonatheoryofcapitalasafactorofproduction(withthe1960bookandthereplytoHarrodof1962);Þnally,ananalysisofvalueanddistributionthatisbothanalyticallyconsistentandrootedintheclassicalconceptionofthefunctioningoftheeconomicsystem.Asfarasthislatterelementisconcerned,wemayaddthatvariouselementsleadustothinkthatthisreproposaloftheclassicaltheoryshouldbedevelopedsoastotakeintoaccounttheKeynesiancontribution.20ThuswithhisresearchSraffapursuedtheobjectiveoffavouringarad-icalchangeinthepathofeconomicscience:awayfromthemarginalisttradition,andinfavourofareturntotheclassicaltradition.Sraffaalonecontributedallthebasicpointersnecessarytothepursuitofsuchanobjective:herevivedtheclassicalapproach,freeingitfromthemisinter-pretationsaccruedfrommarginalistreadings;heprovidedalogicallyself-consistentsolutiontotheproblemofexchangevaluestowhichRicardoÐand,followinghim,MarxÐhadgivenaninsufÞcientanswer,constitutingoneofthecausesthatledtotheabandonmentoftheclassicalframeworkandtheriseofthemarginalistapproach;andheshowedthattothisprob-lemthemarginalistapproachofferedasolutionthatwasonlyapparentlymoreÔscientiÞcÕ,butthatinrealitywasvitiatedinitsfoundationsinsofarasthetheoryofvalueanddistributionisconcerned.9.TheSrafÞanschoolsForreasonsofspace,itisnotpossibletoillustrateheretheworkdonebymanyeconomistsinthewakeofSraffaÕscontribution(forasurvey,cf.Roncaglia1990a).Wecanonlymentionafewelements.Thisworkinitiallyfollowsthreedistinctlinesofdevelopment,correspondingtothethreemainpathsofSraffaÕsresearch.WehaveÞrstanumberofresearchesintothehistoryofeconomicthought,contributingtoareconstructionof20Twoelementsinparticularshouldbestressedinthisrespect.First,theabandonmentoftheapproachbasedonthecomparisonbetweensupplyanddemandforthesimultane-ousdeterminationofequilibriumpricesandquantitiesallowsustoseparateasdistinctanalyticalissuesthedeterminationofproductionpricesandthedeterminationofactivitylevels;thisopensthewaytoaKeynesianexplanationbasedonthenotionofeffectivedemandforthislatterissue.ThesecondelementisSraffaÕs(1960,p.33)crypticrefer-encetotheinßuenceoftheinterestrateontherateofproÞts,withwhichSraffahintedattheimportanceofmonetaryandÞnancialfactorsfortheevolutionoftherealeconomy,namelytooneofthemaintenetsoftheKeynesianapproach.

PieroSraffa461theprecisenatureoftheclassicalapproachandofitsdifferenceswithrespecttothemarginalistapproach.21Second,wehavethedebatescon-cerningthemarginalisttheoryofvalueandcapital,22andthecritiquestothemarginalistapproachinthedifferentÞeldsofeconomicresearch,asthepuretheoryofinternationaltrade.23Finally,wehaveanalyticaldevel-opmentandtranspositionintorigorousmathematicaltermsofSraffaÕsanalysisofpricesofproduction.24SraffaÕsworkisalso,directlyorindirectly,theoriginofvariouscon-tributionstothereconstructionofpoliticaleconomythathavefolloweddifferenttracks.Forthesakeofsimplicity,wemaydistinguishthreemainorientations,thatforeaseofexpositionwewillassociatewiththenamesofthethreeleadingrepresentativesoftheclassicalapproach:Smith,RicardoandMarx.(a)PasinettiÕsÔRicardianÕreconstructionWemayconsiderastheÞrstwide-rangingdevelopmentofSraffaÕsanal-ysistheonepropoundedinparticularbyPasinettiinanumberofwrit-ings,culminatinginhis1981volumeonStructuralchangeandeconomicgrowth.PasinettiÕsmainreferenceistoRicardiananalysis.Onmethodologicalgrounds,Pasinettifollowstheprinciplesoflogicaldeduction,leavingtohistoricalreferencesapurelyillustrativerole:similarlytoRicardo,andindirectoppositiontoSmithÕspredilectionforhistoricalgeneralisationsasopposedtotheanalysisthroughmodels.Moreover,RicardoÕsÔmodelÕwasthesubjectofawell-knownessay(Pasinetti1960)thatmaybeconsid-eredastheidealstartingpointforthedevelopmentofhisgrowthmodel(Pasinetti1965).ThislatteralsoincorporatedPasinettiÕs1962formu-lationofthepost-Keynesiantheoryofdistribution,connectingincomedistributionbetweenwagesandproÞtstothelevelofinvestments,oncethesavingpropensitiesofworkersandcapitalistsandthegrowthratearegiven.Subsequently,thedevelopmentofthetheoryofverticallyinte-gratedsectors(Pasinetti1973)constitutedadecisiveanalyticalstepformovingonfromSraffaÕsanalysisoftherelationshipsbetweenrelativepricesandincomedistributiontoanalysisofeconomicgrowth.ThetextofLecturesonthetheoriesofproduction(Pasinetti1975)canthenalsobeconsideredasareinterpretationofthehistoryofeconomicthought,espe-ciallyrecenthistory(Sraffa,Leontief,vonNeumann).Thissetofwritings21Cf.forinstanceDobb1973;Roncaglia1977;andBharadwaj1978.Thepresentbookalsogoesinthisdirection.22Cf.above,note19.23Parrinello1970;Steedman1979.24Lippi1979;Schefold1989;KurzandSalvadori1995.

462TheWealthofIdeascontributedtoprovidingthebasisforaspeciÞcviewofthenatureandroleofeconomicscience:aviewwhichcannotbeconsideredasopposedtothatimplicitinSraffaÕswritings,butwhichcanneitherbeidentiÞedwith,norlogicallydeducedfrom,thelatter.PasinettiÕs(1981,p.19)purposewasÔtobuildaunifyingtheorybehindallthenewcontributionstoeconomicsÕ:KeynesandKalecki,theoriesoftheÞrm,LeontiefandSraffa,theoriesofthecycle,theHarrodÐDomarmodelandthepost-Keynesiantheoriesofincomedistribution.SuchaunifyingtheoryhaditsmainpillarÔnotinthecapriceandscarcityofNature,butintheprogressandingenuityofManÕ,namelyintheclassicalapproachinterpretedasthereproducibilityview(ibid.,p.23).25ProceedingfromthisbasisPasinetti(ibid.,p.28)aimedtodevelopÔatheorywhichremainsneutralwithrespecttotheinstitutionalorganisa-tionofsocietyÕ,focusingattentiononÔtheÒprimaryandnaturalÓfeaturesÕoftheeconomicsystem,bywhichhemeantÔtheconditionsunderwhichitmaygrowandtakeadvantageofexploitingallitspotentialpossibil-itiesÕ(ibid.,p.25).Amodelofnon-proportionalgrowthbasedonthefullemploymentassumptionwasutilisedforidentifyingsuchconditions,interpretedasÔnecessaryrequirementsforequilibriumgrowthÕ(ibid.,p.25).SpeciÞcally,inanyverticallyintegratedsectortheÔnaturalÕrateofproÞtsÐwhichdiffersfromsectortosectorÐmustbesuchastoensureanamountofproÞtsequaltotheÔequilibriumÕvalueofinvestments,thatis,totheamountofinvestmentsrequiredforexpandingproductivecapacityatarateequaltoÔtherateofpopulationgrowthÕplusÔtherateofincreaseofpercapitademandforeachconsumptiongoodÕ(ibid.,p.130).Inordertoexplainthechangesovertimeinthestructureofdemand,PasinettidrewonÔEngelÕslawÕ,thusavoidinganyreferencetosubjectiveelementssuchasutilitymapsandconsumersÕpreferences.Theincreaseinpercapitaincomeanddemandcorrespondsinequilibriumtotheincreaseinpercapitaproductduetotechnicalprogress(whichcanproceedatdifferentspeedsindifferentsectors).Inthiscontextthenotionofequilibriumassumedanormativemean-ing,connectedasitwastotheassumptionoffullemploymentoftheavailablelabourforceandofproductivecapacity(cf.alsoibid.,pp.96Ð7,wheretheÔdynamicÕequilibriumcorrespondstotheconditionsallowingforcontinuousfullemploymentovertime).Inotherwords,PasinettiÕsanalysisfocusedonwhatshouldhappentoensurefullemployment,notontheactualbehaviourofaneconomicsystemnecessarilytiedtospeciÞcinstitutions.25Cf.Roncaglia1975,pp.5Ð7and124Ð6,onthelimitsofthisinterpretationofthemarginalistandtheclassicalapproaches.

PieroSraffa463Fromthisviewpointtheissueoftherelationshipbetweentheshortandthelongperiodwasdiscussed:ÔtheverynatureoftheprocessoflongrungrowthrequiresastructuraldynamicswhichleadstodifÞcultiesintheshortrunÕ.HencethemethodologicalsuggestionÔofsinglingoutÞrstthefundamentalstructuraldynamicswhichmusttakeplaceandthenoftryingtofacilitatethemÕ(ibid.,pp.243Ð4):asuggestionwhichtendedtoafÞrmthepriorityofthenormativeanalysis.Obviouslyallthisisnotintendedtodenythepossibilityandusefulnessofadirectanalysisofshortperiodissues,andmoregenerallyoftheÐcertainlynotoptimalÐwayoffunctioningofconcreteeconomies.Infact,varioushintsinPasinetti(ibid.,especiallythefourclosingchapters)pointinthisdirection.Butthereisnodoubtthat,comparedtothelongrunnormativeanalysisdiscussedabove,suchhintsarefarlessdeveloped:theyappeartoconstituteforPasinettiasecondstageofanalysis,subsequenttothatdecisiveÞrststagewhichwastheobjectofsystematicformalanalysisinhiswork.26(b)GaregnaniÕsÔMarxianÕreconstructionSomeeconomistsareconvincedthatthepotentiallymostfruitfulwaytopursuethereconstructionofclassicalpoliticaleconomyalongthelinesstartedbySraffaconsistsinbringingtotheforeMarxÕsvision.AsGaregnani(1981,p.113)stated,ÔarevivaloftheClassicaleconomistsÕtheoreticalapproachcannot[…]takeplacebutstartingfromthehighestpointofdevelopmentwhichsuchanapproachreceivedinthepast:thepointwhichwasreachedwithMarxÕ.NaturallytheMarxthusreproposedwasaspeciÞcMarx:notneces-sarilyatravesty,asmanyorthodoxMarxistsmaintained(cf.e.g.Medio1972),butcertainlyaMarxinwhichsomeelementsweregivenempha-sis,whileothersÐthoughundoubtedlypresentinhiswritings,suchasmaterialisticdialecticÐwereplayeddown.Also,SraffaÕsownanalyticalcontributioncouldnothaveleftuntouchedMarxÕsvision(inthewidersenseoftheterm).2726Onthelimitsofthisapproach(thenormativecharacteroftheanalysis,theexogenousnatureoftechnicalprogress,theexclusionfromtheanalysisoftheroleofmarketformsandofmonetaryandÞnancialfactors,aswellasontheroleofÔshortperiodÕelementsinÔlongperiodÕevolution)cf.Roncaglia1990a,pp.207Ð9.27Forinstance,theuseofSrafÞananalyticaltoolsshowsthattheMarxianÔlawofthetendencyofthefallingrateofproÞtsÕisdevoidofgeneralvalidity(cf.Steedman1977,ch.9;theissuewasdebatedinvariousarticlescollectedinScrepantiandZenezini1978).Furthermore,contrarytowhatvariousauthorsmaintained(Meek1961;Medio1972;Eatwell1975b),theStandardcommoditydoesnotconstitutetheanalyticaltoolcapableofconnectingtheworldoflabourvaluestotheworldofpricesofproduction

464TheWealthofIdeasTheanalyticalcorecommontoclassicaleconomists,toMarxandSraffa,waslocatedbyGaregnani(cf.inparticularGaregnani1981and1984)inthesetofrelationsconcerningproductionpricesanddistributivevariablesanalysedinSraffa1960.Moreprecisely,thesurplustheorieshave[…]acorewhichisisolatedfromtherestoftheanalysisbecausethewage,thesocialproductandthetechnicalconditionsofproductionappearthereasalreadydetermined.ItisinthisÔcoreÕthatweÞndthedetermi-nationofthesharesotherthanthewageasaresidual:adeterminationwhich[…]willalsoentailthedeterminationoftherelativevaluesofthecommodities.Further,asanaturalextensionofthis,weshallÞndintheÔcoreÕananalysisoftherelationsbetween,ontheonehand,therealwage,thesocialproductandthetechnicalconditionsofproduction(theindependentvariables)and,ontheotherhand,thesharesotherthanwagesconstitutingthesurplus,andtherelativeprices(thedependentvariables).28TheanalyticalcorewhichMarxsharedwithclassicaleconomistsandSraffaistakenasthefoundationonwhichtorelyindevelopingtheanal-ysisindifferentdirections,correspondingtotheelementsconsideredasexogenousdatainSraffaÕsbook(incomedistribution,productionandemploymentlevels,technology).However,itisstressedthattheanalysisoftherelationsinternaltothecoreandofthoseexternaltoitconstituteÔdistinctlogicalstagesÕ(Garegnani1984,p.297),andthatthenatureoftheanalysisissub-stantiallydifferentinthetwocases.Garegnani(1990)characterisedthisdifferenceinaclear-cutway.HepointedtoaÔdistinctionbetweentwoÞeldsofanalysis:aÞeldwheregeneralquantitativerelationsofsufÞcientlydeÞniteformcanbepostulatedÕ,i.e.theÔcoreÕ;ÔandanotherÞeldwhererelationsintheeconomyaresocomplexandvariableaccordingtocircum-stances,astoallownotforgeneralquantitativerelationsofsufÞcientlydeÞniteformÕ,i.e.therestofeconomictheory:ÔTherelationspertaining(cf.Roncaglia1975,pp.76Ð9);thewidelydebatedissueoftheÔtransformationoflabourvaluesintopricesofproductionÕ(forahistoryofwhichcf.forinstanceVicarelli1975)wassolved,inthelightofSraffaÕsanalyticalresults,byconcludingthatingeneraltheresultsarrivedatintermsoflabourvaluescannotbeconÞrmedbyananalysisconductedintermsofpricesofproduction(cf.inparticularSteedman1977).28Garegnani1981,pp.13Ð14.ThenotionoftheÔcoreÕisconnectedtotheÔmethodoflongperiodpositionsÕ,consideredascentresofgravitationfortheeconomy:cf.Garegnani1976b.Twonotesofcautionaretobestressed.First,sidebysidewiththerelationsconsideredinternaltothecore,thevariablesunderconsideration(bothdependentandindependent)canalsobeconnectedbyotherrelations,whichÔwerelefttobestudiedoutsidetheÒcoreÓÕ(Garegnani1984,p.297).Secondly,thenotionofacoreofthesurplustheoriesremainssubstantiallyunchangedwhentheproÞtratereplacesthewageastheindependentdistributivevariabledeterminedexogenously,thatis,outsidethecore(Garegnani1984,pp.321Ð2);theimportanceofthismodiÞcationwasstressedinRoncaglia1975,1990a.

PieroSraffa465tothissecondÞeldhadaccordinglytobestudiedintheirmultiplicityanddiversityaccordingtocircumstances.Õ29(c)SylosLabiniÕsÔSmithianÕreconstructionAÔSmithianÕinterpretationofthecentralaspectsofclassicalpoliticaleconomyhasbeendevelopedinalongseriesofwritingsbyPaoloSylosLabini(see,inparticular,SylosLabini1954,1956,1972,1974,1976,1983,1984,2000).InthesewritingsSylosLabinibroughttothecentreoftheprogrammeofreconstructingclassicalpoliticaleconomystartedbySraffatheroleofmarketformsintheirinteractionwiththedivisionoflabourandtheprocessofaccumulation.ThismeantbringingtothecentreoftheanalysisacausalchainthatdrawsfromSmithmorethanfromRicardoorMarx:thecausalchainthatgoesfromchangesinthedivisionoflabour(or,morespeciÞcally,fromtechnologicalchanges)tochangesovertimeinmarketformsandhenceinthepaceofaccumulation.Developmentsinincomedistributionarethenmadetodependontheseelements,togetherwithaspectsconcerningpublicpolicyandthepolitico-institutionalsetting.Inthisway,whilethenotionofthesurplusretainsacentralroleineconomicanalysis,thefunctionalrelationsconnectingproductionpricesandincomedistributionlosetheirroleasthecentralpillarofeconomictheorising.Moregenerally,SmithÕsvisionofadevelopmentprocesscharacterisedbybothpositiveandnegativeelements,butfundamentallypositive,andconditionedbyinstitutionalreforms(fromtheeliminationofcustomsbarrierstofreeelementaryeducation)wasreproposedbySylosLabiniasanalternative,ifnotinopposition,tothetraditionalMarxianviewofaprogressivedeteriorationofcapitalism(lawofincreasingmisery,proletarisation,tendencytoafallingrateofproÞts)uptotheinevitablebreakdownandtheunavoidablerevolutionaryoutcome.30Indealingwithsuchissues,itisclearthattheproblemoftherelation-shipbetweenproductionpricesandincomedistribution,whichwasatthecentreofSraffaÕsanalysis,constitutesacrucialknotÐinfact,thecru-cialoneÐfortheconstructionofatheoreticalsystembasedonthenotionofthesurplus.However,itdidnotconstituteforclassicaleconomists,andshouldnotconstitutetoday,themainobjectiveofeconomicenquiry.29Garegnani1990,pp.123Ð4;theexpressionsusedaremorecautiousintheform,butnotinsubstance,thanthoseusedintheoriginaltextdistributedontheoccasionoftheFlorenceconferencein1985.Foracritiqueofthisdistinction,cf.Roncaglia1990a,pp.209Ð11and1990b.30ThisoppositionisparticularlyclearinSylosLabiniÕswritingsonsocialclasses(1974)andonunder-development(1983).

466TheWealthofIdeasSuchanobjectiveshouldratherbelocatedintheÔwealthofnationsÕandthefactorsdeterminingitsdevelopmentovertimeandindifferentcountries,especiallythedistributionofincomeandwealth(andÐtoooftenforgottenÐthedistributionofpower,whichhasalsotodowiththeroleofmarketforms)amongdifferentgroupsofeconomicagents.Inotherterms,inordertoreproposeaÔclassicalÕinterpretationofthedevelopmentoftheeconomicsystemsinwhichweliveitisnotsufÞcienttoÔbuildonÕtheanalysisdevelopedbySraffainProductionofcommodi-tiesbymeansofcommodities:neitherinthesenseofgraduallyextendingabasicformalmodel,norinthesenseofgraduallyextendingarestrictedanalyticalnucleusofcausalrelations.Theconnectionbetweenthedifferentlinesofresearchcontributingtothereconstructionofclassicalpoliticaleconomy(andinparticulartheconnectionbetweentwolinesofenquirysuchasthatontherela-tionshipbetweenrelativepricesandincomedistribution,andthatonmarketforms)mustbefoundinthereferencetoacommonconcep-tualframework:therepresentationoftheeconomyasacircularprocess,centredonthecauseswhichallowtheproductionofthesurplusanddeter-mineitsdistributionamongthedifferentsocialclassesandthedifferentsectorsoftheeconomyanditsutilisation.Butwithinthiscommoncon-ceptualframeworkitispossibletodistinguishawholeseriesofanalyticalissues,obviouslyconnectedbutbestdealtwithifsubjectedtoseparateanalysis(thoughwithoutlosingsightÐÔatthebackofourmindsÕ,asKeynessaidÐoftheirinterconnections).TheÔanalyticalseparabilityÕofthedifferentissues(propoundedinRoncaglia1975,ch.7,asapossibleinterpretationofthemethodimplicitinSraffa1960)thusopensthewaytotheuseofdifferentanalyticalareasfordealingwithdifferentanalyticalissues.Forinstance,SylosLabini1956revivedtheclassicalconceptionofmarketforms,basedonthedifÞcultyofentryofnewÞrmsintoasectorratherthanonthenumberofÞrmspresentinthatsector,andanalysedthefactorsdeterminingtheÔbarrierstoentryÕfacingnewÞrms.SuchfactorswereviewedasdeterminingadeviationofthesectoralproÞtratefromtheÔbasicÕproÞtratethatwouldprevailunderfreecompetition,i.e.inthecaseofunrestrainedfreedomofentry.SuchananalysisofmarketformsisclearlycompatiblewiththeideaofatendencytoauniformrateofproÞtsinthecaseoffreecompetitioninallsectorsoftheeconomy,andisthuscompatiblewithSraffaÕsanalysis:incomparisontotheassumptionofauniformrateofproÞts,theintroductionofnon-competitivemarketformscanbeconsideredasaÔsecondapproximationÕ.However,theobjectiveoftheanalysis(namely,tolocatethefactorsdeterminingthesizeofthebarrierstoentryintothedifferentsectorsoftheeconomy)canbepursued

PieroSraffa467independentlyofananalysissuchasthatpresentedinSraffa1960.Amongotherthings,atoodirectlinkbetweenthetwolinesofanalysiscouldlimitthehorizonofthestudyofthebarrierstoentrytothedeterminationofthesectoralproÞtratedifferentials,sincetheserepresenttheformallinkconnectingtheanalysisofmarketformstotheanalysisoftherelationshipbetweennaturalpricesandincomedistribution.Onthecontrary,sidebysidewithsectoralproÞtratedifferentialsandpossiblymoreimportantly,theanalysisofmarketformsthrowslightonissuessuchastheinßuenceofbarrierstoentryonthepaceoftechnologicalchange,ontherhythmofaccumulation,andonincomedistribution(especiallywhenthenatureofthebarrierstoentryandtheirsizearedifferentinthedifferentsectorsoftheeconomy:cf.SylosLabini1956,1972,1984).Maintainingthatthisstreamofresearchopensthewaytotherecon-structionofarenewedclassicalpoliticaleconomyisclearlyabet,inthepresentsituationofeconomicresearch.However,thebetmaybenotexcessivelyrisky.Moregenerally,itissurelydifÞculttoforeseewhichdevelopmentsthedifferentstreamsofresearchillustratedinthissectionwillhave;theirvarietyanyhowtestiÞestothevitalityandattractivenessoftheresearchprojectstartedbySraffa,perhapsnotyetfullyassimilatedinthecontemporarydebate.

17Theageoffragmentation1.IntroductionOverthepastÞftyyearsorsowehaveseenaveritablefragmentationofeconomictheory.ResearchhasramiÞedindifferentdirectionsanditsveryfoundationsÐmethodsandtechniquesofanalysis,crucialcon-ceptsandsimplifyingassumptions,centralproblemsÐhaveundergonebroaddiversiÞcation.Thishasledtoadivisionoflabouramongsubstan-tiallyautonomousgroupsofeconomistswhooftenignore,orinanycasedonottakeintoaccountintheirownresearch,whathappensinotherareasofresearch.Thistrendhasbeenreinforcedbythehighleveloftechnicalitythat,togetherwithdiversiÞcationinthetechniquesofanaly-sis,makesthestudiesrequiredforanygivenÞeldofresearchincreasinglyspeciÞcandtime-consuming.Forinstance,thenewevolutionarytheoriesoftheÞrmhavenorelationtoresearchonthemicroeconomicfounda-tionsofmacroeconomics;itwouldbequitedifÞculttoÞndsomecommongroundbetweenresearchontheinstitutionalevolutionofÞnancialmar-ketsandtheso-calledÔnewgrowththeoryÕwhichseekstomaketechnicalprogressendogenoustothetheoryitself.EconomistsbecomeevermorespecialisedandincreasinglylimittheirreadingsandtheirprofessionalcontactstoresearchersactiveinthesameÞeldandpursuingasimilarresearchorientation;increasingnumbersofspecialisedjournalsandpro-fessionalsocietiesarecreated;theveryprocessesofacademicselectionfavourthefragmentationofeconomistsintoseparatecorporations.ItisthusquitedifÞcult,inthissituation,toprovideareasonablybal-ancedandcompleteillustrationofthedifferentstreamsofeconomicresearch.Thepaththatwewillfollownotonlysuffersfrommanyomis-sions,butalsothefactthatthemorerecentcontributionshavenotyetbeensubjecttotheusualprocessofselectionthroughdebatesthatarestillunderway;asaconsequence,therelativeimportanceattributedtodifferentresearchstreamsdependsonthesubjectiveevaluationofthepresentwriter(andonacertainrandomnessinhisreadings)morethaninthecaseoftheprecedingchapters.468

Theageoffragmentation469TheintervaloftimeconsideredinthischaptercoversmoreorlessthelastÞftytosixtyyears.Someaspectsofthisperiodhavealreadybeenconsideredinthelastfewchapters,devotedtothegreatesteconomistsofthesecondhalfofthenineteenthandtheÞrsthalfofthetwentiethcentury:intheconcludingsectionsofthosechapterswehavealreadyhintedatthemorerecentdevelopmentsoftheresearchstreamstheretakenintoconsideration.Theseelementsarenowrecalled,sidebysidewithaspectsnotalreadydealtwithintheprecedingchapters,inthecontextofanextremelybriefsurveyofthecontemporaryeconomicdebate.Webeginbyconsidering,inthenextsection,therecentdevelopmentsofgeneraleconomicequilibriumtheory,alreadyoutlinedabove(12.7).Initsself-declaredgenerality,theprojectofbuildinganaxiomaticmicro-economictheoryispresentedbyitsproponentsasanecessaryprerequisiteforanyotherÞeldofresearch.ThenineachspeciÞccaseitwouldbeaquestionofaddingappropriatespeciÞcations(suchasthehypothesisofasymmetricinformation)fordealingwithproblemscroppingupinthedifferentbranchesofeconomics.Insomecasesthismethodologicaldesignisclearer,inothersitismuchlessclearÐthelesssothefurtherwemoveawayfromthetraditionalcoreofthemarginaltheoryofvalue.Ineachcase,itsoonmeetslimitsthatappearimpossibletoovercome.ThecrucialdifÞcultyisthecontradictionbetweentherequirementoflogicalconsistencyandtherequirementofrealism.Alreadyinitself,generaleconomicequilibriumanalysisimpliescrucialassumptionsthatareclearlyunrealistic,suchasthatofmarketclearing(precisebalancingbetweensupplyanddemand)asthefunda-mentalmechanisminthefunctioningofmarkets,orthatofabsenceofexchangesoutofequilibrium,orthatofcompletenessinconsumerpref-erencemaps,orthatofconvexityinthetechnologyfrontier.Then,whenwegetintoanyparticularÞeldofanalysis,itisnecessarytointroduceotherassumptionsinordertospecifythetheoreticalmodelhelpfully.Aboveall,simplifyingassumptionsareneededifthemodelhastoyielddeÞnitesolutions.Ofthese,themostcommonconsistingoingbacktoone-commoditymodels(asistypical,asweshallsee,inmainstreammacroeconomics)ortotheMarshallianclauseofceterisparibusandtopartialequilibriumanalysis.BearingthesedifÞcultiesinmind,wewillexamineÐonceagainbrießyÐsomeÞeldsofresearch.First,in3,wewillconsiderCoaseÕstheoryoftheÞrm,thatconstitutesthepointofdeparturefortheso-calledÔnewtheoriesoftheÞrmÕ.Suchanapproachreliesontheexistenceofambitscharacterisedbyhightransactioncosts,whichfavouradoptionofthehierarchicalorganisationprevailingwithintheÞrm;viceversa,themarketprevailswhentransactioncoststurnouttobelowerthanthecosts

470TheWealthofIdeasofacentralisedmanagementofproductiveactivity.ThemoderntheoryoftheÞrmisatanyrateavariedÞeld,inwhichwealsoÞndmanagerialtheoriesconcerningtheseparationbetweenÞrmownershipandcontrol,andthemoderntheoriesofmarketforms,fromBainÕsandSylosLabiniÕsoligopolytheorybasedonthebarrierstoentryintoamarket,toBaumolÕscontestablemarketstheorybasedonsunkcosts.Weshallthendiscuss,in4,agroupofÔneo-institutionaltheoriesÕ,thattackletheproblemofthemicrofoundationsofeconomicinstitu-tions.Withinthisapproachinstitutionsareconceivedofasarationalanswergivenbythemarkettotheimperfectionsalwayspresentintherealworld(mainlyconsistingintransactioncostsandasymmetricinfor-mation).Thisapproachisquitedifferentfromthatofevolutionistorhis-toricaltheories,inwhichÐasinAdamSmithÐinstitutionsareconsideredtheresultofahistoricalprocess.InthisÞeldtherehasbeenwiderecoursetothetheoryofgames(towhichweshallreturnin8),withapredom-inanceofone-shotgamesinthecaseofneo-institutionaltheoriesandrepeatedgamesinthecaseofevolutionarytheories.Inbothcases,institu-tionsshowtheprevalenceofcooperativebehaviourovernon-cooperativebehaviour.Asubstantiallydifferentpathistakenbythedebateonmacroeconomictheory.Evenwhenspeakingofmicro-foundationsofmacroeconomics,infact,theconnectionwithgeneralequilibriumtheoryisaspuriousone.ThesimpliÞcationsonwhichthemainstreamsofresearchrely(fromFriedmanÕsmonetarismtoLucasÕsrealcycletheory,uptotheover-lappinggenerationsmodelsutilisedforinstanceintherecentdebatesonthesustainabilityofpublicdebt)implyasamatteroffactaone-commodityworld,andthereforeÐevenifthisisoftenfarfromcleartotheresearchersinthisÞeldÐpointinanoppositedirectiontothatoftheWalrasianresearchproject.Explicitlyexternaltoit,ofcourse,arethestreamsofresearchthatspringdirectlyfromKeynesÕsoriginalideas.Moderngrowththeory,discussedin6,hasalsohadasubstantiallyaggregatecharactersinceSolowÕsseminalmodel.Attemptstointro-duceinitendogenoustechnicalprogressandincreasingreturnstoscaleviolateÐinthiscaseaswell,oftenwithoutresearchersactiveinthisÞeldbeingawareofthisbasicdefectÐthemicroeconomicconsistencyofsuchamodel,eventhoughitmetwithfavour,inRomerÕsversion,assup-posedlyovercomingthetraditionallimitsofneoclassicaltheory.Para-doxically,theoriginalformulationofthedynamicproblemproposedbyHarrod,thoughexplicitlybasedonaggregatevariables,remainsopentodevelopmentsnotconstrainedtotheone-commodityworld,asisshownforinstancebyPasinettiÕsmodel.

Theageoffragmentation471Macroeconomicsandthetheoryofgrowthareexemplarycasesofathe-oreticalretreatinducedbythedesiretogetmodelsadequateforempiricalanalysis,whichisthriving,favouredasitisbydevelopmentsinthecol-lectionofstatisticaldataandmorerecentlyincomputers,butalsoinnationalaccountingandineconometrics.Theseaspectsaretheobjectofabriefexcursusin7.Then,in8,wewillconsidertheuseintheeconomicsÞeldofsometechniquesofanalysisdevelopedinthecollateralÞeldofappliedmathematics:thetheoryofrepeatedgames,thetheoryofstochasticprocesses,chaostheory.Inthelattercase,theresultsseemtofavourdifferentresearchorientationsfromthosebasedonthetraditionalnotionofrationality(andofmaximisationofanobjectivefunctionbyindi-vidualeconomicagents)onwhichgeneraleconomicequilibriumtheoryalsorelies.Wethushave,forinstance,theideasofpathdependenceinthenewanalysesoftechnologicalchange.Thedebateonthedifferentpossiblenotionsofrationalityleadsustoaseriesofotherresearchstreams.Someofthem(discussedin9)dealwithcentralissuesfortheevolutionofmodernsocieties:ethicsandnewutilitarianism,growthandsustainabledevelopment,economicdemocracyandglobalisation.InsuchÞeldsattheboundarywithothersocialsciences,economistswholeavebehindthemtheconceptualappa-ratusofequilibriumtheories,offeravarietyofusefulcontributionsbothforunderstandingcontemporarysocietiesandforthedevelopmentandextensionofeconomictheory.2.ThemicroeconomicsofgeneraleconomicequilibriumWehavealreadyseen,in12.6,howinthe1950sanaxiomaticformu-lationofgeneraleconomicequilibriumtheorywasdeveloped,withtheso-calledArrowÐDebreumodel.Letusnowbrießyrecallsomeaspectsofthisresearchprojectandthelinesofevolutionthatitshowsinthemostrecentstage.Theaxiomaticformulationofgeneraleconomicequilibriumtheoryhasananalyticalcoreconsistingoffewassumptions.Thereisagivennumberofeconomicagentsandagivennumberofcommodities.Theinitialendowmentsofeconomicagentsandtheirpreferencesaretakenasgiven,andpreferencesareassumedtobeconvex(whichisequivalent,inourcontext,tothepostulateofdecreasingmarginalutility).Moreover,somerulesofthegameareassumedasgiven:essentially,onepriceforeachcommodity.Onthebasisofsuchdataandassumptions,theproblemconsistsindeterminingthesetofexchangeratiosthatemergefromtheinteractionbetweenthevariousagents,whentheyseektoimprovetheirownpositionthroughexchange.

472TheWealthofIdeasRigorouslydeÞned,theproblemisapurelyformalone:toestablishwhether(andunderwhatconditions)therearesolutions,whether(andunderwhatconditions)suchsolutionsareuniqueandstable,andtolocateanalgorithmfordeterminingthem.1AninterpretationÐinfactalreadyimplicitinthechoiceofterminology(economicagents,commodities,preferences)Ðisthensuperimposedontheformalproblem:thetheoryisthuspresentedasrepresentingthemechanismsofacompetitivemarket.Thisinterpretationopensthewaytoconsideringfurtherissues,extendingtheoriginalschemethroughredeÞnitionofthebasicconceptsand/orintroductionoffurtherassumptions.Forexample,aswassuggestedabove(12.6),thenotionofeconomicgoodmaybeextendedtoincludeÔdatedÕandÔcontingentÕgoods:acom-moditywithspeciÞcphysicalfeatures,forinstancesteelofaspeciÞcqual-ity,isconsideredassomanydifferentgoodsasthepossibledeliverydates(thusgivingrisetoasmanyforwardmarkets),andasthepossibleÔstatesoftheworldÕ(forinstancedifferentconditionsininternationalpolicyrelations).Wethushaveintertemporalequilibriummodels,whichdealwithÔdatedÕgoods,andmodelsofequilibriumwithcontingentmarkets:thesimpleredeÞnitionofaconceptopensupnewperspectivestotheanalysis.2Anotherdevelopmentofthebasicmodel,alreadyproposedbyWalras(cf.above,12.2),consistsinintroducingthepossibilityofproductiveprocesses,whichtransformoriginallyavailablegoodsintoothergoods:itisthennecessarytointroduceamongthedataoftheproblemtheÔproductionfunctionsÕ(generallyassumedtobeconvex,inconformitytothepostulateofdecreasingmarginalproductivity).Itisalsoneces-sary,attheconceptuallevel,toattributetoeconomicagentsanaddi-tionalrole:thatofcoordinatorsoftheproductiveprocess,whoseekopportunitiesforgainbyacquiringmeansofproductionandsellingtheproducts.Overtime,theresearchstreamongeneraleconomicequilibriumhasuseddifferentanalyticaltools:thedifferentialcalculusutilisedbytheÞrsttheoreticiansofthemarginalistrevolution,thentopologyfromthe1920s;inthe1950sthetheoryofgamesenteredthesceneandgraduallycame1Inordertodealwiththeproblemofstabilityitisobviouslynecessarytointroduceassump-tionsonhowthesystembehavesoutofequilibrium:forinstance,assumingthat,ifforagivencommoditysupplyexceedsdemand,itspriceshoulddecrease.Asamatteroffact,stabilitycanonlybeguaranteedunderveryrestrictiveassumptions:forasurveyoftheissue,cf.Hahn1982b.OnthestaticsÐdynamicsandstabilityÐinstabilitydichotomies,cf.Weintraub1991.2Forinstance,themarketsfordifferentÔstatesoftheworldÕreferringtoagivenvariable,everythingelseremainingthesame,maybeinterpretedasmarketsdetermininginsurancepremiumsagainstspeciÞedcontingencies.

Theageoffragmentation473todominate.3Theadvantageofthelatteristhatitconsidersinteractionsamongeconomicagents:whilewithintraditionaltheoryeacheconomicagentintakinghisowndecisionsconsideredthoseofothersasgivenparameters,expressedinthemarketpriceandintheoverallquantitysuppliedanddemanded,inthecaseofÔstrategicbehaviourÕeacheco-nomicagenttakesaccountofthepossiblereactionsofothers.InthiswayitisnolongernecessarytoassumethateacheconomicagenthasaninÞnitesimalsizeincomparisontotheoveralldimensionsofthemarketforeachcommodity:quiteadifÞcultassumptiontoswallow,themoresoifweconsiderthatinthetransitiontotheintertemporalmodelwithcontingentmarketsthenumberofcommoditiesismultipliedbyaveryhighfactorwhilethenumberofeconomicagentsremainsunchanged.Inthemostrecentperiod,researchwithinthegeneraleconomicequi-libriumapproachhasfocusedonthelimitssettotheoptimalfunctioningofthemarketbydifferentcircumstances.Thus,theimpossibilityoffullyspecifyingallaspectsofanagreementgivesrisetotheso-calledÔprincipal-agentproblemÕ,thatis,thepossibilitythatthepersonwhoacceptsrespon-sibilityforajob(foraccomplishingacertaintask,theagent)utilisesthemarginsoffreedomofactionavailableinhisowninterestratherthanintheinterestofthepersonwhoentruststhetask(theprincipal).Avastliteraturediscussesthentheproblemofdesigningincentivestruc-turessuchastoinducetheagenttoadopttheprincipalÕsinterestsashisown.4TheÔprincipal-agentproblemÕisbutaspeciesofawidergenus,theresearchintotheeffectsofimperfectionsintheknowledgeofeconomicagents.IntheÞeldofÞnance,forinstance,asymmetricinformationisusedforjustifyingstabilityofrelationsbetweenhouse-bankandÞrm.ThedifferentavailabilityofinformationbetweensellerandbuyeronthegoodbeingexchangedisthenatthecentreofthetheoryofÔlemonsÕproposedbyGeorgeAkerlof(b.1930,Nobelprizein2001)in1970:amecha-nismofadverseselectioninwhichÐwithageneralisationofGreshamÕs3AdecisivestepinthisdirectionwasvonNeumannÕsandMorgensternÕs1944book;cf.above,12.5.Animportantrecentbook,Mirowski2002,illustratesthepathofmain-streammicroeconomictheorysincevonNeumannandMorgenstern1944uptoourdays,highlightingamongotherthingstheroleoftheCowlesCommissionandtheRandCor-poration,togetherwiththatofmilitarygrants,intheformationofadominantconsensusaroundaxiomaticgeneralequilibriumtheory.MirowskialsopointstothegermsofadifferentlineofresearchpresentinvonNeumannÕsandMorgensternÕsthought,particu-larlytheÞrstofthetwo,withhisoppositiontothenotionofNashequilibrium(cf.above,12.5)andhispropensitytowardsevolutionarydevelopmentsofgametheory.4AmongtheÞrstworksontheproblemletusrecallRoss1973;foranillustrationoftheresultsreachedbythisstreamofresearchseeforinstanceMas-Colelletal.1995,pp.477Ð510;ingeneral,thistextconstitutesareferenceforasurveyonthestateoftheartinthemicroeconomicÞeld,thusalsoforotheraspectshintedatinthissection.

474TheWealthofIdeaslawÐthebadcommoditysqueezesthegoodcommodityoutofthemarket.5Itistobestressedthat,despitethereferencestothemethodologyofgeneraleconomicequilibrium,quiteoftenthemodelsusedtoanalysethevariouscasesofasymmetryorimperfectinformationfallinthecat-egoryofpartialequilibriums.Indeed,withoutsimpliÞcationsitisprac-ticallyimpossibletoextractmeaningfulresultsfromtheanalysis.UseofextremelysimpliÞedmodelsinordertodealwithspeciÞcissues,withrecoursetoadhocassumptions,hasindeedbeenthemostcommonpathforresearchinthepasttwentyyears.Oftenitismaintainedthatthispro-videsrigorousmicroeconomicfoundationsforthetreatmentofconcreteissues,originallydealtwithinconceptualframeworksdifferentfromthatofgeneraleconomicequilibriumtheory.Theoutcome,however,isquitedifferent:theattempttoavoidabsoluteindeÞnitenessofresultsimposesopportunisticchoices.Themostoftenadoptedpathsarethoseofreturntopartialequilibriumanalysis,ortotheassumptionofaone-commodityworld:eitheranalyticalrigourorrealismissacriÞced.Theconclusionisthat,despitetheeffortsexpendedonit,theresearchstreamofgen-eraleconomicequilibriumdidnotovercomeitsbasiclimits(fromtheassumptionsofconvexityrecalledabove,tothedifÞcultyofexcludingmultipleequilibriumsorinstabilityofequilibrium):itthusremainedanabstractexercise,anendinitself,devoidofanyutilityforunderstandingtheeconomicsystemsinwhichwelive.Indeed,referencetothegeneraleconomicequilibriumapproachisoftenuseddeviously,ontheonehandasarhetoricaltricktoenhancethevalueofmodelswithalowtheoret-icalcontent,ontheotherasCaudineForksforstudentsofadvancedeconomiccourses.3.ThenewtheoriesoftheÞrmGeneraleconomicequilibriumtheoryconsidersrelationsamonglegallyindependenteconomicagentsandtriestoshowhow,undercertainassumptions,equilibriumsolutionsmaybereached.Aproblemthusarises:whyshouldtheÞrmexist?Letusrecallthatwhilewithinthemarketlegallyindependentagentsenterinrelationwitheachother,withineachÞrmorganisationalset-ups5AkerlofÕsexampleisthatoftheusedcarsmarket:thebuyerisunabletoexactlyevaluatetheconditionsoftheusedcarofferedforsale,anditislikelythatifthepricedemandedistheaverageoneforacarofthatage,thespeciÞccarofferedforsaleisofaninferiorqualitycomparedtotheaverageone.Thecasestowhichthistheoryisapplicablearenumerous:fromselectionamongloanapplicationstoselectionamongpotentialinsuranceclients,uptoselectionamongworkersonhire.

Theageoffragmentation475prevailbasedonÔcommandÕ,thatisonhierarchyandoncentralisationofdecisionsandcontrolovertheirexecution.Whatisitthenthatdeter-minestheboundarybetweenthesetwodifferentformsoforganisationofeconomiclife,marketandcommand?Withintheneo-classicaltradition,themostwidelyacceptedanswermaybetracedtoanarticlepublishedin1937bytheAmericanRonaldCoase(b.1910,Nobelprizein1991),whoseideashavebeentakenupanddevelopedbyothersmainlyoverthepasttwentyyears,afteralongperiodofnearoblivion.Coasestressedthatmarkettransactionshaveacostforparticipants:itisnecessarytocollectinformation,searchforacounter-partyreadytoexchange,negotiateoverpricesandothercondi-tions.Allthisimpliestimeandexpense.Intheabsenceoftheorganisa-tionalstructureoftheÞrm,eachworkerwouldhavetobargaintoacquireavarietyofinputsÐthesemi-Þnishedproductsandrawmaterialshehim-selfuses,hisworkingtools,engineeringservices,andsoonÐandthentobargainforthesaleofhisownproduct,whichingeneralwillonlybeasemi-ÞnishedproductorpartoftheÞnalproduct.TheÞrmallowsforsimpliÞcation,drasticallyreducingthenumberofnecessarytransactionsandreplacingthebargainingoverallaspectsoftheproductiveprocesswithanorganisationbasedoncommand(thatis,onahierarchicaldeci-sionalstructure).WhenthesizeoftheÞrmgrows,itsinternalorganisationbecomesmoreandmorecomplex,lessandlessefÞcient;onceacertainpointÐcorrespondingtotheoptimalsizeoftheÞrmÐispassed,thecostsofexpandingrelationsbasedoncommandbecomehigherthanthecostsofrecoursetoexchange,thatis,tothemarket.AquitedifferentanswertothequestionconcerningwhytheÞrmexistsisprovidedbyradicaleconomistslookingtoeconomicpowerrelations.TheAmericanStephenMarglin(1974)maintained,forinstance,thatthesuperiorityoftheÞrmÐinparticular,ofthelargeÞrmÐasaformoforganisationofproductionisbasedontechnologicalchoices(masspro-ductionofstandardisedgoods)whichwerenotnecessitated.Analterna-tivelineoftechnologicaldevelopmentwouldhavebeenpossible,basedonßexibleproduction;suchanalternativewouldhavefavouredorgan-isationalformsmoresimilartoartisanshopsthantolarge-sizemodernmanufacturingindustry.Thetechnologicallineofmassscaleproductionofstandardisedgoods,thusthebigcorporation,prevailedÐaccordingtoMarglinÐmainlybecausethisfavoursappropriationofthesurplusonthepartofthedominantclasses,thankstocontrolovertheproductiveprocessmadepossiblebytheorganisationalformofcommandandbydivisionoflabourwithintheÞrm.MarglinÕsideashavebeenseverelycriticisedbytheAmericanhistorianDavidLandes(1986).ThelatterreproposedSmithÕsoriginalanswer:

476TheWealthofIdeasthemodernÞrmprevailedoverartisanshopsbecauseitallowedcostreductions,byexploitingeconomiesofscaleobtainablethroughdivisionoflabourintheproductiveprocessandthroughtheconsequentintro-ductionofmachinery.However,itshouldbenotedthatsuchananswerliesoutsidetheapproachbasedonthetraditionalnotionofequilibrium.Indeed,accordingtoSmithÕslineofargument,Þrmsdonothaveanopti-malsize:theirgrowthtakesplaceintime,inthecourseofadynamicprocesswhichcannotbeinterpretedbythestaticanalysisoftraditionaltheory.GrowthinÞrmsize,whichbringsbigcorporationstothefore,leadstoanotherproblem:whocontrolstheÞrms?Publiccompanieshavetopmanagerswhoareingeneralnottheproprietors,whoareoftenverynumerous.AmericaneconomistsAdolfBerle(1895Ð1971)andGardinerMeans(1896Ð1988),inabookpublishedin1932,indicatedinthepubliccom-panyandintheseparationbetweenownersandmanagersthecharacter-isticsofanewformofsociety,managerialcapitalism.Inaninitialstageoftheprocessofindustrialisation,competitivecapitalism,smallÞrmsdirectlymanagedbytheirownersprevailed.Subsequently,withtheriseofbigÞrmsorganisedaspubliccompanies,ownershipissubdividedamongmanysmallshareholders;themanagersoftheÞrmacquiresufÞcientautonomytobecometherealprotagonistsofeconomiclife,assumingresponsibilityforalldecisionsrelativenotonlytothecurrentlifeoftheÞrmsbutalsotostrategiclongperiodchoices.Manyeconomists(amongthemtheAmericanWilliamBaumol,b.1922,inabookpublishedin1959),sharingBerleÕsandMeansÕsideas,inferredfromthemachangeinÞrmobjectives:theobjectiveofproÞtmaximisationhadprevailedinthestageofcompetitivecapitalism,whenÞrmsweredirectlymanagedbytheirowners;inthestageofmanagerialcapitalismotherobjectivesprevail,especiallysalesmaximisation,whichbettercorrespondstotheinterestsoftheÞrmÕsmanagers.Obviouslythemanagershavetoconsidertheriskofbeingreplaced,attheshareholdersÕannualmeeting,ifanewgroupofownerstakesovertheÞrm.Thismayhappenwhenmanyshareholders,dissatisÞedwiththemanagementofthecompanyandinparticularwiththeirdividendsandtheshareprice,selltheirsharesonthestockmarket;inthiscasetheÞrmÕstakeoverbyanewgroupisfavoured,sincethisnewgroupcanmoreeasilyacquireasufÞcientnumberofsharestogainamajorityinshareholdersÕmeetings.ItisonthisconstraintonmanagersÕsfreedomofactionthattheÔtheoryofmanagerialcapitalismÕisbased,asdevel-opedbytheEnglisheconomistRobinMarris,inabookpublishedin1964.

Theageoffragmentation477AnotherstreamofresearchconcernsthemarketpoweroflargeÞrms.TheItalianPaoloSylosLabini(b.1920)andtheAmericanJoeBain(1912Ð93),intwobooksbothpublishedin1956,developedatheoryofoligopoly(focusingattentionrespectivelyonthecasesofconcentratedanddifferentiatedoligopoly),consideredasthecommonmarketform,comparedtowhichpurecompetitionandmonopolyconstitutetwopolarlimit-cases.Inthecaseofoligopoly,theÞrmspresentinthemarketarepartiallyprotectedfromcompetitionofpotentialentrantsbyaÔbarriertoentryÕ,thestudyofwhichisthesubjectofthetheory.Suchabarrierisnotinsurmountable(inwhichcasetherewouldbemonopoly,whilethecaseofanon-existingbarriercorrespondstoperfectcompetition);itssize,hencethedifÞcultyinovercomingit,dependsonaseriesoffactorsdiscussedinthewritingsofBainandSylosLabiniandinsubsequentlit-eratureonthesubject.Forinstance,inthecaseofconcentratedoligopoly,thesizeofthebarriertoentrydependsontheminimaltechnologicallyoptimalsizeoftheplant,andingeneraloneconomiesofscale,whichrequirethenewÞrmtoenterthemarketwitharathersizeableminimumproduction,suchasnottoÞndamarketoutletatcurrentprices;inthecaseofdifferentiatedoligopoly,itdependsonadvertisingexpensesnec-essarytoimposethenewtrademarkonthemarket.Defendedbythesebarriers,ÞrmsalreadyactiveinthemarketmayenjoyproÞtswellabovethecompetitivelevelandacertainfreedomofaction,thoughwithinthelimitsdeterminedbytheriskofentryofnewcompetitorsintothesector.6TheoriesofthebehaviourofthelargeÞrmwhichdisplaynoticeablesimilaritiestothoseofMarris,BainandSylosLabinihavebeendevel-opedbysomeKeynesianeconomists.LetusrecallinparticulartheAustrianJosefSteindl(1952),theAmericanAlfredEichner(1976)andtheEnglishmanAdrianWood(1975).TheseeconomiststookovertheKeynesianviewaccordingtowhichinvestmentdecisionsbytheÞrmsconstitutetheprimummobileintheevolutionoftheeconomy.Oncethelevelofinvestmentstoberealisedhasbeendecided,ÞrmsmustdecidehowtoÞnancethem;foranumberofreasons,theyprefertouseinternalsources(proÞtsnotdistributedasdividendstoshareholders)ratherthandebt.7Therefore,accordingtothepost-KeynesiantheoryoftheÞrm,6ThistheorywasreformulatedbyModigliani1958intermscompatiblewithtraditionalneoclassicalanalysis,withaÔneoclassicalsynthesisÕparalleltothatrealisedbyhimselfconcerningKeynesÕstheory.7TheÔModiglianiÐMillertheoremÕ,accordingtowhichunderconditionsofperfectcom-petitionandperfectknowledgethedifferentsourcesofÞnancingareequivalent(cf.ModiglianiandMiller1958),isconsideredinapplicable,explicitlyorimplicitly,bytheseeconomists,whoingeneralconsidernon-competitivemarketconditionsandimperfectknowledgeasprevalent.

478TheWealthofIdeasentrepreneurssetproductpricessoastoobtainaproÞtmarginsufÞcienttoÞnancethedesiredlevelofinvestments.QuitenaturallythistheorymayreferonlytoÞrmsendowedwithsomemarketpower,whichareabletosetautonomouslytheirproductpricesandwhichindoingsoarenotrigidlyconstrainedbycompetitionwithotherÞrms.However,eveninthecaseofoligopolisticÞrmsitistobedoubtedwhetherpricesmaybesetfreely,soastogenerateanamountofproÞtssufÞcienttoÞnanceanyamountofinvestmentstheÞrmsdesiredtoenact.WemaythusinterpretKeynesiantheoriesoftheÞrmasconcerningutilisationofmarginsofchoicewhichtopmanagersenjoyinthepresenceofstrongelementsofuncertaintyandofoligopolisticconditions.AdevelopmentofthetheoriesofmarketformsbasedonbarrierstoentryisthecontestablemarketstheorydevelopedbyBaumolandothers(1982).Perfectlycontestablemarketsarethoseforwhichthereisnocostofentryorexit.Insuchmarkets,noÞrmcanenjoyextra-proÞts.Indeed,anyopportunityofextra-proÞts,eventemporaryones,imme-diatelyattractsnewÞrmsintothemarket.AbsenceofexitcostsallowsnewÞrmstoavoidanyrisk,forinstanceduetoreactionsofÞrmsalreadypresentinthemarket:ifmarketconditionschangeandtheextra-proÞtsturnnegative,thenewÞrmcanimmediatelyexitwithouthavingtobearanycost(withwhatiscommonlycalledÔhitandrunÕbehaviour).ExitcostsmainlyderivefromexistenceofÞxedcapitalgoodswhichcannotbereutilisedoncetheactivityforwhichtheyhadbeenacquiredhasbeenabandoned:theso-calledÔsunkcostsÕ.Thiselementconstitutesthemainnoveltyofcontestablemarketstheoryrelativetothetheoryofmarketformsbasedonbarrierstoentry.Completionofthisquicksurveyofthemoderndebateonthetheo-riesoftheÞrmrequiresatleastrecallingevolutionarytheories,whichwehavealreadymentionedintheconclusionofthechapteronMarshall.ThesetheorieshavebeenproposedtoexplaininparticularthebehaviouroftheÞrmandtheindustryintheprocessoftechnologicalchange.IntheapproachproposedbytheAmericansRichardNelson(b.1930)andSidneyWinter(b.1935)inabookdated1982,theindustrystructureinanymomentintimeisconsideredastheresultnotofaprocessofmax-imisation(ofproÞtsorsales),butofanevolutionaryprocess.SomeÞrmsmaygrowmorerapidlythanothers,somegobankruptwhileothersarestartedup;theindustryevolvesovertimeastheresultofthevicissitudesofÞrmswithinit.Asinbiology,recourseisproposedtomathematicalstochasticmodels,whichareabletoallowfortherandomelementalwayspresentineconomicevents,butalsothedifferentprobabilitiesofdiffer-entevents.TheÔgenesÕofÞrmsÐwhichdeterminetheidentityofeachofthem,transferfromonetotheotherthemainbehaviouralfeaturesand

Theageoffragmentation479undergoÔmutationsÕovertimeÐconsistofÔroutinesÕ:standardproceduresadoptedbytheÞrminproduction,productcommercialisation,Þnan-cialmanagement,andsoon.Inamarketeconomytheroutineswhichprevail,andthusdeterminethedominantfeaturesofÞrms,arethosewhichensuresuccess,namelythosewhichinthelongperiodensureproÞtmaximisation.4.InstitutionsandeconomictheoryIntheprevioussectionwediscussedCoaseÕsapproachforexplainingtheexistenceoftheÞrmonthebasisoftransactioncosts.Fromthisotherstreamsofresearchoriginate,whichconsiderpropertyrightsandpoliticalinstitutionsingeneralastheoutcomeofrationalprocessesofchoiceinthepresenceoftransactioncosts(andofinformationasymmetrieswhichgiverisetoÔprincipal-agentÕproblems).Amongthemainexponentsofthisstreamofresearch,calledneo-institutionalism,letusrecalltheAmericansDouglassNorth(b.1920,Nobelprizein1993)andOliverWilliamson(b.1932).8Insub-stance,neo-institutionalismmaybeconsideredasyetanothercaseofneoclassicalsynthesis:theproblemofinstitutions,traditionallytackledwithhistorical-sociologicalanalyses,isbroughtwithintheÞeldofthetheoryofrationalbehaviourofmaximisingeconomicagents.Neo-institutionalismisthusopposedtotheinstitutionalistschoolwhich,undertheinßuenceofThornsteinVeblen(cf.above,13.8),hadwidesuccessintheUnitedStatesatthebeginningofthetwentiethcentury,amongotherthingsinspiringthefoundationoftheAmericanEconomicAssociationin1885.InthewakeoftheGermanhistoricalschool(cf.above,11.2),studyofinstitutionsandofthesocialstruc-turewhichunderlieaneconomicsystem,withevenprofounddifferencesamongcountries,isopposedtoabstracttheoryandtotheÔRicardianviceÕconsistinginapplyingtheorywithoutduecautiontodirectinterpreta-tionofreality.9TheinstitutionalistsÕwritingsaretodayoftenclassiÞedasexternaltotheÞeldofeconomics,oratmostasfallingonthebound-arybetweeneconomics,sociologyandhistory.However,theyarerichin8Cf.forinstanceNorth1990,Williamson1975,1986,andthewidesurveybyEggertsson1990.9Americaninstitutionalismwasstrengthened,intheperiodimmediatelyfollowingtheSecondWorldWar,bytheinßuxofAustrianandGermanscholarscompelledtoexilebynazism.Thiswastheorigin,amongotherthings,oftheNewSchoolforSocialResearchinNewYork.AftertheSecondWorldWar,theinstitutionalistapproach,whilelosinggroundtothediffusionofSamuelsonÕsneoclassicalsynthesis,stillhasajournalofitsown,theJournalofEconomicIssues.Forabriefsurveyofinstitutionalisminthesecondhalfofthetwentiethcentury,cf.Hodgson2003.

480TheWealthofIdeasextremelyusefulhintsforeconomicanalysis,whichoccasionallyemergeinheterodoxresearchstreams,asinthecaseofanalysisofÞrmsÕactualpricingpractices.Inthesecondhalfofthetwentiethcentury,thebest-knownexponentoftheinstitutionalisttraditionwasJohnKennethGalbraith(b.1908);someofhisworks,suchasTheafßuentsociety(1955)andThenewindustrialstate(1967)haveattractedwidespreadattention.AccordingtoGalbraith,theparadigmofperfectlycompetitiveequilibriumiswhollyinappropri-ateforinterpretingcontemporaryeconomies,theevolutionofwhichismainlydeterminedbyinteractionamongbigplayerssuchasgovernment(especiallythemilitary),thelargestcorporationsandtradeunions.WithGalbraith,whowasamongtheprotagonistsoftheKennedyadministration,institutionalismmetwithpost-Keynesianism,whichwillbeconsideredinthenextsection.ThesamedirectionistakenbythedebateonthedifferentÞnancialsystemsdevelopedsincethe1970s:theJapanesekeiretsusystem,theGermansystembasedonuniversalbanksandtheAnglo-Saxonsystembasedonthemarket.10Post-KeynesiantheoryofÞnance11constitutesinthisrespectfecundmediationbetweentheanti-theoreticalattitudeofinstitutionalistsandKeynesiantheories.InEurope,reneweddebateontherelationshipbetweeneconomicinsti-tutionsandsocialstructurerecentlyconcernedtheso-calledwelfarestate:essentiallyeducation,medicalcareandstate-supportedpensionschemes.Inthiscasetoothedebatetakesplaceinterritoryborderingeconomics,sociologyandpolitology;forabriefbutdenseillustrationoftheproblemsinthissphereseeDahrendorf1995.5.MacroeconomictheoryafterKeynesAmongthedifferentgroupsofeconomiststakingpartinthevariedcon-temporarytheoreticaldebateonmacroeconomicthemesofemploymentandmoney,manyrefertoKeynesÕsideas,inordereithertorevive(albeitinasuitablymodiÞedversion)ortocriticisethem.Letusdistinguishthreemaingroups:neoclassicalsynthesiseconomists,dominatingformorethanthirtyyearsaftertheendoftheSecondWorldWar,charac-terisedbytheinsertionofKeynesianelementsÐparticularlyconcerningeconomicpolicyÐinthemarginalisttradition;monetaristsandtheratio-nalexpectationsschool,whomoreorlessradicallyrejectpublicinterven-tionand,onthestrictlytheoreticallevel,Keynesiantheory,considered10AmongtherootsofthisdebateweshouldalsorecallHilferdingÕs1910book,thoughheretainedaMarxistperspective,morepreciselytheAustro-Marxismrecalledabove,in9.9;HilferdingdiscussedthedominanceofÞnancialcapitalovermanufacturingcapital.11Cf.forinstanceDavidson1972;Minsky1982;Kregel1996;Tonveronachi1988.

Theageoffragmentation481contradictorywiththeanalyticalstructureofthemarginalistapproach;andÞnally,thepost-Keynesianswho,diametricallyopposedtotheothergroups,reproposethedistinctiveelementsofKeynesÕsoriginalthought,inprimisuncertainty.(a)Theneoclassicalsynthesis12ConfrontedwiththeexperienceoftheGreatDepressionofthe1930s,manyeconomistshadbeeninducedtolendanattentiveeartoKeynesÕsideasontheopportunityofpublicinterventionsinsupportofdemandinordertocounterunemployment,eveniftheywereunwillingtoabandonthemarginalisttheoryofvalueanddistributionwhichconstitutedthefoundationoftheirowneducation.Inordertoreconcilethesetwoaspects,KeynesÕstheorywasreinterpretedinsertingitwithintheframeworkofthemarginalistapproach,whileadhocassumptions,suchasthedownwardrigidityofwages,wereaddedtothecoreofthemarginalisttheoryofvalueanddistribution,soastorenderunemploymentapossibleoutcome.AlongthisroadweÞndinparticularJohnHicks(1904Ð89,Nobelprizein1972).Inanarticleof1937,Hicksproposedtheso-calledIS-LMscheme,whichtranslatedKeynesÕstheoryintothemoretraditionaltermsofasimpliÞedgeneraleconomicequilibriummodel,withthepresenceofthreemarkets:forgoods,moneyandbonds(thoughthelatter,thankstoÔWalrasÕslawÕÐcf.above,12.3Ðonlyplaysapurelypassiverole,andattentionmayfocusontheÞrsttwo).Thegoodsmarketisinequilibriumwhensupply,thatisproduction,isequaltoaggregatedemand(whichunderthesimplifyingassumptionofaclosedeconomywithnogovernmentexpenditureandnotaxescorre-spondstodemandforconsumptionandinvestmentgoods).Theequilib-riumcondition,thatisequalitybetweenaggregatesupplyanddemand,holdswhensavings,whichareanincreasingfunctionofincome,areequaltoinvestments,whichareconsideredadecreasingfunctionoftherateofinterest.Themoneymarketisinequilibriumwhendemandandsupplyofmoneyareequal.Accordingtotheexogenousmoneyassumption,thesupplyofmoneyisdeterminedbymonetaryauthoritieswhodirectlycon-troltheissueoflegalmoney,andindirectlycontroltheamountofcreditmoneythatbanksareallowedtocreate.Demandformoneyisequaltothesumoftwocomponents:transactionsdemandformoney,whichisanincreasingfunctionofincome,andspeculativedemandformoneyÐthe12ÔTheÒneoclassicalsynthesisÓwasalabelcoinedbySamuelsonintheÞftheditionofhisEconomics(1955)Õ(Blaug2003,p.407).

482TheWealthofIdeasoneonwhichKeynesfocusedattention,andwhichexpressesthechoiceoftheform,moneyorbonds,inwhichwealthisheldÐconsideredadecreasingfunctionoftherateofinterest.FollowingthesamelinesasHicksweÞndFrancoModigliani(1918Ð2003,borninItaly,thenemigratedtotheUnitedStatesÐlikemanyotherItalian,AustrianandGermaneconomistsÐtoescaperacialpersecution,Nobelprizein1985).Inanarticledated1944,subsequentlydevelopedinanotherarticledated1963,ModiglianiextendedtheIS-LMschemetoexplicitlyconsiderthelabourmarkettoo.Asforothermarkets,inthelabourmarketaswellchangesinpriceleadtowardsequilibriumbetweendemandandsupply.Moreprecisely,changesinthewagerate,thatisinthepriceoflabourservices,bringintoequilibriumlabourdemandandsupply,thusensuringfullemployment.InordertoobtaintheÔKeynesianÕresult,namelythepossibilityofasituationofpersistentunemployment,itisthennecessarytointroducesomeobstaclehinderingthefreeoperationofthelabourmarket.Suchanobstacleislocatedinthenon-competitivenatureofthemarket,duetotradeunionsÕbargainingpower,whichdeter-minesthedownwardrigidityofwages.PatinkinÕs1956bookisanotherimportantcontributiontothecon-structionandtherisetodominanceoftheneoclassicalsynthesis,drawingattentiontothenon-neutralityofmoneyoutofequilibrium:whenrealwagesarestickybecausethefallinmoneywagesprovokedbyunemploy-mentisaccompaniedbyafallinprices,anotheradjustmentmechanismcomesintoplay,theso-calledPigoueffect,bywhichtheincreaseintherealvalueofmoneyholdingsduetothefallofpricesprovokesanincreaseinconsumption,whichdependsnotonlyoncurrentincomebutalsoonrealwealth.InthiswayKeynesiantheoryispresentedasaparticularcaseofmarginalisttheory:thatcaseinwhichfullemploymentequilibriumcan-notbereached,becausethelabourmarketisnotacompetitivemarket.Wethushavetheneoclassicalsynthesis,thatisasynthesisbetweentheneoclassicaltheoryofvalueandKeynesÕstheoryofemployment,13whichinthesecondhalfofthetwentiethcenturydominatedmacroeconomicsteachingallovertheworld.TheneoclassicalsynthesisabsorbstheKeynesianthesisofthepossi-bilityofunder-employmentequilibriumsintheframeworkofthetradi-tionalmarginalistapproachbasedonthenotionofmarketsinwhichpricevariationsensureequilibriumbetweensupplyanddemand.Thisopens13Orbetter,asalreadystated,aspeciÞccaseofneoclassicaltheorybasedonadhocassump-tions,whileKeynesÕstheorywasmodiÞedinessentialrespectssuchastheroleofuncer-taintyandexpectations.

Theageoffragmentation483thewaytorecognisingtheutilityofpublicinterventionintheeconomy:unemploymentcanbecounteredthroughrecoursetoÞscalandmonetarypolicies,usefulingeneraltoregulatetheeconomyavoidingorreducingitscyclicaloscillations.Naturally,inthepresenceofsomemarketpoweronthepartoftradeunions,publicinterventionaimedatreducingunemploymentcansimul-taneouslyleadtoanincreaseintherateofgrowthofmoneywagerates,whichinturngeneratesanincreaseofinßation.Thetrade-offbetweenunemploymentandrateofinßationwasreproposedinanoftenquoted1958articlebytheNewZealandeconomistA.W.Phillips(1914Ð75).Thedecreasingcurverepresentingsuchaninverserelationship(theso-calledÔPhillipscurveÕ)represents,accordingtoneoclassicalsynthesiseconomists,thesetofpossibleeconomicpolicychoices.However,asweshallseebelow,suchaviewhasbeensubjectedtoanumberofcriticismsoverthepastthirtyyears.Letusbrießydiscussherethreelinesofresearchthatwemayconsidervariantsoftheneoclassicalsynthesis.TheÞrstwasoriginatedbyRobertClower(b.1926)andbyAxelLeijonhufvud(b.1933),whointerpretedKeynesasadisequilibriumtheory,whosemicrofoundationsaretobefoundnotintheWalrasianapproachbutratherintheMarshallianone,takingintoaccounttheproblemsofinformationdiffusionandintertem-poralcoordinationofrealeconomies.14Thesecondlineofresearchistheso-calledÔnewKeynesianeconomicsÕ,whosemainrepresentativeisJosephStiglitz(b.1943,Nobelprizein2001),whotriedtolocateindifferentkindsofmarketfailurestheori-ginofunemployment.Inotherwords,microeconomicexplanationsaresoughtfortherigiditieswhichatthemacrolevelcausethepresenceofunemployment.WethushavemodelsbasedonÔmenucostsÕ(costsofadjustingpricesonthepartoftheÞrms,asaresultofwhichtheadjust-menttodemandtakesplacethroughlevelsofproductionandhenceofemploymentratherthanthroughprices),ÔinsiderÐoutsiderÕmodels(inwhichthosealreadyemployedenjoyamarginofmarketpowerwhichtheyusetogethigherwages,attheexpenseofhigheremploymentlevels),ÔefÞciencywagesÕmodels(inwhichÞrmsprefertoavoidreductionsin14IntheabsenceofaWalrasianauctioneer,transactionsmaytakeplaceatoutofequi-libriumprices;moreover,quantityadjustmentisassumedtobespeedierthanpriceadjustment;asaconsequence,bothbuyersandsellersaresubjecttoquantityconstraints.Cf.Clower1965;Leijonhufvud1968.Subsequently,themodelsbyBarroandGross-man1971andMalinvaud1977reformulatedthislineofresearchintermsofWalrasianschemesinwhichpricesandmoneywagesareÞxedandtransactionsmaytakeplaceatdisequilibriumprices.TheresultisthepossibilityofÔrationingÕeitherdemandorsupply,henceaÔclassicalÕunemploymentprovokedbydownwardwagerigidityoraÔKeynesianÕunemploymentprovokedbyinsufÞcienteffectivedemand.

484TheWealthofIdeasmoneywages,inordertoretainexperiencedworkers,presumablymoreefÞcientthanpotentialnewemployees),andthelistmightgoon.SuccessofthislineofresearchisquitedifÞculttounderstand:inordertorepro-ducethenotableresultsofKeynesiananalysiswithintheneoclassicaltradition,adhocassumptionsareintroduced,oftenratherimplausibleones,onthesandytheoreticalfoundationsofone-commodityand/orpar-tialequilibriummodelswiththeirinverserelationshipbetweenrealwagesandunemployment.Thethirdlineofresearchconcernsextensionoftheneoclassicalsyn-thesistotheÞeldofmonetarytheory.LetusrecallhereJamesTobin(1918Ð2002,Nobelprizein1981),whoexplainsdemandformoneyasaportfoliochoiceonthepartofarationaleconomicagentinthepresenceofrisk.15(b)MonetaristsandrationalexpectationstheoreticiansWithinthemarginalisttraditionsincethe1950stherehasbeenalivelydebateontheplausibilityoftheassumptionsnecessaryforensuringtheKeynesianresultofpersistentunemployment.ThisdebateimpingesonthegreaterorlesserconÞdenceattributedontheonehandtotheabilityofthemarkettoensureequilibriumbetweendemandandsupplyoflabour,ontheotherontheefÞcacyofÞscalandmonetarypolicies.Amongthosewhoshowfaithintheequilibratingpowersofthemarketandhostilitytostateinterventionintheeconomy,theChicagoschoolisprominent.MiltonFriedman(b.1912,Nobelprizein1976)istherecog-nisedleaderofthisschool.16HeworkedoutadifferenttheoryofmoneyfromKeynesÕs,takingonanddevelopingthethesesoftheoldquantitytheory.17Inparticular,inthelongifnotintheshortrun,theequilibrium15InthiscontextTobinproposedtheusefulnotionnowknownasÔTobinÕsqÕ,deÞnedastheratiobetweencurrentmarketevaluationofagivencapitalstockanditsreplacementvalue(whichforphysicalcapitalgoodsisgivenbytheircostofproduction).InsomerespectsthislineofresearchmayalsoincludetheModiglianiÐMillertheoremalreadymentionedabove(note7)andtheCAPM(capitalassetpricingmodels)whichnowdominatethetheoryofÞnance.ThislineofresearchhasalreadyyieldedafewNobelprizes:apartfromModigliani,whoalsogaveimportantcontributionsinvariousÞelds,andTobin,NobellaureateswereHarryMarkowitz(b.1927),MertonMiller(b.1923)andWilliamSharpe(b.1934)in1990andRobertMerton(b.1944)in1997.16OccasionallyFriedmanÕsiscalledtheÔsecondÕorÔnewÕChicagoschool,inordertodistinguishitfromtheÔoldÕChicagoschool,whoseprotagonistswereFrankKnight(1885Ð1972),HenrySimons(1899Ð1946)andJacobViner(1892Ð1970).TheÔoldÕChicagoschooladheredtoeconomicliberalismaswell,althoughinasomewhatdifferentsense:cf.Tonveronachi(1990)andthebibliographyquotedthere.InparticularSimonsconsideredapriorityaliberalreformoftheinstitutionalset-up,whichthemarketpoweroflargeÞrmsandoftradeunionshadmadenon-competitive:cf.Tonveronachi1982.17Cf.inparticularFriedman1956.

Theageoffragmentation485levelofincomedependsonÔrealÕfactorssuchasresourceendowments,technologyandpreferencesofeconomicagents;thevelocityofcircula-tionofmoneyisconsideredastablefunctionoftheratesofreturnofvariouskindsofassets(money,bonds,goods,humancapital).Friedmanthereforemaintainedthatmonetaryevents,inparticularthemoneysup-ply(whichisassumedtobeexogenous,thatis,sufÞcientlyindependentfromdemandformoney)mayinßuenceincomeandemploymentonlyintheshortrun;inthelongrunchangesinmoneysupplyonlyinßuencethegeneralpricelevel.Inotherwords,thePhillipscurveturnsouttobenegativelyslopedonlyintheshortperiod,butbecomesverticalinthelongperiod.18Moreover,FriedmancriticisedmonetaryandÞscalpolicymeasuresaimedatsupportingaggregatedemand,henceincomeandemployment:notonlybecauseefÞcacyofsuchinterventionsislimitedtotheshortperiod,butalsobecausetheshortperiodeffectsareuncertainandmaywellbenegative.Indeed,Friedmanrecalled,economicpolicymeasuresaresubjecttothreekindsoflagsanduncertainties:thoseconcerningeval-uationofthesituationinwhichtointervene;thoseconcerningtransitionfromsuchevaluationtochoiceofpolicymeasuresandtheirapplication;Þnally,thoseconcerningtheveryimpactofthepolicyadopted.Duetotheselagsanduncertaintiesitispossible,forinstance,thatpolicymea-suresexerttheirforeseenimpactinasituationquitedifferentfromtheonewhichhadledtotheiradoption,eveninasituationinwhichpoliciesofanoppositesignwouldhavebeennecessary.Economicpolicymeasuresmaythushaveadestabilisingimpact,wideningratherthanreducingincomeßuctuations.Astillmoreextremethesisisproposedbyrationalexpectationstheo-reticians,amongwhomistheAmericanRobertLucas(b.1937,Nobelprizein1995).Ina1972article,Lucasjoinedtheassumptionofmar-ketsincontinuousequilibriumwiththatofrationalexpectations,orig-inallyformulatedbyMuth(1961),accordingtowhichÔexpectations[…]areessentiallythesameasthepredictionsoftherelevanteconomictheoryÕ.19Asaconsequence,economicagentslearntotakeaccountofpublicinterventionintheeconomy,discountingitseffectsbeforehand.Thus,forinstance,deÞcitpublicexpenditure,thatisnotÞnancedbyacontemporaryincreaseintaxation,adoptedbythegovernmenttostim-ulateaggregatedemand,iscounterbalancedbyareductioninprivateconsumption,decidedbyprivateeconomicagentstoputasidethesav-ingswithwhichtopayforthetaxeswhichsoonerorlaterwillhavetobeintroducedtopayforthepublicdebtwithwhichpublicexpenditureis18Cf.Friedman1968;Phelps1967.19Muth1961,p.316.

486TheWealthofIdeasÞnanced.Inthiscontext,thePhillipscurveturnsouttobeverticalalsointheshortrun:expansionarymonetaryandÞscalpolicyinterventionsmayonlyproduceanincreaseintherateofinßation,notinthelevelofemployment.(Wemayalsoremarkthattheseassumptionspresupposethatalleconomicagentssharethesamemodeloftheworkingoftheecon-omy,andareendowedwithaneconomiccultureandanabilitytoforecastthefuturethatitwouldbeanunderstatementtocallunrealistic.)20OnlyÔsurpriseÕpolicymeasuresunforeseenbyeconomicagentsmayhaveanimpact,thoughatemporaryone,onrealvariables.Theonlykindofeconomicpolicyadmittedbyrationalexpectationstheoreticiansisthataimingtoreducefrictionsintheworkingofthemarket:so-calledÔsupply-sidepoliciesÕ,consistingforinstanceinfacili-tatingtheworkersÕmobilityfromonejobtoanother,orinensuringthatthequaliÞcationsofwhichthelabourforceofthecountryisendowedcorrespondtotheeconomicsystemÕsrequirements.Amongthesepoli-ciesthereisalsoareductioninÞscalpressure,sinceincreaseinincomenetoftaxesisaccompanied,inequilibrium,byanincreaseintheamountofÔsacriÞceÕ(undertheformofproductiveeffort)thateconomicagentsarereadytomake,hencebyanincreaseinproduction.Therationalexpectationsassumption,intheusualcontextofaone-commoditymodel,alsounderliesanewtheoryofthetradecycle,theÔrealcycletheoryÕ.21Accordingtothistheory,ßuctuationsinincomeandemploymentaroundlongrunequilibriumvaluesaredeterminedbyunforeseenshocksonthesideofsupply,suchaschangesintechnology,andbyconsequentreactionsofeconomicagents(forwhomtheeconomicsystemisalwaysinequilibrium,inanystageofthetradecycleitmaybe).AsinMarxÕsandSchumpeterÕstheoriesofthetradecycle(cf.above,9.6and15.3),thesamefactorsÐasinSchumpeter,changesintech-nologyÐsimultaneouslyexplaincycleandtrend.Afterdominatingthesceneinthe1980s,inthefollowingdecaderatio-nalexpectationstheorygraduallylostground,evenifinthetheoreti-calconfrontationwithrepresentativesoftheneoclassicalsynthesistheshakynatureofitstheoreticalfoundationsÐtheone-commoditymodel,commontotheirrivalstooÐhasnotbeenstressed.20Infact,thecrucialdefectofthistheoryisnotsomuchtheassumptionofrationalexpec-tations,asratherthemodeltowhichsuchanassumptionisappended:aone-commoditymodel,inwhichaninverserelationshipbetweenrealwagerateandemploymentmaybeeasilydeducedsothat,undercompetitiveconditions,astablefullemploymentequi-libriumexists.Aswehaverepeatedlyrecalled,inamulti-commoditymodelingeneralexistenceofsuchanequilibriumcannotbeproved.Therationalexpectationsassumptionappliedtoamodelofthiskindwouldthusgivequitedifferentresults.21TheoriginalcontributionisKydlandandPrescott1982.

Theageoffragmentation487(c)Thepost-KeynesiansInoppositiontothereinterpretationofKeynesÕstheoryproposedbytheneoclassicalsynthesisandtomonetaristcritiques,therehasbeenadecidedreactiononthesideofÔpost-KeynesiansÕ:exponentsoftheÔnewCambridgeschoolÕwhichwehavealreadymentioned(14.9),likeRichardKahn,NicholasKaldorandJoanRobinson;andsomeAmericaneconomistslikeSidneyWeintraub(1914Ð83),HymanMinsky(1920Ð96)andJanKregel(b.1944).TheseeconomistsmaintainthattheIS-LMschemeproposedbyHicksandutilisedbyneoclassicalsynthesiseconomistsrelegatestoasecondaryrolethesalientfeatureofKeynesÕsviewoftheeconomy:uncertainty,whichdominateseconomicagentsÕdecisions.Inthecaseoftheinvestmentfunction,muchmoreimportantthantheinterestrateareentrepreneursÕexpectationsonthereturnofdifferentinvestmentprojects:expectationsconsideredÔvolatileÕbyKeynes,sincetheychangecontinuously,depending,forexample,onthepoliticalclimateandongeneraleconomicconditions.Inthecaseofthedemandformoney,Keynesconsideredexpectationsonthefuture(tobeexact,onthefuturepathofinterestrates)Ðtheytoobeingextremelyvolatile,evenmorethanthoseconcerningtheexpectedyieldofinvestmentprojectsÐessentialfordeterminingthespeculativedemandformoney.Moreover,thelatterwasconsideredasthemaincomponentofthedemandformoneyÐbothforitsdimensionsanditsinstabilityÐsinceitisconnectedtothechoice,continuouslyrevisedbyeconomicagents,ontheforminwhichtokeepthestockofcumulatedwealth,whilethetransactiondemandformoneyisconnectedtotheßowofincome.Confrontedwiththerelevanceofuncertainty,volatilityofexpectationsandconsequentvariabilityofrelationsconnectinginvestmentsandspec-ulativedemandformoneytotheinterestrate,post-Keynesianeconomistsconsiderasmisleadingtherepresentationofmarketsinequilibriumbothforgoodsandformoney,basedonwell-deÞnedandsufÞcientlysta-bledemandandsupplyfunctions,whichistheviewthatunderliestheIS-LMscheme.Insteadofthesimultaneousequilibriumofvariousmarkets,typicalofthemarginalistapproachandtakenonintheIS-LMscheme,post-Keynesianeconomists22proposeacharacterisationoftheeconomicsys-tembasedonasequenceofcauseandeffectrelations:speculativedemandformoneyaffectstheinterestrate;thisinturn,togetherwithexpecta-tions,affectsthelevelofinvestments;inturninvestments,throughthe22Cf.forexamplePasinetti1974,ch.2.

488TheWealthofIdeasmultiplier,determineincomeandemployment.Thustheinßuenceexer-cisedbymonetaryandÞnancialmarketsonincomeandemploymentisstressed,inoppositiontothethesisoftheneutralityofmoneyacceptedintheclassicalandmarginalisttradition.Moreover,variouspost-Keynesianeconomistsmaintainthatthesupplyofmoneyisendogenous:thatis,thequantityofmoney(inparticularbankmoney)incirculationisnotrigidlycontrolledbymonetaryauthorities,butdependsatleastinpartonthedecisionsofotheragents.236.ThetheoryofgrowthThehistoryofmoderngrowththeorybeginssoonafterthepublicationofKeynesÕsGeneraltheory,withafamous1939articlebyRoyHarrod(1900Ð78).HarrodusedKeynesÕsapproachtodeÞneanequilibriumgrowthrate,theÔwarrantedrateofgrowthÕ,whichcorrespondstocon-tinuousequalitybetweengrowthrateofproductivecapacityandgrowthrateofaggregatedemand.HarrodÕsmodelisverysimple,basedasitisonthreeequations:theÞrstdeÞnessavingsasafunctionofincome,thesec-ondfollowsacceleratortheoryinsettinginvestmentsequaltotheproductbetweenchangeinincomeandcapital-outputratio,thethirdexpressestheKeynesianconditionofequilibriumbetweenaggregatesupplyanddemandasequalitybetweensavingsandinvestments.SubstitutioninthethirdequationoftheexpressionsforsavingsandinvestmentsdeÞnedbytheÞrsttwoequationsmakestheÔwarrantedÕrateofgrowthequaltotheratiobetweenpropensitytosaveandcapital-outputratio.Asimilarmodel,butwithasomewhatdifferentinterpretation,waspro-posedin1946bytheAmerican(ofRussian-Polishorigin)EvseyDomar(1914Ð98),leadingmanytorefertoaHarrodÐDomarmodel.Thesubse-quentdebateoriginatedinaproblemraisedbyHarrodintheconcludingsectionofhisarticle.Thisistheso-calledÔknifeedgeÕproblem,concern-inginstabilityoftheactualgrowthrateassoonasitdivergesfromthewarrantedrateofgrowth.Harrodrecalledthatwheneveractualgrowth,determinedbyaggregatedemand,ishigherthanwarrantedgrowth,pro-ductivecapacitylagsbehind.Thisimpliesanincreaseininvestments,henceinaggregatedemand,inthefollowingperiod,whichgeneratesnewincreasesinthegrowthrate.Conversely,ifactualgrowthislowerthanthatcorrespondingtothewarrantedrate,investmentswillbereduced23InparticularMinskyÐcf.theessayscollectedinMinsky1982ÐdevelopedonthisbasisanÔendogenousÕtheoryofÞnancialcrises,whichhadwidesuccess:amongotherthings,itwasutilisedbyKindleberger1978astheoreticalreferenceinhishistoricalinvestigation,andhasbeencontinuouslyreferredtoininterpretingthemostrecentÞnancialandcurrencyupheavals.

Theageoffragmentation489andtheconsequentdecreaseinaggregatedemandwillprovokeafurtherslowingdownofgrowth.Thisinstabilitymayleadtocyclicaloscillationsintheeconomy,ifcou-pledwithasystemofÔroofsÕandÔßoorsÕ.TheÔroofÕisgivenbyfullemployment;theabsenceofaÔßoorÕendowedwithsufÞcientjustiÞca-tionsreproposesKeynesÕsthesisofthepossibilityofpersistentunem-ployment.Moreover,acontinuousincreaseinunemploymentmaytakeplacewhentheactualgrowthratecorrespondstothewarrantedone,butthelatterislowerthantheÔnaturalÕrateofgrowth,equaltotherateofgrowthofproductivityplustherateofpopulationgrowth.OnthisthemeÐpossibilityofpersistentdifferencesbetweennatu-ralandwarrantedgrowthrates,andexistenceofequilibratingmech-anismsÐtherehasbeenconsiderabledebate.FollowinganimportantreviewarticlebyHahnandMatthews(1964),thismultiplicityofcon-tributionsmaybeboileddowntothreeapproaches.IntheÞrstplacewehavetheclassical(moreprecisely,Malthusian)approach,accordingtowhichadjustmenttakesplacethroughthegrowthrateofpopulation,whichfallswhenincreasingunemploymentbringsdownthewagerate.WethenhavetheKaldorianapproach(cf.Kaldor1956),basedonanadjust-mentofthepropensitytosave,broughtaboutbyachangeinincomedistribution:whenunemploymentgrows,thewagefallsand,sincetheworkersÕpropensitytosaveislowerthanthecapitalistsÕone,theaveragepropensitytosaveincreases,whichcorrespondstoanincreaseinthewar-rantedgrowthrate.Finallywehavetheneoclassicalapproach,basedonanadjustmentofthecapital-incomeratio:thefallinwagesbroughtaboutbyincreasingunemploymentleadsÞrmstoadoptproductiontechniqueswhichuserelativelymorelabour,thefactorofproductionwhosepricehasfallen;thusthecapital-incomeratiofalls;onceagain,thiscorrespondstoanincreaseinthewarrantedgrowthrate.Theseequilibratingmechanisms,however,arenotwithoutdefects.Forinstance,itisdoubtfulwhetherinpresent-dayconditionspopula-tiongrowthdependsonthewagelevel,accordingtoaninverserelation,asrequiredbytheclassicalapproach.TheKaldoriantheoryrequiresthatincreasesinunemploymentprovokeachangeindistributivesharesinfavourofproÞts,whileingeneralduringacrisisoradepressionproÞtsmaywelldecreasemorethanwages.Finally,SraffaÕs1960critiqueandtheensuingdebate(cf.above,16.8)deÞnitelyshowedthatthecapital-incomeratiocannotbeconsideredasanincreasingfunctionofthewage.WethusreturntoHarrodÕsoriginalthesis,atypicallyKeynesianone:growthinacapitalisticeconomyisintrinsicallyunstable.Theneoclassicalapproachtothetheoryofgrowth,originallyproposedinanarticlebySolow(1956)and,simultaneously,inacontributionby

490TheWealthofIdeastheAustralianTrevorSwan(1918Ð89;cf.Swan,1956),notwithstand-ingitsbasicfeeblenessstimulatedvariousstreamsofresearch.24IntheÞrstplace,theverysimpleoriginalSolowmodel,basedonanaggre-gateproductionfunctioninwhichthecapital-labourratioisacontinu-ousandincreasingfunctionofthewage,hasbeenextendedtoconsiderdifferentaspects,suchastaxationoratwo-sectormodel,without,how-ever,thismodifyingtheoriginalapproach.Inparticular,inavariantproposedbySolowhimself(1957),theoriginalmodelwasenrichedbyintroductionofexogenoustechnicalprogress.Inthesecondplace,wehavearichstreamofempiricalresearchwhich,ofteninconnectionwiththislattervariantofthemodel,seekstodeterminetherelativecontri-butionofcapital,labourandtechnicalprogress25toeconomicgrowthindifferentcountries;thebestknownamongsuchresearchisDenison1967.ToidentifytechnicalprogresswiththeÔresiduumÕ,thatiswiththatpartofincomegrowthwhichisnotjustiÞedbyincreaseinlabourandcapitalinputs,meansfailingtoexplainwhatempiricalanalysesshowtobethemajorcomponentofeconomicgrowth.AftersomeattemptsatreducingthesizeoftheÔresiduumÕbyinsertingaccumulationinÔhumancapitalÕalongsideaccumulationinÞxedcapital,anewstreamofresearchwasopenedbyRomer1986byextendingSolowÕsbasicmodeltoren-dertechnicalprogressendogenous,namelyconnectedtoincomegrowth,throughintroductionofincreasingreturnsorÔlearningbydoingÕmecha-nismswhichallowforÔaugmentationÕofhumancapitalgiventhephysicalinputsofcapitalandlabour.26Thisstreamofresearchhadalukewarmreceptionwhichappearsincredible,consideringitsunstablefoundations:indeed,increasingreturnsareknowntobeincompatiblewithcompet-itiveequilibriumofindividualproductiveunits,exceptforthecaseofeconomiesofscaleexternaltoindividualÞrmsbutinternaltotheindustry(thatis,totheeconomicsystemasawhole,intheÔone-commodityworldÕ24Cf.Solow2000forasurvey,andPasinetti2000foracritique.RobertSolow(b.1924)receivedtheNobelprize,in1987,preciselyforhiscontributiontothetheoryofgrowth.25Infactthecontributionoftechnicalprogressisdeterminednotdirectly,butresidually,thatisitcorrespondstothatpartofincomegrowthwhichisnotexplainedbyincreaseinthefactorsofproduction.ThereforesomeprefertospeakofaÔresiduumÕ(whichforinstancemaystemfromimprovementinÔhumancapitalÕduetoinvestmentsineducationandprofessionaltraining)ratherthanoftechnicalprogress.26ÔLearningbydoingÕphenomenaappearwhenunitcostsofproductiondecreaseasexpe-rienceisacquired,thatisinproportiontocumulatedamountofproduct.TheobjectofafamousarticlebyArrow(1962),thoughplayingananalogousroleinthecontextunderdiscussion,theseeffectsshouldnotbeconfusedwiththeconnectionbetweengrowthofproductionandtechnicalprogress(adynamicformofincreasingreturnstoscale)namedÔVerdoornÕslawÕ(cf.Verdoorn1949)andutilisedinhismodelsofgrowthbyKaldor(1957,1961).

Theageoffragmentation491formalisedinendogenousgrowthmodels);asSraffaalreadyremarkedinhis1925and1926articles,thisisaveryspeciÞccase.MorefaithfultotheKeynesianinspirationofHarrodÕsmodelandmoretheoreticallysolid,notbeinglimitedtothecaseofaone-commodityworld(or,evenworse,toaone-Þrmworld),isthemodelofdis-aggregatedgrowthdevelopedbyPasinetti(1981),alreadydiscussedabove(16.9).ApartfromthenormativeimplicationsproposedbyPasinettihimself,themodelshowshowonlybychanceactualgrowthofemploymentmaycorrespondtogrowthoflaboursupply,exogenouslydeterminedbydemographicfactors,andhowatechnologicalchangedifferingfromonesectortoanotherleadstocontinuouschangeinrelativepricesasanunavoidablefeatureofacapitalisticdevelopmentprocess.277.Quantitativeresearch:thedevelopmentofeconometricsEconomicgrowthisaÞeldinwhichtheoreticalandempiricalanaly-sesgohandinhandandofteninteract.Theideathateconomicissuesaretobestudiedbyanalysingquantitativerelationsbetweendifferentvariablesismoregeneral,andisasoldasthestudyofeconomicphe-nomena.WilliamPettyÕspoliticalarithmetic,aswesawabove(3.2),waspreciselybasedontheviewthatthestructureoftheeconomywasconstructedaccordingtomathematicallaws,Ôintermsofweight,numberandmeasureÕ.True,thisisnottheviewthatprevailedinsubsequentcen-turies.WithAdamSmith,theideaofpoliticaleconomyasamoralscienceprevailed:anideamoreorlesssharedbyprotagonistsofthenineteenthandtwentiethcenturiessuchasMarshallandKeynes.Thequantitativeviewwas,however,alwayspresent,accompanyingthedevelopmentofcol-lectionofstatisticalmaterial(Hacking1990);considerforinstanceworkbyGauss,Pearsonand,onmorespeciÞcallyeconomicthemes,EngelandPareto.Arenewedvigorousproposalofthequantitativeviewthenarrived,onthetheoreticallevel,withJevonsÕsandWalrasÕsmarginalistrevolution.WalraswasdirectlyreferredtobyWassilyLeontief(1906Ð99,Nobelprizein1973)concerninghisinputÐoutputtables.Thesearearepre-sentationoftheeconomythroughmatrices,thatissquaresofnumbers:eachcolumnindicatesthemeansofproductionutilisedinagivensector27Withingrowththeory,letusrecallherealsotwolinesofresearchsharplydifferentfromthatoriginatedbySolow:one,attheboundarieswitheconomicstatistics,duetoSimonKuznetz(1901Ð85,Nobelprizein1971)andanother,attheboundarieswitheconomichistory,duetoWaltRostow(1916Ð2003),withhistheoryofÔstagesofeconomicdevel-opmentÕ(cf.Rostow1960).

492TheWealthofIdeasdistinguishedbysectoroforigin;eachrowindicatesthesector-by-sectordestinationoftheproductofagivensector(cf.Leontief1941).How-ever,ifweconsidertheformativeperiodofLeontiefÕsstudies,theoriginofinputÐoutputtablesshouldratherbefoundintheschemesofrepro-ductionstudiedbyMarxinbookIIofCapital(cf.Gilibert1990).ThistwinascendancysuggeststhatLeontiefÕstablesmaybeconsideredatechnicaltoolforstatisticalanalysis,initselfopentousewithindiffer-entapproaches,whetherclassicalormarginalistones.Onthetheoreticallevel,too,LeontiefÕstables,byfocusingattentiononformalelementsofanalysisofrelativepricesandquantitiesproducedcommontoMarxianandWalrasiantheories,constituteacontributionwhichmaybedevel-opedeitherinthedirectionofatheoryofpricessuchasSraffaÕs(1960),ifthisaspectisisolatedfromthedeterminationofproductionlevels;orofmoderngeneraleconomicequilibriumtheory,ifweÔcloseÕthemodelbyaddingconsumerpreferencesontheonesideandchoiceamongalter-nativetechniquesofproductionontheother.LeontiefÕsinputÐoutputtableshavebeenextensivelyusedinappliedeconomicresearch;theirconstructionhasbecomeroutinefornationalstatisticinstitutes,anditisfrequentlyattemptedalsobyprivateresearchcentres.AwideinputÐoutputmultiregionalmodeloftheworldecon-omywasdevelopedintheframeworkofaresearchprojectdirectedbyLeontiefhimselfandorganisedbytheUnitedNations(Leontiefetal.1977).ApartfromtheuseofindividualinputÐoutputtablesforanalysisoftheproductivestructureofaneconomicsystem,recoursetocomparisonsbetweeninputÐoutputtablesrelativetodifferentcountriesortodiffer-entyearshasbeenmadetostudydifferencesamongnationalproductivestructuresandtechnologicalchange;moreover,statisticalinformationorganisedaccordingtotheLeontiefmodelhasbeenusedwithinlinearprogramming.Undertheassumptionofconstantreturnstoscaleinallsectorsoftheeconomy,inputÐoutputtablesallowustocomputetechnicalproductioncoefÞcients(thatis,thequantityofeachmeansofproduc-tionrequiredforeachunitofproduct);onthisbasis,linearprogrammingtechniquesallowustodeductthequantityofgrossoutputofthediffer-entsectorscorrespondingtoagivensetofnetproducts(andanalogoustechniquesaremoreoverapplicabletoaseriesofanalogousissues:cf.Dorfman,SamuelsonandSolow1958).Atthetheoreticallevel,thesys-temofdeterminationofgrossproductionlevelsthusarrivedatturnsouttobetheÔdualÕ(inthemathematicalmeaningoftheterm)ofasystemofdeterminationofrelativepricesbasedonrelativedifÞcultiesofproduc-tionofthevariouscommodities;hencethethesis,advancedbymany,ofanafÞnitybetweenLeontiefÕsinputÐoutputanalysisandSraffaÕsanalysis

Theageoffragmentation493ofpricesdiscussedabove,inchapter16.28However,alsotherelationshipbetweenlinearprogrammingandgeneraleconomicequilibriumtheoryisverystrictindeed.Asstatedabove,LeontiefÕstablesmayberelated,withthenecessarycaution,bothtotheoneandtheotherapproach.Anothertoolofempiricalanalysis,workedoutunderthestimulusoftheoreticaldevelopmentsofthetimebutwhosesubsequentworldwideuseprovedlargelyindependentofitsculturalroots,isthesystemofnationalaccounting.InthiscasethemainstimuluscamefromKeynesÕstheoryandthemacroeconomiccategoriesitused.However,atleastinthecaseofthemajorprotagonistofthislineofresearch,RichardStone(1913Ð91,Nobelprizein1984),weshouldalsorecalltheinßuenceofthelongtraditionofresearchonmeasurementofnationalincome,frompoliticalarithmeticianslikeWilliamPettyintheseventeenthcenturytotheeconomichistorianColinClark(1905Ð89).Thenationalaccountingsystemoffersasetofcategories,deÞnedinsuchawayastobesuscep-tibleofprecisestatisticalcomputationandtoaccordwiththeprinciplesofdoubleentrybookkeeping,whichrepresenttheworkingoftheeco-nomicsystemasawebofßowsofgoodsandmoneyconnectingdifferenteconomicagentsorrather,withintheaggregaterepresentationoftheeconomy,differentgroupsofeconomicagents.InitiatedbytheUnitedNationsandunderthedirectionofStone,asystemofnationalaccounts(SNA)hasbeenworkedout(fortheÞrsttimein1953,andsubsequentlyrevisedanumberoftimes)whichconstitutesacompulsoryreferencepointforthenationalstatisticinstitutesofvariouscountries.Increasingavailabilityofstatisticalinformation,sufÞcientlyreliableandorganisedincategoriesdeÞnedaccordingtosufÞcientlygeneralcrite-ria,undoubtedlyfavoureddevelopmentofappliedeconomicresearch.Butdevelopmentsofstatisticaltheory,inparticularinferentialstatis-tics,alsoplayedanimportantrole.Theseelements(andothers,suchasÐespeciallyÐcomputeradvances)combinetoexplaintheimpetuousdevelopmentoverthepastdecadesofeconometrics(fromtheGreekmetron,measurement):thesciencethataimsatidentifyingquantitativerelationsamongeconomicvariables,asabasisforinterpretationofeco-nomicphenomena.ArelativelymodestroleinthisdirectionwasinsteadplayedbytheÔmarginalistrevolutionÕandtheensuingmathematical28DualitybetweenpriceandquantitysystemlayatthecentreofthemodelofhomotheticgrowthproposedbyvonNeumann1937,whichalsostressedanothercorrespondence,thatbetweenproÞtrateandrateofgrowth.BothLeontiefÕsandvonNeumannÕsmodels,however,weredevelopedonthebasisoftheassumptionofconstantreturnstoscale:anassumptionwhichinsteadisexternaltoSraffaÕsapproach,whoseanalysisfocusesontheproblemoftherelationshipbetweenrelativepricesandincomedistribution(cf.above,16.7).

494TheWealthofIdeasreorientationofeconomictheory.Attemptstoestimateprecisenumericalvaluesforeconomicrelations,betweentheendofthenineteenthandthebeginningofthetwentiethcentury,mainlyconcernedaspectsexternaltothecoreofvaluetheories:thisisthecaseoftheconsumptioncurvesstudiedbyErnstEngel(1821Ð96)29orofParetoÕsstudiesonpersonalincomedistribution(cf.above,12.4).Moreover,thereisaqualitativejumpbetweensimpleuseofstatisticaldatafordescriptivepurposes,andsystematicsearchofprecisequantitativerelationsbetweenvariables.Itisthissecondaspectwhichmarksthebirthofeconometrics.TheItalianRodolfoBenini(1862Ð1956),statistician,demographerandeconomist,wasamongtheÞrst(cf.Benini1908)toutiliseadvancedstatisticalmethodssuchasmultipleregressionsineconomicanalysis.TheAmericanHenryMoore(1869Ð1958)andhispupils(amongwhomwemayrecallPaulDouglas,1892Ð1976,andHenrySchultz,1893Ð1938)systematicallypursuedquantitativeanalysisthroughstatisticalestimatesofeconomicrelationships.30Ambitiousmethodologicalfoundationsforthenewly-borneconomet-ricsciencewerethenprovidedbytheNorwegianRagnarFrish(1895Ð1973),inhiseditorialtotheÞrstissueofthenewjournalEconometrica(Frish1933),editedbyhimupto1955andconceivedastheorganoftheEconometricSociety,foundedin1930.31AccordingtoFrish,economet-ricsconstitutestheuniÞcationofstatistics,economictheoryandmathe-maticsnecessaryÔforarealunderstandingofthequantitativerelationsinmoderneconomiclifeÕ.Crucialcontributionstothedevelopmentofneweconometrictech-niquescamefromeconomistsgroupedintheCowlesCommission,amongstwhomwereJacobMarshak(1898Ð1977),TjallingKoopmans(1910Ð84,Nobelprizein1975),DonPatinkin(1922Ð97)andLawrenceKlein(b.1920,Nobelprizein1980).32TheNorwegianTrygveHaavelmo(1911Ð99,Nobelprizein1989),inanessaypublishedin1944asasupplementtoEconometrica,proposedtheinsertioninastochasticcontextoftheestimateofeconometricrelations.Inthisway,among29ÔEngelÕslawÕstatesthatwhenfamilyincomegrows,foodexpendituregrowslessthanproportionally.OnthehistoryofthisÔlawÕ,cf.Kindleberger1989,FirstLecture.30ToDouglas,togetherwiththemathematicianCharlesCobb,weoweinparticulartheconstructoftheaggregateproductionfunctionÐtheso-calledCobbÐDouglasÐwidelyutilisednotonlyinstatisticalanalysesbutalsointheoreticalanalysis,notwithstandingthedemonstratedlimitsofitsfoundations(becauseoftheaggregatecapitalnotionitemploys).Infact,onthetheoreticalleveltheaggregateproductionfunctionmaybetracedbacktoWicksell(evenifhehimselfwasawareofitslimits:cf.above,11.5).31In1969FrishsharedwiththeDutchJanTinbergen(1903Ð94),anotherkeyÞgureintheÞeldunderconsideration,theÞrstNobelprizeforeconomics.32ForanillustrationoftheroleoftheCowlesCommissioninthisrespect,cf.Klein1991.

Theageoffragmentation495otherthings,HaavelmodefendedtheeconometricapproachagainstthecriticismthatKeynes(1973,pp.295Ð329)hadlevelledatTinbergenÕsresearchoneconomiccyclesandtheconstructionofmacroeconomicmodels.33Developmentofquantitativeanalysisreceivedanimpulse,inpartic-ularintheUnitedStates,fromitsutilisationinsupportofthewareffortduringtheSecondWorldWar.This,however,mainlyholdstrueforoperationalresearch,utilisedforsolvingplanningproblemsintransportandinsimilarissues.Moderneconometrics,aimedatcon-structinglargeeconometricmodels,emergedinsteadintheimmediatesecondpost-warperiod,attheCowlesCommission;theÞrsteconomet-ricmodeloftheUSeconomyisKleinÕs.34Partlyduetothegrowthofpublicinterventionintheeconomy,atthetimethenecessityofforecastsonmacroeconomictrendswasstronglyfelt,andthisfavoureddevelop-mentofnewanalyticalmethodstothatend.ColdWarpoliticaltensionsandexpectationsofanewGreatCrisisinmarketeconomiesaftertheendofwarexpenditure,createdanatmosphereinwhichtheoptimisticforecastsoftheCowlesCommissioneconomistscametoconstituteacru-cialtestforthenewanalyticaltechniques,whichweresoontobewidelyadopted.35Amongthemostrecentdevelopmentsoftheneweconometrictech-niques,letusrecallthoseconcerningmethodsoftimeseriesanalysis,withtheARMAmodels(autoregressivemovingaverage:cf.BoxandJenkins1970).Stillmorerecently,theVARmethod(vectorautoregressive:cf.Sims1980,1982)hasbeenproposedasanalternativetotraditionaleconometrics.Thelatterhadbeenthetargetofradicalcritiques;inparticularLucas1976,onthebasisofrationalexpectationstheory(cf.above,5),hadmaintainedthatthestructuralparametersof33Contrarytoawidespreadvulgata,KeynesÕscritiquesdidnotstemfromgenerichostilitytouseofmathematicalorstatisticaltoolsintheeconomicÞeld,butfromaconsciousevaluationoftheirlimits:letusrecallthatKeyneswastheauthorofanimportantTreatiseonprobability(Keynes1921)!34ThemodelwasthendevelopedatMichiganUniversity.Kleinsubsequentlyheadedtwootherprojectsaimedatconstructinglarge-scalemacroeconomicmodels:theso-calledÔBrookingsmodelÕandtheÔProjectLinkÕ,whichaimedtolinkamongthemeconometricmodelsbuiltbyresearchcentresofdifferentcountries(forItaly,BeniaminoAndreattaÕsPrometeiamodel),inessencearrivingataworldmodelarticulatedbylargegeographicalareasandwherepossiblebycountries.35AmongothersletusrecalltheFED-MITmodel,builtfrom1964underModigliani.Healsocollaborated,from1966,tobuildaneconometricmodelforItalyattheBankofItaly.AmongthemodelsoftheItalianeconomy,letusalsorecallthatdevelopedbySylosLabini1967:amodelwhosedistinctivefeaturewasdistinctionamongthemaineconomicsectors(industry,agriculture,commerce)ascharacterisedbydifferentmarketforms.ExplicitlytargetingeconomicpolicyisinsteadtheÔModellaccioÕbuiltattheUniversityofAnconaundertheguideofFu`a(cf.Fu`a1976).

496TheWealthofIdeasmacroeconomicmodelsaresubjecttochangewhenconfrontedwithdis-cretionaleconomicpolicymeasures,sothatthemodelsthemselvescan-notbeusedtopredicttheconsequencesofadoptingpolicymeasures.Anavalancheofeconometricexercisesfollowed,aimedatÔverifyingÕorÔfalsifyingÕrationalexpectationstheory(orspeciÞcpropositionswithinit,suchaspublicdebtneutrality)inoppositiontomodelsoftheneoclassicalsynthesis.SimsinsteadproposedanÔatheoreticaleconometricsÕ,inwhichthestructureofthemodelisnotpredetermined:econometricanalysisisintendedtospecifycasebycasethemostsuitablemodel,ratherthantotestpre-assignedhypotheses.Thus,thedistancebetweeneconomictheoryandeconometricswidens,sinceeconomictheoryappearstolosetheroleofÔprompterÕofhypothesestosubmittoeconometrictesting,whileonitssideitwasalreadyÐoritshouldhavebeenÐobviousthateconometricenquiriescannotinanycasediscriminatebetweenÔcorrectÕandÔincorrectÕtheories,sinceineachcaseveriÞcationwouldsimultane-ouslyconcernthetheoryitselfandtheauxiliaryassumptionsneededtotranslateitintoaneconometricmodel.368.Newanalyticaltechniques:theoryofrepeatedgames,theoryofstochasticprocesses,chaostheoryAsalreadyhintedabove(2),gametheoryplayedanimportantroleindevelopmentofmoderngeneraleconomicequilibriumtheory.ThisnewtechniquewasalsowidelyutilisedintheÞeldofthetheoryoftheÞrm.Theso-calledtheoryofindustrialorganisationproposed,indeed,aturn-aroundoftheanalyticstructureoftraditionalanalysis:thatis,itproposedtoderivemarketformsfromtheÞrmsÕbehaviour,ratherthanbuildingadifferenttheoryoftheÞrmforeachmarketform.ThisisaÔrevolu-tionÕparalleltotheonesimultaneouslytakingplaceinmacroeconomics,whererecoursetogametheoryalsospreadrapidly:inbothcases,theideaisabandonedthateconomicagentsfollowaÔparametricÕbehaviour,thatischoosetheiractionsbyassumingasadatumÐasaparameterofthefunctiontobemaximisedÐthebehaviourofotheragents,andthereactionsofotheragentstooneÕsowndecisionaretakenintoaccount.Atthesametime,inbothcasesÐinthetheoryofindustrialorganisationasinmacroeconomictheoryÐtheaimistodevelopmicrofoundationsfromwhichtoderiveanalysisofmarketformsorthetheoryofeconomicpolicy.Inbothdirections,gametheoryfavouredproductionofnewtheoreticalcontributions,butrelyingonconceptsthatremainedsubstantiallythose36Cf.Cross1982.

Theageoffragmentation497developedwithintheframeworkofthetraditionalneoclassicalviewofindividualrationality.37Conversely,developmentinthelate1970softhetheoryofrepeatedgames,thoughatÞrstsightitmightseemasimpleextensionofatech-niquewhoseapplicationineconomictheoryhasreachedmaturity,opensupinterestingperspectivesforamorecomplexviewofthenotionofratio-nalityandforanunderstandingofcooperativebehaviourwithineconomicsystems.Withinthetraditionalapproachvariousdevelopmentstakeplace,suchasuseofthenotionofÔreputationÕwithinthetheoryofeconomicpolicy:38ifnon-cooperativebehaviourmaybeÔpunishedÕ,butpunishmenthasanimmediatecosthigherthanforgivenessalsoforthosewhoadministerit,punishmentmaynonethelessbechosensystematicallywithinarepeatedgame,sincereputationofnon-acquiescencethusacquiredwillinduceotherstoadoptacooperativebehaviour.LesstraditionalresultsareobtainedinsteadwhenanalysisisconductedonthebasisofexperimentsofÔcomputertournamentsÕ,atoolwhichisusedincreasinglyfrequentlyduetothedifÞcultiesofsolvingmathemati-callyproblemswithmorethantwoplayers.39Inthesetournamentseachplayerisrepresentedbyacomputerprogram,whichmaybeequalto,ordifferentfrom,thosechosenbyotherplayers;thecomputerthenmakesthedifferentÔplayersÕinteractaccordingtothepredeterminedrulesofthegame.Inacasewhichsoonbecameaclassic(Axelrod1984),theplayersmeetinaseriesofdirectencounters;asinthefamousÔprisonerÕsdilemmaÕ,thechoicenottocooperategivesahigherpay-offthancoop-eration,whateveristhechoiceoftheotherplayer;butifbothplayersdecidenottocooperate,theresultisworsethanifbothdecidetocoop-erate.Inthecaseofanon-repeatedgame,theequilibriumsolutionisthechoicenottocooperate.Inthecaseofrepeatedgames,instead,ifeachplayerrecallshowtheotherbehavedinpreviousencounters,cooperationmayemerge.Indeed,thetournamentexperimentsstudiedbyAxelrodshowedthatinthespectrumbetweenaltruismandasocialselÞshnessthe37Cf.Tirole1988fortheÔnewtheoryofindustrialorganisationÕ;moregenerally,cf.Fuden-bergandTirole1991foranillustrationofgametheoryfromtheeconomistsÕvantagepoint.38Thenotionofreputationhasforinstancebeenusedinordertojustifysystematicadop-tionofrestrictivemonetarypoliciesonthepartofcentralbankswhenconfrontedwithincreasinginßation.39Inthiscase,too,progressincomputersciencesfavoureddiffusionofthistechniqueofanalysis.Indeed,recoursetocomputersimulationsisfrequentforallproblemsinwhichitisdifÞculttoÞndsufÞcientlygeneralmathematicalsolutions:thus,inapplicationstoeconomicsofthetheoryofnon-ergodicstochasticprocessesasinchaostheory,whichwewillmentionlaterinthissection.

498TheWealthofIdeasmechanismofeconomic(andsocial,ingeneral)interactionsrewardsanintermediateposition,theso-calledÔtitfortatÕstrategy,inwhichtheagentisreadytocooperatebutreactsnegativelytothosewhoanswerwithanon-cooperativebehaviour,thoughbeingreadytopardonwhoevergoesbacktocooperation.Inasense,wemayseehereareturntotheSmithianthe-oryofself-interest,differingontheonesidefrombenevolenceandontheotherfromsheerselÞshness(cf.above,5.3and5.4).Wemayperhapsseeinthesedevelopmentsalsoahintofsomesortofmicrofoundationofanevolutionarytheoryofcustoms(butnotoftheinstitutionsthatsus-tainanddrivethem,towhichinsteadSmithhadalreadyattributedgreatimportance).Likegametheory,anothermathematicaltechnique,thatofstochasticprocesses(appliedtoeconomicsforinstancebySteindl1965intheanal-ysisofthesizedistributionofÞrms),hasbeenusedinthemostrecentdebatebothwithinthemainstreamapproach(forinstanceinmacro-economics,inrealcyclemodels)andwithinheterodoxapproaches,inparticularinpursuingevolutionaryresearchlines.Inthelattercase,thestochasticelementplaysanessentialrole,sincetheoutcomedependsonthepathrandomlyadopted(so-calledÔpathdependenceÕ).Inthenow-famousexampleofthetypewriter(PaulDavid1985)asinBrianArthurÕstheoreticalcontributions(cf.Arthur1994),learningbydoingorincreasingreturnstoscaleÐthatis,essentially,thepresenceofcumu-lativephenomenaintheprocessofeconomicdevelopmentÐgenerateoutcomeswhichdependonhistorical,evenrandom,vicissitudes.Atech-niquewhichforanyrandomreasonischosenmoreoftenthananotherinaninitialstageÐforinstance,onekeyboardarrangementratherthananother,orgasolinemotorsforcarsratherthanelectricmotorsÐispro-gressivelyadvantagedincomparisontotherivaltechnique,uptothepointatwhichÔlock-inÕphenomenaintervene,namelythepracticalimpossibil-ityofchangingthetechnologicalparadigm:aminimuminitialadvantagebecomesinsurmountablebecauseofthepresenceofcumulativeeffects.Thistypeofphenomenonwasinitiallyutilised,astheexamplesjustrecalledshow,intheÞeldofresearchintotechnologicalchange.Sub-sequentlyitalsogaverisetoso-calledÔneweconomicgeographyÕ(cf.forinstanceKrugman1990)whichaimstoexplainphenomenaofspa-tialconcentrationofspeciÞcproductiveactivities.Insubstance,anini-tialrandomdistributionofÞrmsovertheterritorymayevolveovertime,drivenbycumulativemechanismsduetoincreasingreturnsoflocalisationpresentindifferentproductivesectors;theresultisaprogressivediffer-entiationoftheproductivestructureofdifferentcountriesandregions,hencespecialisationintheßowsofinternationaltrade,withÔlock-inÕphe-nomenainthegeographicaldivisionoflabour.

Theageoffragmentation499Inallthesecases,weareconfrontedwithstochasticprocessesofanon-ergodickind,inwhichitisnotpossibletoinvertthearrowoftime,asitisinsteadpossibletodointhecaseofergodicprocesses.Thisdistinc-tionisusedbyDavidsoninthecontextofthemacroeconomicdebate(cf.forinstanceDavidson1994)todistinguishtheroleplayedbytimewithinthepost-Keynesianapproachandwithinmainstreamtheory.Onthewhole,analysisofnon-ergodicstochasticprocessesappearstogiverisetointerestingresultsforthestudyofcumulativeprocesses,particu-larlywheneversomeformofincreasingreturnstoscaleispresent:thatis,preciselyinthosecaseswhichmainstreamtheory,eveninitsmostsophis-ticatedversionsofgeneraleconomicequilibriumtheory,ÞndsitdifÞcultifnotimpossibletoconsider,butwhichalreadyinAdamSmithÕs1776viewappearasacentralaspectofrealityandeconomictheory.Chaostheory,too,hasbeenusedbothwithinmainstreamtheoriesandinsupportoftheoreticalapproacheswhichattributeacentralroletouncertaintyandtohistory.40Indeed,chaostheoriesaredifÞculttouseinthepositive;41inthenegative,theyallowustoshowahighsensitivityofthetemporalpatternofthevariablesunderconsiderationtostartingconditions,suchthatevenasmalldifferenceinsuchconditionsbringsouttotallydifferentpatterns(accordingtoafamousexample,theßutterofabutterßyÕswinginPekingmayprovokeastorminNewYork).Inthissense,amongotherthings,chaostheoryhasbeenusedforcriticalevaluationofproblemsconcerningstability,inparticularthehypothesisofconvergenceofmarkettonaturalprices.42InthemacroeconomicÞeld,useofthemathematicaltoolsofchaosshowshoweasyitistoobtainnon-regularcyclicalpatternsintheeconomy.However,thisanalyticaltool,whilstitallowsustocriticiseresultspreviouslyarrivedatonthebasisofsimplemodelsconsistingofasingledifferentialorÞrstdifferenceequation,doesnotbyitselfallowthelocationofelementsresponsible40Chaostheoryis,inessence,amathematicaltheoryinwhichthepatternfollowedbyavariable(orbyasetofvariables)isdeterminedÐingeneralunivocallyÐbynon-lineardifferentialequations.ThistheoryhasbeenappliedtodifferentresearchÞeldswithinnaturalsciences,forinstancemeteorology(wherethetheoryoffractalswasborn,afascinatingtheoryforthebeautyofgeometricalobjectswhichitproduces,inwhichthedimensionsofspacevarycontinuouslyratherthanbywholenumbers:asyet,atheorylittleappliedtoeconomicissues,butwhichmightproveuseful,forinstance,incritiqueofdeterministictheoriesinmacroeconomics).Forasimpleillustration,cf.Gleick1987;foramoreadvancedillustrationspeciÞcallydirectedtoeconomists,cf.BrockandDechert1991;cf.thenthebibliographicalreferencesprovidedthereforexamplesofapplicationsofchaostheoryineconomics.41LetusanyhowrecallGoodwinÕs1990attempttopresentchaostheoryasapositiveinterpretationofcapitalismalternativetothemainstreamequilibriumapproach.42Cf.forinstancetheessayscollectedinthemonographicissueofPoliticalEconomy(vol.6,no.1Ð2,1990)devotedtoÔConvergencetoLong-PeriodPositionsÕ.

500TheWealthofIdeasforthecycleorthebehaviourofpricesandthusconstructapositiveexplanationoftheseandotherphenomena.9.Interdisciplinaryproblemsandthefoundationsofeconomicscience:newtheoriesofrationality,ethicsandnewutilitarianism,growthandsustainabledevelopment,economicdemocracyandglobalisationThequicksurveyofthelastsectionsindicatesthesimultaneouspres-enceofdifferentlinesofresearchincontemporaryeconomicdebate.Inparticular,thereisanevidentclashbetweentheviewoftheeconomicproblemcharacterisingmainstreamtheory,basedonthenotionofequi-libriumbetweendemandandsupply,andtheviewimplicitinevolutionaryapproaches,oratleastapproachesopentorecognisingtheroleofpathdependence.Inessence,theclashconcernstwodifferentviews.Ontheonesidewehavearestrictedvisionofeconomictheory,whichthroughtheaxiomaticapproachaimstomaximiserigour,whileittackleswithsim-pliÞedadhocconstructsthedifferentproblemsarisingfromconfronta-tionwithactualeconomicsystems.Ontheother,wehaveabroaderview,whichabandonstheobjectiveofamonolithic,all-inclusiveconstruct,andfollowsavariedsetofresearchstrategiessharinggreaterattentionfortherealismofassumptions,henceforinstancebyrecognitionofthenecessitytoallowforthecumulativenatureofcrucialeconomicprocesses.Inthisseconddirection,amongtheproblemstobedealtwith,thoserelativetothestageofÔconceptualisationÕacquirerelevance:deÞnitionoftheconceptsofrationality,welfare,development,equalityandsoon.Oftenresearchbecomesinterdisciplinary,duetotheimportancethatothersocialsciencessuchaspsychology,ethics,ecologyandpoliticshaveforinvestigationofthesenotions.Still,subdivisionintoseparateÞeldsofinvestigationonsocietyandmanisarelativelyrecentphenomenon,perhapsanunavoidableonebutcertainlynotapositiveoneineveryrespect.Letusquicklyrecallsomeaspectsoftheseresearchlines.Asearlyastheeighteenthcenturythenotionofrationalitywasimplicitlyasubjectforinvestigationwithinthedebatesonpassionsandinterests(cf.above,4.3);wesawamongotherthingsthatthenotionofrationality,con-nectedtopursuitofpersonalinterestinthesenseofAdamSmith(thatis,distinctfrombenevolenceaswellasfromselÞshness),iswiderandmoreßexiblethanthatwhichtooktheleadwiththeJevonianinterpre-tationofutilitarianism(cf.above,5.3andch.10).Thislatternotion,however,prevailedwithinmainstreameconomicsandaxiomaticgeneraleconomicequilibriumtheory.Rationalbehaviourishereinterpretedas

Theageoffragmentation501achoiceamongagivensetofalternativeactionsmaximisingatargetfunction(morespeciÞcally,theexpectedvalueofagivenutilityfunction)takingaccountoftheexpectedoutcomeofeachcourseofaction.Perplexitiesalreadypresentinpastcenturieswithrespecttothisnotionhaveresurfaced,invariousforms,inthepastÞftyyearsaswell.Firstofall,43wehaveaseriesofspeciÞcations,suchasdistinctionbetweenrationalitymeantasinternalconsistencyofthechoiceset,orassystem-aticpursuitofpersonalinterestonthepartoftheeconomicagent.AspeciÞcationofthelattercategoryisgivenbythenotionofÔsubstan-tiverationalityÕ,meantasthepursuitofpersonalinterestdeÞnableinanÔobjectiveÕway,namelyindependentlyofindividualchoices.WehaveinsteadÔinstrumentalrationalityÕwhenevertheeconomicagentpursuesagivenpurpose,howeveridentiÞed.ThesespeciÞcations,andaseriesoflogicalproblemsconnectedwiththem,leadustostressthedistanceseparatingthenotionofrationalitytypicalofaxiomatictheoryfromactualbehaviourofindividuals.Yet,theassumptionofirrationalbehaviourappearsunrealtoo.HerbertSimon(1916Ð2001,Nobelprizein1978;cf.Simon1957,1979)proposedasasolutiontothisdilemmathenotionofboundedrationality.Wemustabandon,intheirrigidity,theprerequisitesofthemainstreamnotionofrationality:theassumptionofapredeÞnedsetofalternativeactionsamongwhichtochoose;theassumptionofknowledgeoftheoutcomesofthedifferentactions(whichmayadmitconditionsofprobabilisticuncertaintyÐorrisk,inKnightÕsterminologyÐbutnotuncertaintytoutcourt);Þnally,theassumptionofagivenutilityfunction(asanobjec-tivedatum)tobemaximised.Wethusrecognisethatmostofthetimespentchoosinganactioninvolvescollectinginformation,nevercomplete,onthemainavailablelinesofactionandtheiroutcomes,whichinanycaseremainuncertain.Moreover,whenconfrontedwithamultiplicityofobjectivesitappearsreasonabletoadoptaÔsatisÞcingÕbehaviourtoreachanacceptableresultforeachofthedifferentobjectivessimulta-neouslypursued,ratherthanmaximisingafunctionwhichincorporates,adequatelyweighted,thedifferentobjectives.44Anotherstreamofresearchtriestoanalysetheactualbehaviourofeco-nomicagentsthroughexperimentsinwhichtheworkingofthemarketis43Forabriefsurveyoftheseaspectsandconnectedbibliographicalreferences,cf.Sen1987.44ArelateddistinctionisthatbetweenÔinstrumentalrationalityÕ(adequacyofthechosenstrategyofactiontoagiventarget)andÔsubstantiverationalityÕ(wherechoiceofthetargetisalsopartoftheproblem,sothatthetargetissomehowjustiÞedascorrespondingtotheÔnatureÕoftheactor).Behaviouraltheorists,suchasCyertandMarch1963,lookforempiricalevidenceonwhichtorelyforanalysesofthedecisionproceduresofcomplexorganisations.

502TheWealthofIdeassimulated.Amongtheleadersofexperimentaleconomics,letusrecallVernonSmith(b.1927),Nobelprizein2002togetherwithDanielKahnemann(b.1934).Thelatterauthored,incollaborationwithAmosTverski(1937Ð96),someimportantworkswhichutilisehintsdrawnfrompsychologicalresearchintheÞeldoftheanalysisofeconomicbehaviour,andinparticularofdecisionsunderuncertainty.45Enquiryintotherelationbetweeneconomicsandethicsisobviouslyconnectedtothedebateonrationalityandtheobjectivesofhumanaction.Invariousrespects,debateinthisÞelddrawsontheolddebatebetweenconsequentialistanddeontologicalethics.Aswesawabove(6.7and8.9),prevalenceofutilitarianismandofphilosophicalradicalismbetweentheendoftheeighteenthandthenineteenthcenturyhadledtothedom-inanceofconsequentialism,eventhoughtheconnectionwithmaximisa-tionofindividualutilityappearsinmanyrespectsquestionable.However,growingdissatisfactionstemmingfromthecontrastbetweenprescrip-tionsofsuchapproachandcommonsense46ledtorenewedinterestfordeontologicalethics,especiallywithRawls(1971).Thenewconsequen-tialismdevelopingbetweentheendofthe1970sandthebeginningofthe1980salsobrokeanyrigidconnectionwithutilitarianism:seeforinstanceSenÕscontributions,basedonthedistinctionbetweenrights,functionsandcapabilities.47Thus,inthedebateontheconceptofrationalityasinthatonethics,inrecentyearsaricherandmorecomplexviewthanthatinheritedfromtheneoclassicaltraditionhasprevailed.Thesamehappenedforthedebateonthenotionofsustainabledevelopment.HerecritiquesconcernedidentiÞcationofeconomicdevelopmentwithsimplequantitativegrowthofnationalincome.Indeed,inthiswaytherewastheriskofignoringthemultiplicityofaspectswhichconcurindeterminingtheÔqualityoflifeÕ,inparticularenvironmentalaspects,48andtheanalysisoftherela-tionbetweeneconomicgrowthandcivicdevelopment,whichwewillconsiderbelow,risksbeingleftaside.Theseaspectsshouldnotbeconfusedwiththedebateonthelimitstogrowth,whichhadgreaterresonancebutalsolesssubstance.MalthusÕs45Ontherelationshipoftheircontributionswiththerecenteconomicdebate,cf.Mirowski2002,pp.300Ð1,546ff.46HausmanandMcPherson1996,pp.9Ð21,offersomeexamplesofsuchconßicts.47SeeforexampletheessayscollectedinSen1984;theItalianeditioncontainsanappendixwithanextensivebibliographyofhiswritingsuptothen.Asanexampleoftherecentdebateonutilitarianism,seetheessayscollectedinSenandWilliams1982.48CritiquesofÔgrowthmaniaÕ(cf.forinstanceMishan1967;Fu`a1993)revivedattentiontothedifferentelementswhichcompriseeconomicandsocialdevelopment,behindmono-dimensionalgrowthofnationalincome.Thusindicatorssuchaslifeexpectancyatbirth,infantmortality,instruction,incomeinequalities,politicaldemocracy,andterritorialdisequilibria(which,inthecontextoftheglobaleconomy,taketheformoftheterribledisequilibriabetweentheNorthandtheSouthoftheworld)acquireimportance.

Theageoffragmentation503conservativepessimism(and,beforehim,NeckerÕs:cf.above,6.1and6.2)surfacedagaininmanywritingsovertime,fromJevonsÕsessayoncoal(Jevons1865)toresearchonThelimitstogrowthstimulatedbytheClubofRome(Meadowsetal.1972),progressivelyacquiringgreaterattentionforecologicalissues.Indeed,environmentalissueswerealreadypresentineconomicdebatesinceJohnStuartMillÕsPrinciples(1848).However,ecologywithintheclassicaltraditionhaslittletodowiththefears,typicalofthemarginal-istapproach,ofthelimitstodevelopmentsetbyimpendingexhaustionofnaturalresources.Theproblemratherconcernsthesetofinterrela-tionsbetweeneconomicactivityandnaturalenvironment.ThenotionofÔsustainabledevelopmentÕ(Brundtland1987)isaprogressiveresponsetothisproblem,withtheproposalofamultidimensionalviewofeco-nomicgrowth.Conversely,thethesesonÔthelimitstogrowthÕ,inthecontextofaworldeconomycharacterisedbydramaticproblemsofmis-eryandunderdevelopment,haverepresentedinsomeinstancesacon-servativestance,analogoustothatrepresentedinotherrespectsbythethesisconcerningtheclaimedexistenceofaninverserelationshipbetweenrateofgrowthoftheeconomyandsomemeasureofequalityinincomedistributionor,evenworse,developmentofdemocracyandpoliticalfreedoms.Debatesontheseissueshavefolloweddifferentstreams.Ininvestiga-tionsondualismbetweendevelopedanddevelopingcountries,afteragreatmassofwritingshadmaintainedthemostdifferenttheses,itclearlyappearsthatneitherinequalitiesinincomedistributionnorauthoritarianpoliticalsystemsconstituteprerequisitesforsustainedeconomicgrowth;onthecontrary,wecanmaintainthatprogressinconditionsofciviclife(education,hygienic-sanitaryconditions,moralityandefÞciencyofpub-licadministration,publicorderandcorrectadministrationofjustice,uptoactiveinvolvementofcitizensinpoliticallifeinacontextofdemocraticfreedoms)constituteafundamentalprerequisiteforasociallysustainabledevelopmentprocess.49Inthedebateonindustrialisedcountries,analysesofinternalpowerstructure(towhichalsobelongrecentdebatesonpropertyand49Anenormousmassofdata,togetherwithinterestinganalyses,isprovidedintheyearlyreportsoftheWorldBank,andintheyearlyHumandevelopmentreportoftheUnitedNationsDevelopmentProgramme(UNDP),stimulatedbyMahbubulHaq.Ontheconnectionbetweencivicandeconomicdevelopment,cf.SylosLabini2000.Agroupofdebatesinsomerespectsconnectedtothisoneandwhichherewemayonlymention,concernstheconditionsoftransitiontothemarketoftheex-plannedeconomies;weareconfrontedinthisÞeldwithafrontalclashbetweenthethesisoftheÔbigbangÕ,thatisofimmediateliberalisation,andthethesisofagradualtransition,basedonpreviousconstructionofinstitutionalpreconditionsforthegoodfunctioningofthemarkets(inclu-siveforinstanceofefÞcientsurveillanceandanti-trustauthorities)andaccompaniedbypoliciesaimedatreducingthesocialcostsofchange.

504TheWealthofIdeasgovernanceofÞrms:cf.forinstanceBarca1994)areaccompaniedbyonlyapparentlyutopianproposalsondemocracywithintheÞrm:astreampar-ticularlyrichinEurope(forasurveycf.Tarantelli1986),whichincludesdebatesonworker-management(Vanek1970),onproÞt-sharing(Meade1972),onjointmanagementwithtradeunions(Tarantelli1978),andontheworkingarmy,whichamongotherthingsimpliessharingthelessskilledandmostunpleasantjobsamongall(Rossi1946).DifÞcultiesencounteredbytheseproposalsconcernnotsomuchtheirpracticabilitywithinagiveneconomicsystem,butrathertheirincompat-ibilitywiththemaintenanceofcompetitiveconditionsininternationalmarkets,inanincreasinglyintegratedworldeconomy.ThisleadsustorecallÐevenifonlybynameÐaÞnalstreamofresearchwhichisacquiringincreasingimportance,thatonglobalisationandtheÔnewICT(informa-tionandcommunicationtechnologies)economyÕ.Enormousprogressininformationtransmissionconnectedtodevelopmentintelecommunica-tionsandincomputers,fallintransportationcosts,growingintegrationofÞnancialmarketsinasingleworldmarket,andpracticalimpossibil-ityofcontrollingmigrationßows,allleadtoamoredirectconnectionofeachcountrywiththerestoftheworld.Inaregimeofnon-perfectbutlessandlessdifÞculttransferabilityoftechnologies,competitionofeconomieswithlowlabourcosts(hencedownwardcompetitionnotonlyinwages,butalsoinworkingconditions)exertsgrowingpressureonworkersindevelopedcountries,especiallyonlessskilledworkers.Economicprob-lemsintersectherewithpoliticalandsocialones,bringingtotheforedifÞcultchoiceswhichhavelittletodowithtextbookeconomictheory,andconcerntheeconomicandsocialset-upofthedifferentcountriesandhence,moregenerally,thedifferentformsthatlifeincommontakesinsuchdiverseculturaltraditionsastheEuropean,theAmerican,theJapanese,theMuslim,theChineseortheIndianone.5050Dahrendorf(1995,p.4)stressed,withhappysynthesis,thatÔTheoverridingtaskoftheFirstWorldinthedecadeaheadistosquarethecircleofwealthcreation,socialcohesionandpoliticalfreedom.Squaringthecircleisimpossible;butonecangetclosetoit,andprobablythatisallarealisticprojectforsocialwell-beingcanhopetoachieve.Õ

18Wherearewegoing?Some(verytentative)considerations1.Howmanypathshaseconomicthoughtfollowed?IntheintroductorychapterIpointedoutthatthehistoryofeconomicthoughtisusefulbothtogetaÔsenseofdirectionÕincontemporarythe-oreticalenquiryandtoexploretheconceptualfoundationsoftheoreti-calmodelsnowinuse.Thismeansfollowingtheprocessofabstractionunderlyingsuchmodelsandsobeingbetterequippedtoevaluatethem.Whatconclusionsdoesthisleadustoattheendofourjourney?Letusaddressthequestiontakingthreeaspectsintoaccount.TheÞrstpointiswhetherthepathfollowedsofarbyeconomicresearchrunsinaprecisedirectionofprogress.Second,wewillbrießyconsideroneofthemaintendenciesincontemporaryeconomicresearch:thetendencytosubdivision,orratherfragmentation,ofresearchintoanincreasingnumberofspecialisedÞelds.Third,andtheanswerherewillinevitablybelargelyprovisionalandpersonalÐlittlemorethanabetÐstartingfromthereconstructionofthehistoryofeconomicanalysissetoutintheprecedingchaptersIshalltrytogaugethedirectioninwhichwemightmostproÞtablyproceed.TheÞrstaspectconstitutesanecessarypremisefordealingwiththeothertwo.Happily,theanswerissufÞcientlyclear:thepathfolloweduptonowbyeconomicresearchisfarfromlinear.Historiansofthoughtinevitablysimplifytheirsubjectmatter,focusingonwhattheyseeasthemostsigniÞcantfeatures.However,notevensimplifyingtotheverylimitscanwetraceoutinoursummaryaccountasingle,logicalpath,letaloneastraightone,suchthatwemightspeakofaclearandcontinuousascentofeconomicsciencetowardseverfullerunderstandingofreality.Thisis,ofcourse,nottodenythesustainedendeavourtoexplorereal-itiescharacterisingeachofthedifferentcurrentsofresearch.Aswesawinthepreviouschapter,however,thefoundationsofeconomicresearchÐmethodsofresearchimplicitlyorexplicitlyadopted,conceptsutilised,theverydeÞnitionofwhatanÔeconomicproblemÕisÐnotonlychangebothinthecourseoftime,fromeconomisttoeconomist,andacrossdifferent505

506TheWealthofIdeasgroupsofeconomistsinthesamehistoricalperiod,butabovealltheydonotdisplayunivocaltendencies.Moreover,wehavealsoseenthatitishardtospeakofÔprogressÕwithoutduequaliÞcation,evenwithinonegivenlineofresearch.Letusrecalltwoexamplesdiscussedinthepreviouschapters:themorerobustanalyticalstructurerealisedbyRicardowithinthesurplusapproachwasaccompaniedby,incomparisontoSmith,amoresimplisticrepresentationofboththenotionofhomooeconomicusandthecomplexitiesofdevelopmentprocesses;theadvanceinanalyti-calrigourfromtheoriginalWalrasiantheoryrepresentedbythemodernaxiomatictheoryofgeneraleconomicequilibriumalsoentailsadrasticlossinheuristicpowerforthetheoryitself.Intheprecedingchapterswehaveseenatleasttworivalwaysofcon-ceivingthefunctioningoftheeconomy.Ontheonehand,wehaveasubjectiveviewofvalue,consideredasstemmingfromtheoppositionbetweenscarcityandutility:aviewthathasitsrootsdeepintheprehis-toryofeconomicthoughtandthat,fromGalianiandTurgotdowntotheaxiomatictheoryofgeneraleconomicequilibrium,hasalwaysplayedaleadingroleineconomicdebate(onlybrießyobscuredÐbutnevercom-pletelycancelledÐbythetriumphofRicardianism).Ontheotherhand,wehaveanobjectiveviewofvalue,1basedonthenotionofthesurplus,whichexpressestheconditionsofreproductioninacapitalisticsystemfoundedonthedivisionoflabour,inwhicheachsectorhastorecoverthroughsaleofitsproductthemeansofproductionrequiredtocarryontheproductiveprocess,plusthewherewithaltopaythewagesoftheworkersemployedandyieldthecompetitiverateofproÞts.Thisview,too,fromPettytoRicardouptoSraffa,hasacentralroleinthehistoryofeconomicthoughtandincontemporarydebate.Again,however,itwouldbetoodrasticasimpliÞcationtorepresenttheevolutionofeconomicscienceasacontinuousconfrontationbetweentworivalviews,alwaysclearlydistinct.2Asamatteroffact,thesetwo1ByÔobjectiveÕviewwedonotmeanheretheideaofvalueasacharacteristicintrinsictothecommodity(asinasenseMarxdoeswithhislabourtheoryofvalue,consideringlabourastheÔsubstanceÕofvalue:cf.Lippi1976;andasisalsothecasewithsubjectivetheorieswhenbasedonasensisticviewoftheeconomicagent,inwhichutilityisconsideredasacharacteristicintrinsictothegoodtowhichthehomooeconomicusreactsinamechanisticway).Werefer,rather,totheideathatnoroleshouldbeattributedtotheÔmutableminds,opinions,appetitesandpassionsofparticularmenÕ,asPetty(1690,p.244)said,andthatweshouldratherdeducevaluefromthestructureÐtheÔskeletonÕ,SraffawouldhavesaidÐofaneconomybasedonthedivisionoflabour,themarketandprivateproperty.2Moreover,itshouldbeborneinmindthatitwouldbeincorrecttorepresenttheconfronta-tionbetweenthetwoviewsasapoliticalopposition,withtheneoclassical-marginalistapproachontheconservative/reactionarysideandtheclassicalapproachontheprogres-sive/revolutionaryside.WecanÞndrepresentativesofeitherapproachscatteredacrossthewholepoliticalspectrum.

Wherearewegoing?507viewsarerarelyencounteredinaÔpurestateÕ;rather,itisthehistorianofthoughtwhoÐwithgoodreason,weshouldaddÐisolatesthemtoofferaclearerpictureofthemultifacetedrealitythatconfrontsuswithallitslightandshadeandmanifoldpositionsÞndingnoplaceintoorigidadichotomy.AlongwithÔpuristsÕsuchasWilliamPettyontheonehandorPhilipWicksteedontheother,wealsoseeattemptstothrowbridgestotheothersideoftheriver(albeitwithperfectlyrecognisablefoundationsononeside)asintheSmithiananalysisofmarketprices(andevenmore,subsequently,intheanalysesofJohnStuartMillandThomasDeQuincey)or,ontheotherside,intheMarshalliannotionofÔrealcostsÕ.Thetwoviewsdonotremaincontinuouslyopposed:theyintersect(wemayrecall,forinstance,theattempttodeviseamarginalistMarxism!),3assaycompromises(totellthetruth,ingeneraldoomedtofailure),andoccasionallyÐasevermorefrequentlyhappensincontempo-rarydebateÐhideroundthecorner,leavingthewayclearfordeclaredlyatheoreticalapproaches(asinthemostrecenteconometrics).IntheseconditionsprogressÐshouldtherebeany4Ðadvancesinmanydifferentdirections:sodifferent,indeed,thatviewedfromonepathadvancealongtheotherpathsmayappearasregression.Wearefarfromaclear,unambiguouslineofdevelopment:confusioneverreignssovereign!However,itispreciselythisconfusionthatmakestheeconomistÕsworksointerestingtoday.AmongthedifferentcomponentsoftheeconomistÕswork,thisisparticularlytrueoftheworkofthehistorianofeconomicthought.Infact,theconfusioncomesnotfrommindsturningblankbeforethecomplexityoftherealworld,butfromthewealthofanal-ysesdevelopedinthecourseoftime.Inthisageofextremefragmen-tationinresearch,withcommunicationtechnologiesshowingdramaticprogresswhiletheeconomistsseemincreasinglyincapableofcommuni-catingamongthemselves,thereisallthemoreneedtotraceoutifnotasingleline,atleastsomemainlinesalongwhicheconomicanalysiscanproceed,andtoevaluatetheirpotentialitiesinthelightoftheirdevel-opments.Inthisendeavourthehistoriansofeconomicthoughthaveacrucialcontributiontooffer.Thefactthattherearenoobvious,clean-cutanswersmakesthechallengeevenmoreinteresting.3SomeexamplesarerecalledinSteedman1995.4ThishasrepeatedlybeendoubtedbythosewhospeakofaÔcrisisineconomicsÕ.Infact,thereappearstobesomedeclineofinterestineconomicswheneveritisinterpretedasbyandlargeappliedmathematics,incomparisonÐforinstanceÐwithbusinessstudiesorpoliticalsciences.ThehistoryofeconomicthoughtcouldplayanimportantrolenotonlyinprovidingaunifyinggroundagainsttendenciestointernalfragmentationoftheeconomicsÞeld,butalsoinbringingtolightitsfoundationsÐthedifferentwaysinwhichrealityisrepresentedÐandhenceitsconnectionto(andimportanceforourunderstandingof)therealworld.

508TheWealthofIdeas2.Thedivisionoflabouramongeconomists:canweforgeaheadalongdifferentpaths?Thesecondquestiontobeconsideredintheseconcludingnoteshastodowithanevidentcharacteristicofcontemporaryresearchthatcontrastswithexperienceintheearlystagesofdevelopmentofeconomicscience:thedivisionofintellectuallabourhasledtotheformationofspecialisedÞelds,eachnowenjoyingalifeofitsown.TherangeoftheseÞeldsappearstoexpandovertime:macroandmicroeconomics;historyofthought,pub-licÞnance,economicpolicy;monetaryeconomics,industrialeconomics,theeconomicsofenergysources,laboureconomicsandsoon.Itisasituationthatmaywellinpartrespondtothedidacticneedtodivideanevervastercorpusofknowledgeintovariouscoursesforteachingatuniversitylevel(andifthiswereall,therewouldbenoneedtoworry,providedsomeformofrotationoflecturersamongthevariouscourseswerebroughtintokeepthenecessaryconnectionsbetweenthemalive).Inalargemeasure,however,thephenomenonhasitsoriginintheactivityofresearchitself.Inthiscase,too,wemaybefacedwithaninescapableanswertoarealproblem,namelythemultiplicationofanalysistechniquesandresearchresultsandthusadramaticincreaseinthequantityofwrittenmaterialwemusttakeintoaccountwhendealingwithanyspeciÞcissue.However,thetendencytoagrowingdivisionofeconomicresearchintoseparatesectorsincreasesthesenseofconfusionmentionedintheprevioussection;norisitexemptfromrisks.Wethushave,ontheonehand,ÔlowbrowÕeconomicanalyses,whichmakeindiscriminateuseofanalyticaltoolswhosetheoreticalfounda-tionshavecomeinfordestructivecriticism(forinstance,theinverserelationbetweenwagerateandemploymentinmacroeconomics)butwhichpretendtoprovideÔscientiÞcÕeconomicpolicyadviceonsuchßimsyfoundations.Frequently,policiestrickedoutinscientiÞcguiseactuallyderivefromaprioriopinionsandmayarousereasonableper-plexityonthegroundsofplaincommonsense,whilerecoursetounnec-essarilycomplextheoreticalapparatusisessentiallyforrhetoricaleffect.Ontheotherhand,wehaveÔhighbrowÕtheories,sophisticatedexerciseswithinaxiomaticschemesbasedonprocessesofabstractionthatareneversubjectedtocriticalscrutiny.Theelementofpureintellectualchallengeisdominanthere,butthereisasigniÞcantcostintermsoflostheuristicpowerandhenceofameanermarketshareforeconomicscienceinthepoliticalandculturaldebate.55ThedistinctionbetweenÔhighbrowÕandÔlowbrowÕtheorieswaspropoundedbySamuel-son(1962,pp.193Ð4):ontheonehand,themorerigoroustheorisationsofgeneraleconomicequilibriumdonotneedanaggregatenotionofcapital;ontheotherhand,the

Wherearewegoing?509Insubstance,thedivisionoflabourineconomicresearchbetweenspecialisedsubÞeldsoftenfacilitatesuncriticalacceptanceofthemain-streamapproachinanyspeciÞceconomicÞeld.Theeconomicproblemisconceivedofassearchforanequilibriumemergingfromconfrontationbetweenscarcityandutility,orbetweendemandandsupply.BehindthisviewliesthestylisedrepresentationÐderivedÞrstfrommedievalfairsandthenfromthestockexchangeÐofthemarketasapoint(intimeandspace)wheredemandandsupplymeet.Inthiscontext,identiÞcationoftheequilibriumcallsforcertainanalyticalassumptionsÐconvexityofproductionsetsandconsumersÕpreferencemaps,rationalityofeconomicagentsÐthataretakenasgiven,withoutweighingthemupagainstreal-ity.ThemethodologicalchoiceofindividualismÐthatis,ofstartingtheanalysisinanycasefromthebehaviourofindividualeconomicagentsÐbringswithitinsolubleaggregationproblems,whicharetacitlycircum-ventedthroughrecoursetopartialequilibrium(andrepresentativeÞrm)analysisoranalysisofÔone-commodity(andonerepresentativeagent)worldsÕ.Ontheotherhand,ifwesticktogeneraleconomicequilibriumanalysis,apartfromthefactthatinanycaseitentailstheassumptionsmentionedabove,therecanbenohopeofarrivingatsufÞcientlydeÞnitepositiveresults,usefulforanunderstandingoftherealworld.6AprocessofabstractionÐinthesenseofasimpliÞedrepresentationofrealitiesotherwiseexcessivelycomplexandmultifacetedÐisunavoidableforanytheory.Butthekindofabstractionadoptedshouldalwaysbekeptinmind,andrepeatedlysubjectedtocriticalscrutiny,rememberingthatitisnottheonlypossibleone.Thesystematicfailuresinsatisfyingthisobviousrequirementofsci-entiÞcresearchactivityarelargelyattributabletothesubdivisionintolessrigorous,simpliÞedmodels(one-commodity,orinanycasewithaggregatecapital)havetheroleofÔparableÕascomparedwiththemorerigoroustheory,andarethususe-fulinempiricalresearchandinteaching.Thisdistinction,whichhasenjoyedenormousfortune,washoweverputforwardbeforetheerroneousnessoftheÔparableÕwasproved(cf.above,16.8).Inanycase,theideaoftheÔtwolevelsoftruthÕ,frequentinthehistoryofreligions,shouldnotÞndroomintheÞeldofscientiÞcresearch.6CertainlythiswasnotWalrasÕsview;butthelengthyprocessofcorrectingandcomplet-inghisoriginalworkattheanalyticlevelhasinevitablyledtotheseoutcomes(cf.above,chapter12).LetusalsorecallSchumpeterÕs1908thesis:thetheoryofeconomicequi-libriumisunabletodeterminethepositionofequilibrium,sinceinclusionofconsumersÕpreferencesamongtheparametersassumedasdatafortheproblemathandrendersitinthisrespectatautologydevoidofheuristicvalue;itspurpose,rather,istodeterminetheconsequencesofavariationintheparameters,throughcomparativestaticanalyses(cf.above,15.3).Unfortunately,useofthetheorytothisendrequiresuniquenessandstabilityofequilibrium(apartfromthestabilityoftheparametersassumedasdatafortheproblem,andinparticularoftheeconomicagentsÕpreferences)andsuchrequirementsdonotholdingeneral.(Obviously,theÔBourbakianÕaxiomatictraditionisindifferenttothisoutcome,consideringabstracttheoryasself-justifying;butthisposition,under-standablybornÐandnotalwaysacceptedÐintheÞeldofpuremathematics,cannotbeextendedtopolicy-orientedtheorising.)

510TheWealthofIdeasresearchÞeldsincreasinglycutofffromoneanother.Ontheonehand,nowthatthehistoryofeconomicthoughthastakenontheroleofadis-tinctdiscipline,researchersworkinginotherÞeldsarelosingsightofviewsalternativetothedominantone,losingthecapacityforcriticalscrutinyoftheassumptionsÐtheÔrepresentationoftheworldÕÐtypicaloftheÞeldinwhichtheywork,andindeedlosingthemotivationtoinvesttimeinsuchacriticalscrutiny.Ontheotherhand,asaconsequenceoftheclosureintoseparatespecialisedresearchÞelds,theconfrontationwithrealitygenerallydoesnotruntothebasicassumptionsderivedfromthesubjective-marginalistapproach,butstopsattheleveloftheauxiliaryassumptions(fallingwithinwhatLakatoscallstheÔprotectivebeltÕoftheresearchprogrammes:cf.above,1.3)utilisedtoapplythegeneraltheorytothechosenÞeldofresearch.Arewe,then,totakeitthatconfrontationwithreality(or,inotherwords,thecriticalscrutinyofabstractionprocesses)hasnorolewhatso-everintheevolutionofeconomicthought?Suchabaldstatementiscer-tainlywrong,especiallyifweconsidersufÞcientlylongintervalsoftime.Thechangesinwaysofconceivingoftheeconomicsystemandanalysingitsfunctioningillustratedinthisvolumehaveundoubtedlyconstituted,atleastinpart,ananswertochangescomingaboutinthemeantimeinrealworldeconomies:sufÞceittorecallhowthephysiocraticthesesonthecentralityofagriculturehavedissolved(whileleavingabynomeansinsigniÞcantheritageofconceptsandanalyticaltools).However,toanappreciableextentÐindeed,evermoreimportantly,especiallysinceeco-nomicsbecameaspeciÞcprofessionÐthemoreorlesssharporgradualtwistsandturnsinthepathoftheoreticalthinkinghavebeenmadeinresponsetodifÞcultiesoropportunitiesarisingattheanalyticallevel.Forinstance,analyticaldifÞcultiesundoubtedlyplayedanimportantrole,alongwithotherfactors,inabandonmentoftheclassicalapproachbasedonthelabourtheoryofvalue.Intermsofrespondingtoopportunities,wemaymentiondevelopmentsinthemathematicalÞeld,suchascalculusfortheconstructionofthemarginalisttheoreticalsystem,ortopologyfortheaxiomaticconstructionofgeneraleconomicequilibriumtheory.Thisphenomenoniscertainlynotlimitedtoeconomics:Popper(1976)speaksofaÔworld3Õpreciselytoindicatetherelativelyautonomousexistenceofaworldofideasalongsidethephysical-naturalone(Ôworld1Õ)andtheworldofhumanbeings(Ôworld2Õ).Thepredominance,inresearch,ofworkonanalyticalreÞnementsovercriticalappraisalofthetheoryÕsfoundationsalsohasanothereffect:asforeseenbyevolutionarytheoriesoftechnology(cf.above,17.8),phe-nomenaoflock-in(orblockage)mayalsocropupinthetheoreticaldebate.Inotherwords,thegradualaccumulationofresultsÐtheorems

Wherearewegoing?511andmodelsÐwithinanyspeciÞcapproach,withinanygivensystemofabstraction-conceptualisation,thatis,attributesthatapproachwithacompetitiveadvantageoveritsrivals,whichÐforavarietyofcausesoftenindependentofthevalidityofthebasicconceptiononwhichtheirtheo-reticalconstructionisfoundedÐhaveforsometimeseenratherlesscon-centratedresearchactivity.Forinstance,thismaywellbethecaseofthepersistentdominanceoftodayÕsmainstreamapproach(axiomaticequilib-riummicroeconomics,neoclassicalsynthesismacroeconomics,differentformsofÔneoclassicalsynthesesÕinothersubÞeldsofeconomics),despitethepaucityofresultsendowedwithheuristicpowershownbytheÔhigh-browÕtheories,andtheßimsytheoreticalfoundationsoftheÔlowbrowÕanalyses.73.Whichofthevariouspathsshouldwebebettingon?Wethusarriveatthethirdoftheissuesconsideredinthischapter:amongthedifferentÔeconomicphilosophiesÕÐorgeneralpicturesofthefunc-tioningoftheeconomyÐemerginginthehistoryofeconomicthought,whichlooksmostpromising?AndhowÐalongwhatlinesÐshouldwebetryingtodevelopit?Aswehaveseen,theseevaluationsinevitablyboildowntosomethingofapersonalbet:however,itshouldbeabetaswellreasonedoutaspossible.Inanycase,itissurelybetterthanuncriticalacceptanceofthefashionoftheday:theoreticalissuesarenotdecidedbyamajorityvote.ItisthehistorianwhodeÞnesdifferentresearchcurrentsandschoolsofthought,andwhodrawslinesbetweenthem.ArtiÞcialastheymaybe,thesedistinctionsarenotarbitrary,butthefruitsofseriousscientiÞcworkusingthenecessaryphilologicaltools.Intheprecedingpages,followingatraditionestablishedovertensofyearsthatseemssofartohavestooduptoafairamountofattack,wehaverecognisedasubstantialdivisionbetweentwoapproaches,classicalandmarginalist,whilebearinginmind7Thissituationmaybecomparedtothecase,frequentlycitedintheevolutionarythe-oriesoftechnologicalchange,ofthepredominanceofpetrol-fuelledautomobilesoverelectricones,withagapbetweenthetwoÔtechnologicalparadigmsÕthathasgrownovertimestartingfromaninitialsituationofapproximateequivalence.Manytodaybelievethatitwouldhavebeenbetteriftheparadigmoftheelectricautomobilehadprevailed,duetotheenvironmentalfall-outofthepetrol-fuelledautomobile,theimportanceofwhichhasbecomefullyevidentonlyrecently.Anothercomparisonmaybethatbetweennuclearenergyandsolarorwindenergy:therelativelyhighcostsofthelattercomparedtotheformer(ifweleaveasidetheissueofnuclearwaste,asnearlyallcost-computationexercisesdo)stematleastinpartfromconcentrationofresearcheffortsonnuclearenergy(also,indeedaboveall,formilitaryreasons).Wecanonlywonderhowwidelysolarorwindenergywouldhavedevelopedifcomparableresearcheffortshadgoneintothem.

512TheWealthofIdeasthateachappearsextremelyvaried,andthatthereexistsaÔnomanÕslandÕthatbothsidesclaim,inhabitedbyprotagonistssuchasKeynesandSchumpeter.Withinthisdistinction,wehaveseenthelimitsthatthesubjective-marginalistapproachcameupagainstinitsdevelopment.Ontheonehand(inthecaseofMarshall,butalsointhecaseofthereßectionsoftheAustrianschooloncompetitionasalearningprocess),weÞndideassuggestivebutvague,notincorporatedinananalyticalstructure.Ontheotherhandwehaveaformallyrigorousaxiomaticsystem,apparentlycapableofbeingextendedtoconsideranyandeveryeconomicissuebutinrealitycompelledtoleavetheÞeldtoÔlowbrowÕanalyseswheneveranyattemptismadetoapplyittorealworldissues.Furthermore,wesawthatthekindofabstractionuponwhichthistheorisingreliesdisplaysverydubiousfeatures:fromtheassumptionsofconvexityinproductionsetsandcompletenessofconsumersÕpreferencestoaÔstrongÕ,mono-dimensionalnotionofrationalityandrepresentationofthemarketasthepointofencounterforsupplyanddemand,ratherthanasawebofrelationsthatembracetheagentsactiveinasectororÞeldofeconomicactivity(thustakingreferencefromtheparadigmofthemedievalfairorthestockexchange,ratherthantheßowsofinformationinwhichcom-petitionresides).WealsosawhowmorerecentattemptsatenrichingthemarginalisttraditionbyaccommodatingwithinitnewideassuchasofferedbyKeyneshadresultedinconstructionsthatwereneitherrigorousnorrealistic.ThedominanttraditioncontainsarichsetoftoolsclearlyusefulfortheanalysisofspeciÞcphenomena,andcontinuestogenerateattractiveideas(includingasymmetricinformation,strategicinterdepen-dence,transactioncosts);butitishardtoseewhysuchinstrumentsandideascouldnotbeutilised,mutatismutandis,inthecontextofadifferentconceptualsystemtakingthedivisionoflabourandthenotionofthesur-plusaskeyconceptsratherthanrationaleconomicagentsÕpreferencesandthescarcityofresources.Wethusarriveattheclassicalapproach,basedonthedivisionoflabourandthenotionofthesurplus.Itslimitshavealsobeenillustrated,espe-ciallywithregardtothelabourtheoryofvalueandÔSayÕslawÕ.ButwehavealsoseenhowtheformerlimitationcanbeovercomethroughSraffaÕsanalysis,whileforthelatterintegrationwithKeynesianideashasbeenproposedasasolution.Obviouslythiscoursedoesnotleavetheorigi-nalclassicalapproachunchanged:themodiÞcationsrequiredarebynomeanssuperÞcial.OneofthecrucialaspectsinthereconstructionoftheclassicalapproachhastodopreciselywiththewaysuchdiverseelementsasSrafÞananalysisoftherelationshipbetweenrelativepricesandincome

Wherearewegoing?513distributionandKeynesiananalysisofunemploymentcanbebroughttogether,andindeedstillothers,likeMinskyÕstheoryofÞnancialcrisesorSylosLabiniÕsoligopolytheory.Thisisanaspectwehavealreadyhadoccasiontomention(16.9);heretoowemustlimitourselvestoafewbriefremarks.Facedwiththefragmentationofeconomictheory,whichconstitutesadominantfeatureofthemostrecentperiod,wemayspecifythreedif-ferentattitudes,twoofwhichareatoppositeextremeswhilethethirdrepresentsanintermediateposition.TheÞrst,possiblymostwidespreadandcertainlysimplest,consistsinacceptingthefragmentationwithout(atleastexplicitly)worryingabouttheconnectionbetweentheoriescon-cerningdifferentaspectsofeconomicreality.Thesecond,attheotherextreme,liesintheattempttotracealltheoreticalcontributionsbacktoacommonfoundationÐtheaxiomatictreatmentofgeneraleconomicequilibriumÐaddingopportunespeciÞcassumptions(suchasasymmet-ricinformation)tothebasicaxioms(inprimis,rationalityofeconomicagents)andrepresentationofthefunctioningofthemarketasbasedonmarketclearing.Wethushaveapureandverygeneraltheory,andaseriesofvariantsofthebasemodeladdressingdifferentspeciÞcissues.ThethirdattitudestemsfromacriticalevaluationoftheÞrsttwo.Ontheonehand,itisrecognisedthattheoriesconcerningspeciÞcaspectsofeconomicrealitymustinanycasebebasedonsomegeneralrep-resentationofthefunctioningoftheeconomicsystem.Thus,thelinkbetweenspeciÞctheoryandgeneralviewisanaspectthatweareboundtoaddressifwewishtoclarifythefoundationsuponwhichthespeciÞctheoryrests.Ontheotherhand,theideaofrepresentingallaspectsofeconomicrealitywithasingle,generalmodelisconsideredexcessivelyfar-fetchedÐanaspirationreminiscentoftheideasinearlyWittgensteinand,signiÞcantly,abandonedinthefaceofSraffaÕscriticisms(cf.above,16.8).Whatisleft,then,iswhatwemaycallÔconceptualcompatibilityÕ:theabstractionsuponwhichthetheoreticalworkinevitablyreliesshouldneverÐnoteveninsuchspeciÞcissuesastheexplanationofoilpricesandtheirchangesovertime8Ðleadusintocontradictingthebasicrepre-sentationofthefunctioningoftheeconomy.Inthecaseoftheclassicalapproach,thisimpliesthatanalysesofspeciÞcissuesshouldnotcontra-dictfeaturessuchasthedivisionoflabour,andhencethemultiplicityofcommoditiesandeconomicagents,themovementofcapitalamongsectorsinsearchforthehighestreturn,orthecumulativenatureofmanyphenomenaÐinparticularintheÞeldoftechnologyÐandhencethedynamic-evolutionarynatureoffundamentaleconomicissues.Opening8Cf.Roncaglia1983a.

514TheWealthofIdeasuptoKeynesiananalysis,moreover,alsomeansaddinguncertainty(notsimplyrisk!)aboutthefuturetothesecharacteristics.9IntacklingspeciÞcaspectsofreality,economistswillthusÞndthem-selvesworkingindifferentÔanalyticareasÕ,producingtheoriesingeneralnotreducibletoonegeneralÔsuper-modelÕ,butwithcommonfeaturesderivingfromcommonreferencetotherealworldsocietiesinwhichweliveandthebasicrepresentationofthemcharacterisingthechosenresearchapproach.Aswesawabove,partofeconomictheoryÐthatpartwhichiscommonlyclassiÞedunderthelabelofvaluetheoryÐexpresses(orseekstoexpress)inanalyticaltermsaspeciÞcbasicviewofthefunc-tioningoftheeconomy.Thusinterpreted,thetheoryofvalueconstitutestheÔheartÕofeconomicscienceÐthespacewherethemainapproachescomeintocloseencounterwiththeirrespectivecoresofessentialfeaturesthatmustberetainedintheprocessoftheorisingonspeciÞcissues.Followingthispath,reconstructionoftheclassicalapproachwillnothavetostartfromsquareone,butfromawealthofcontributionsregard-ingboththeÔcoreÕofeconomictheoryandspeciÞcbutneverthelessimportantaspects.10Thedifferentcontributionswillthenhavetobesub-jectedtotheveriÞcationofÔconceptualcompatibilityÕ;inmanycasesthismayleadtoreinterpretationandreformulationofthedifferenttheories.BeyondthisÐadmittedlyvagueÐsignpostingwecannotgohere.Ofcourse,toseehowgoodarecipeis,itmustbetriedoutinthekitchen,butanyattemptinthisdirectionmustbethesubjectofaseparatework.9Thus,forinstance,fromthispointofviewtheassumptionofaone-commodityworldinmainstreammacroeconomicmodelsconstitutesanerroneousabstraction,sinceitcannotbeovercomeinsecondapproximationanalyses(becauseoftheneedtodropthetrade-offbetweenwageandemploymentonwhichtheresultsobtainedinsuchmodelsarebased),whileitconcernsacrucialfeatureofthesocietyinwhichwelive.10Fromthispointofview,thefragmentationofeconomicresearchconstitutesamostimportantpositiveelement:linesinresearchon,forexample,equitableandsustainabledevelopment,cumulativephenomenaintechnologicalchange,theinstitutionalpatternofdifferentÞnancialsystems,globalisationandmanyothersarelargelyexternaltothelogicofthesubjectiveapproach.

References[TheyearaftertheauthorÕsnameindicatestheoriginaldateofpublication,exceptforpre-1500writings.Theoriginaldateofwritingisoccasionallyindicatedinsquarebrakets.Pagereferencesinthetextrefertothelastoftheeditionsquotedbelownotinbrackets.WhenthisisnotanEnglishedition,thetranslationofthepassagesquotedinthetextismine.]Akerlof,G.1970.ÔThemarketforlemonsÕ,QuarterlyJournalofEconomics84:488Ð500.Akhtar,M.A.1979.ÔAnanalyticaloutlineofSirJamesSteuartÕsmacroeconomicmodelÕ,OxfordEconomicPapers31:283Ð302.Allocati,A.(ed.)1990.CarteggioLoria-Graziani.Roma:MinisteroperiBeniCulturalieAmbientali,PubblicazionidegliArchividiStato.Alter,M.1990.CarlMengerandtheoriginsofAustrianeconomics.Boulder:WestviewPress.Althusser,L.1965.PourMarx.Paris:FranücoisMaspero.Andrews,P.W.S.1993.Theeconomicsofcompetitiveenterprise.Selectedessays.Ed.F.S.LeeandP.E.Earl.Aldershot:EdwardElgar.Anonymous1549.AdiscourseofthecommonwealofthisrealmofEngland.Newedn.byE.Lamond,Cambridge:CambridgeUniversityPress;repr.1929.Anonymous1605.RispostasopraildiscorsofattoperMarcantonioDeSantisintornoaglieffetti,chefailcambioinRegno.InDeSantis,1605b;repr.inColapietra1973,pp.145Ð9.Anonymous1701.ConsiderationsontheEastIndiatrade.London:J.Roberts;repr.inMcCulloch1856,pp.541Ð629.Anonymous1821a.Aninquiryintothoseprinciplesrespectingthenatureofdemandandthenecessityofconsumption,latelyadvocatedbyMr.Malthus,fromwhichitisconcluded,thattaxationandthemaintenanceofunproductiveconsumerscanbeconducivetotheprogressofwealth.London;repr.inS.Bailey,Acriticaldissertationonthenature,measureandcausesofvalue,London:FrankCass1967.Anonymous1821b.Observationsoncertainverbaldisputesinpoliticaleconomy,par-ticularlyrelatingtovalue,andtodemandandsupply.London:R.Hunter;repr.inS.Bailey,Acriticaldissertationonthenature,measureandcausesofvalue,London:FrankCass1967.Aquinas,Thomas.1265Ð73.Summatheologiae.repr.in5vols.,Roma1962.515

516ReferencesAristotle1926.TheNicomacheanethics.WithanEnglishtrans.byH.Rackham,London:HeinemannandNewYork:PutnamÕsSons.Ñ1977.Politics.WithanEnglishtrans.byH.Rackham,LoebClassicLibrary,vol.21,Cambridge,Mass.:HarvardUniversityPress.(Pseudo)Aristotle1935.TheOeconomica.WithanEnglishtrans.byG.C.Arm-strong,London:HeinemannandCambridge,Mass.:HarvardUniversityPress.Arnon,A.1991.ThomasTooke,pioneerofmonetarytheory.Aldershot:EdwardElgar.Arrow,K.J.1951.Socialchoiceandindividualvalues.NewYork:Wiley.Ñ1962.ÔTheeconomicimplicationsoflearningbydoingÕ,ReviewofEconomicStudies26:155Ð73.Arrow,K.J.andDebreu,G.1954.ÔExistenceofanequilibriumforacompetitiveeconomyÕ,Econometrica22:265Ð90.Arrow,K.J.andHahn,F.H.1971.Generalcompetitiveanalysis.SanFrancisco:Holden-Day.Arthur,B.1994.Increasingreturnsandpathdependenceintheeconomy.AnnArbor:UniversityofMichiganPress.Asimakopulos,A.1991.KeynesÕsgeneraltheoryandaccumulation.Cambridge:CambridgeUniversityPress.Aspromourgos,T.1999.ÔAnearlyattemptatsomemathematicaleconomics:WilliamPettyÕs1687algebraletter,togetherwithapreviouslyundisclosedfragmentÕ,JournaloftheHistoryofEconomicThought21:399Ð411.Ñ2001.ÔThemindoftheoeconomist:anoverviewoftheÒPettyPapersÓarchiveÕ,HistoryofEconomicIdeas9:39Ð101.Augello,M.M.1990.JosephAloisSchumpeter:areferenceguide.Berlin:Springer-Verlag.Auspitz,R.andLieben,R.1889.Untersuchungen¬uberdieTheoriedesPreises.Leipzig:Dunker&Humblot.Axelrod,R.1984.Theevolutionofcooperation.NewYork:BasicBooks.Babbage,C.1832.Ontheeconomyofmachineryandmanufactures.London:CharlesKnight;4thedn.1835;repr.NewYork:M.Kelley1963.Backhouse,R.E.2003.ÔThestabilizationofpricetheory,1920Ð1955Õ,inSamuels,BiddleandDavis(eds.),pp.308Ð24.Bacon,F.1620.Novumorganum.London:JoannemBillium;repr.inTheworksofFrancisBacon,ed.J.Spedding,R.LeslineEllisandD.DemonHeath,vol.4,London:LongmanandCo.1858.Ñ1626.NewAtlantis.London:J.H.forW.Lee;repr.inF.Bacon,ÔTheadvance-mentoflearningÕandÔNewAtlantisÕ.Ed.T.Case,Oxford:OxfordUniversityPress,1974.Bagehot,W.1873.LombardStreet.London:H.S.King.Bailey,S.1825.Acriticaldissertationonthenature,measureandcausesofvalue.London:R.Hunter;repr.London:FrankCass1967.Bain,J.S.1956.Barrierstonewcompetition.Cambridge,Mass.:HarvardUniver-sityPress.Baran,P.A.1957.Thepoliticaleconomyofgrowth.NewYork:MonthlyReviewPress.Baran,P.A.andSweezy,P.M.1966.Monopolycapital.AnessayontheAmericaneconomicandsocialorder.NewYork:MonthlyReviewPress.

References517Barber,W.J.2003.ÔAmericaneconomicsto1900Õ,inSamuels,BiddleandDavis(eds.),pp.231Ð45.Barbon,N.1690.Adiscourseoftrade.London:Tho.Milbourn;repr.Baltimore:JohnsHopkinsUniversityReprint1905.Barca,F.1994.Impreseincercadipadrone.Roma-Bari:Laterza.Barkai,H.1967.ÔTheempiricalassumptionsofRicardoÕs93percentlabourtheoryofvalueÕ,Economica34:418Ð23.Ñ1970.ÔThelabourtheoryofvalueasanoperationalpropositionÕ,Economica37:187Ð90.Barnett,M.1990.ÔThepapersofCarlMengerintheSpecialCollectionsDepart-ment,WilliamR.ParkinsLibrary,DukeUniversityÕ,inCaldwell(ed.),pp.15Ð28.Barone,E.1908.ÔIlministrodellaproduzionenellostatocollettivistaÕ,Giornaledeglieconomisti2:267Ð93and391Ð414.(Englishtrans.,ÔTheministryofproductioninthecollectiviststateÕ,inHayek(ed.)1935).Barro,R.J.1974.ÔAregovernmentbondsnetwealth?Õ,JournalofPoliticalEconomy82:1095Ð117.Barro,R.J.andGrossman,H.I.1971.ÔAgeneraldisequilibriummodelofincomeandemploymentÕ,AmericanEconomicReview61:82Ð93.Barton,J.1817.Ontheconditionsofthelabouringclasses.London:JohnandArthurArch.Bastiat,C.F.1850.Harmonies«economiques.Paris:Guillaumin.Englishtrans.,Economicharmonies,Princeton:VanNostrand1964.Baumol,W.J.1959.Businessbehaviour,valueandgrowth.NewYork:Harcourt&Co.Ñ1977.ÔSayÕs(atleast)eightlaws,orwhatSayandJamesMillmayreallyhavemeantÕ,Economica44:145Ð62.Baumol,W.J.,Panzar,J.C.andWillig,R.D.1982.Contestablemarketsandthetheoryofindustrystructure.SanDiego,Ca.:HarcourtBraceJovanovich.Beaugrand,P.1981.HenryThornton:unpr«ecurseurdeJ.M.Keynes.Paris:PressesUniversitairesdeFrance.Becattini,G.1975.ÔIntroduzione.InvitoaunariletturadiMarshallÕ,inA.andM.P.Marshall,Economiadellaproduzione,Milano:Isedi,pp.ixÐcxv.Ñ1989.ÔRißessionisuldistrettoindustrialemarshallianocomeconcettosocio-economicoÕ,Statoemercato,25:111Ð28.Ñ(ed.)1990.Ilpensieroeconomico:temi,problemiescuole.Torino:Utet.Ñ2000.ÔAnomaliemarshallianeÕ,Rivistaitalianadeglieconomisti5:3Ð56.Beccaria,C.1764.Deidelittiedellepene.Livorno:Coltellini;repr.inF.Venturi(ed.),Illuministiitaliani.TomoIII.Riformatorilombardipiemontesietoscani,Milano-Napoli:Ricciardi1958,pp.27Ð105.Ñ1804.Elementidieconomiapubblica,inP.Custodi(ed.),Scrittoriclassiciitalianidieconomiapolitica,Milano:Destefanis,vol.18,pp.17Ð356andvol.19,pp.391Ð543.Bedeschi,G.1990.Storiadelpensieroliberale.Roma-Bari:Laterza.BelloÞore,R.1999.ÔIntroduzione,NotabiograÞca,NotabibliograÞcaÕ,inL.vonMises,Teoriadellamonetaedeimezzidicircolazione,Napoli:EdizioniscientiÞcheitaliane,pp.xvÐcxxvi.Benini,R.1907.ÔSullÕusodelleformuleempirichenellÕeconomiaapplicataÕ,Giornaledeglieconomisti,secondseries,35:1053Ð63.

518ReferencesBentham,J.[1776].ÔFragmentongovernmentÕ,inTheworksofJeremyBentham,9vols.,ed.J.Bowring,EdinburghandLondon:WilliamTait-SimpkinandMarshall&Co.,1843Ð59,vol.1,pp.221Ð95;repr.inÔAcommentonthecommentariesÕandÔAfragmentongovernmentÕ,ed.J.H.BurnsandH.L.A.Hart,London:AthlonePress1977.Ñ[1787].Defenceofusury.Repr.inJeremyBenthamÕseconomicwritings,3vols.,W.Stark,London:Allen&UnwinwiththeRoyalEconomicSociety,1952,vol.1,pp.121Ð207.Ñ[1793Ð5].Manualofpoliticaleconomy.Repr.inJeremyBenthamÕseconomicwrit-ings,3vols.,ed.W.Stark,London:Allen&UnwinwiththeRoyalEconomicSociety,1952,vol.1,pp.219Ð73.Ñ[1801].Thetruealarm.Repr.inJeremyBenthamÕseconomicwritings,3vols.,ed.W.Stark,London:Allen&UnwinwiththeRoyalEconomicSociety,1952,vol.3,pp.61Ð216.Berg,M.1980.Themachineryquestionandthemakingofpoliticaleconomy1815Ð1848.Cambridge:CambridgeUniversityPress.Bergson,A.1938.ÔAreformulationofcertainaspectsofwelfareeconomicsÕ,QuarterlyJournalofEconomics52:310Ð34.Berle,A.A.andMeans,G.1932.Themoderncorporationandprivateproperty.NewYork:CommerceClearingHouse.Bernoulli,D.1738.ÔSpecimentheoriaenovaedemensurasortisÕ,Communica-tioAcademiaeScientiarumImperialis,Petersburg,5:175Ð92.Englishtrans.,ÔExpositionofanewtheoryonthemeasurementofriskÕ,Econometrica1954,22:23Ð36.Bernstein,E.1899.DieVoraussetzungendesSozialismusunddieAufgabenderSozialdemokratie.Stuttgart:Dietz.Englishtrans.,Evolutionarysocialism,NewYork:Huebsch1909;repr.NewYork:Schocken1961.Bharadwaj,K.1978.Classicalpoliticaleconomyandrisetodominanceofsupplyanddemandtheories.Calcutta:OrientLongman.Ñ1983.ÔOnacontroversyoverRicardoÕstheoryofdistributionÕ,CambridgeJournalofEconomics7:11Ð36.Ñ1989.Themesinvalueanddistribution.London:Unwin&Hyman.Bharadwaj,K.andSchefold,B.(eds.)1990.EssaysonPieroSraffa.Criticalperspectivesontherevivalofclassicaltheory.London:Routledge;repr.1992.Biagini,E.1992.IntroduzioneaBeccaria.Roma-Bari:Laterza.Bible.TheJerusalemBible.London:Darton,LongmanandTodd1966.Black,R.D.C.1973.ÔW.S.JevonsandthefoundationofmoderneconomicsÕ,inBlack,CoatsandGoodwin(eds.),pp.98Ð112.Black,R.D.C.,Coats,A.W.andGoodwin,C.D.W.(eds.)1973.Themarginalrevolutionineconomics.Interpretationandevaluation.Durham:DukeUniver-sityPress.Blaug,M.1962.Economictheoryinretrospect.Chicago:RichardD.Irwin;5thedn.Cambridge:CambridgeUniversityPress1996.Ñ1973.ÔWasthereamarginalrevolution?Õ,inBlack,CoatsandGoodwin(eds.),pp.3Ð14.Ñ2003.ÔTheformalistrevolutionofthe1950sÕ,inSamuels,BiddleandDavis(eds.),pp.395Ð410.

References519Bobbio,N.1989.ThomasHobbes.Torino:Einaudi.Boettke,P.J.andLeeson,P.T.2003.ÔTheAustrianschoolofeconomics,1950Ð2000Õ,inSamuels,BiddleandDavis(eds.),pp.445Ð53.B¬ohm-Bawerk,E.von1884.KapitalundKapitalzins.I.GeschichteundKritikderKapitalzins-Theorien.Innsbruck:VerlagderWagnerÕschenUniversit¬ats-Buchhandlung.Englishtrans.,Capitalandinterest.Acriticalhistoryofeconom-icaltheory,London:Macmillan1890;repr.NewYork:AugustusM.Kelley.Ñ1889.KapitalundKapitalzins.ZweiteAbteilung:PositiveTheoriedesKapitales.Innsbruck:VerlagderWagnerÕschenUniversit¬ats-Buchhandlung.Englishtrans.,Thepositivetheoryofcapital,London:Macmillan1891.Ñ1896.ÔZumAbschlussdesMarxschenSystemsÕ,inO.vonBoenigk(ed.),StaatswissenschaftlicheArbeiten.Festgabenf¬urKarlKnies.Berlin:Haering.Englishtrans.,KarlMarxandthecloseofhissystem,London:FisherUnwin1898.Boisguilbert,PierrelePesantde1695.Led«etaildelaFrance.Rouen:nopublisher;repr.inINED,1966.Bonar,J.1931.TheoriesofpopulationfromRaleightoArthurYoung.London:Allen&Unwin;repr.Bristol:ThoemmesPress1992.Bortkiewicz,L.von1906Ð7.ÔWertrechnungundPreisrechnungimMarxschenSystemÕ,Archivf¬urSozialwissenschaftundSozialpolitik23(1906)no.1and25(1907)nos.1Ð2.Englishtrans.,ÔValueandpriceintheMarxiansystemÕ,InternationalEconomicPapers1952,52:5Ð60.Ñ1907.ÔZurBerichtigungdergrundlegendentheoretischenKonstruktionvonMarximdrittenBanddesÒKapitalÓÕ,ConradsJahrb¬ucherf¬urNational¬okonomieundStatistik,series3,34:319Ð35.Englishtrans.,ÔOnthecorrectionofMarxÕsfundamentaltheoreticalconstructioninthethirdvolumeofCapitalÕ,inSweezy(ed.)1949.Botero,G.1588.Dellecausedellagrandezzadellecitt`a.3vols.,Roma:GiovanniMartinelli;repr.Bologna:A.Forni1990.Ñ1589.DellaragiondiStatolibridieci.Venezia:I.Gioliti;repr.Bologna:A.Forni1990.Bowles,M.1972.ÔTheprecursorsofJevonsÐtherevolutionthatwasnÕtÕ,Manch-esterSchool40:9Ð29.Bowley,M.1937.NassauSeniorandclassicaleconomics.London:Allen&Unwin;repr.1967.Box,G.E.P.andJenkins,J.M.1970.Timeseriesanalysis:forecastingandcontrol.SanFrancisco:Holden-Day.Boyer,G.1990.AneconomichistoryofEnglishpoorlaws,1750Ð1850.Cambridge:CambridgeUniversityPress.Braverman,H.1974.Laborandmonopolycapital.Thedegradationofworkinthetwentiethcentury.NewYork:MonthlyReviewPress.Bray,J.1839.LabourÕswrongsandlabourÕsremedy,ortheageofmightandtheageofright.Leeds:D.Green;repr.NewYork:A.M.Kelley1968.Brenner,R.1978.ÔDobbonthetransitionfromfeudalismtocapitalismÕ,CambridgeJournalofEconomics2:121Ð40.Breton,Y.andLutfalla,M.(eds.)1991.LÕ«economiepolitiqueenFranceauXIXsi`ecle.Paris:Economica.

520ReferencesBrewer,A.1988.ÔCantillonandthelandtheoryofvalueÕ,HistoryofPoliticalEconomy20:1Ð14.Ñ1992.RichardCantillonpioneerofeconomictheory.London:Routledge.Bridel,P.1997.Moneyandgeneralequilibriumtheory.FromWalrastoPareto(1870Ð1923).Cheltenham:EdwardElgar.Brock,W.A.andDechart,W.D.1991.ÔNon-lineardynamicalsystems:instabil-ityandchaosineconomicsÕ,inW.HildenbrandandH.Sonnenschein(eds.),Handbookofmathematicaleconomics,vol.4,Amsterdam:North-Holland,pp.2209Ð35.Bronfenbrenner,M.1966.ÔTrends,cycles,andfadsineconomicwritingÕ,Amer-icanEconomicReview56:538Ð52.Brundtland,G.H.(ed.)1987.Ourcommonfuture(BrundtlandReport,WorldCommissiononEnvironmentandDevelopment).Oxford:OxfordUniversityPress.Brusco,S.1989.Piccoleimpreseedistrettiindustriali.Torino:Rosenberg&Sellier.Bukharin,N.1917.Englishtrans.,Economictheoryoftheleisureclass.NewYork:MonthlyReviewPress1972.Bukharin,N.andPreobraÿzenskij,E.1919.Englishtrans.,TheABCofcommunism.Harmondsworth:PenguinBooks1969.Buonarroti,F.1828.LaconspirationpourlÕ«egalit«e.Bruxelles:n.p.Burmeister,E.1977.ÔOnthesocialsigniÞcanceofthereswitchingcontroversyÕ,RevuedÕ«economiepolitique87:330Ð50.Ñ1979.ÔProfessorPasinettiÕsÒunobtrusivepostulateÓ,regulareconomies,andtheexistenceofawell-behavedproductionfunctionÕ,RevuedÕ«economiepoli-tique89:644Ð52.Cairnes,J.E.1874.Someleadingprinciplesofpoliticaleconomynewlyexpounded.London:Macmillan.Caldwell,B.1982.Beyondpositivism:economicmethodologyinthetwentiethcentury.London:Allen&Unwin.Caldwell,B.J.(ed.)1990.CarlMengerandhislegacyineconomics.Durham:DukeUniversityPress.Calzoni,G.andRossi,E.1980.Credito,innovazioniecicloeconomico.Milano:FrancoAngeli.Cammarota,L.1981.Storiadellamusica.Roma-Bari:Laterza.Campanella,T.[1602]1964.Lacitt`adelsole.Milano:Rizzoli.Canard,N.-F.1801.PrincipesdÕ«economiepolitique.Paris:F.Buisson.Candela,G.andPalazzi,M.(eds.)1979.DibattitosullaÞsiocrazia.Firenze:LaNuovaItalia.Cannan,F.1929.Areviewofeconomictheory.London:P.S.King&Son;repr.,London:FrankCass1964.Cantillon,R.1755.Essaisurlanatureducommerceeng«en«eral.London:FletcherGyles.Repr.withEnglishtrans.,Essayonthenatureoftradeingeneral,ed.H.Higgs,London:Macmillan1931;repr.,NewYork:M.Kelley1964.Caravale,G.(ed.)1985.ThelegacyofRicardo.Oxford:Blackwell.Caravale,G.andTosato,D.1980.Ricardoandthetheoryofvalue,distributionandgrowth.London:Routledge&KeganPaul.

References521Carey,H.C.1837Ð40.Principlesofpoliticaleconomy.3vols.,Philadelphia:Carey,Lea&Blanchard.Carlyle,T.1888Ð9.Works.37vols.,London:ChapmanandHall.Casarosa,C.1974.ÔLateoriaricardianadelladistribuzioneedellosviluppoeco-nomicoÕ,Rivistadipoliticaeconomica44:959Ð1015.Ñ1978.ÔAnewformulationoftheRicardiansystemÕ,OxfordEconomicPapers30:38Ð63.Cassel,G.1918.TheoretischeSozial¬okonomie.Leipzig:C.F.Winter.Englishtrans.,Theoryofsocialeconomy,London:T.F.Unwin1923.Cerroni,U.1967.ÔPrefazioneÕ,inP.-J.Proudhon,ChecosÕ`elapropriet`a?,Bari:Laterza,pp.viiÐxxxvi.Cesarano,F.1983.ÔOntheroleofthehistoryofeconomicanalysisÕ,HistoryofPoliticalEconomy15:63Ð82.Chafuen,A.A.1986.Christiansforfreedom.Late-Scholasticeconomics.SanFrancisco:IgnatiusPress.Chamberlin,E.1933.Thetheoryofmonopolisticcompetition.Cambridge,Mass.:HarvardUniversityPress.Chaunu,P.1982.LacivilisationdelÕEuropedeslumi`eres.Paris:Flammarion.Child,J.1668.Briefobservationsconcerningtradeandinterestofmoney.London:E.CalvertandH.Mortlock;newedn.Adiscourseabouttrade,London:A.Sowle,1690;repr.inappendixtoLetwin1959.Chilosi,A.(ed.)1979.Kalecki.Bologna:ilMulino.Chiodi,G.1983.LateoriamonetariadiWicksell.Roma:NuovaItaliaScientiÞca.Ciocca,P.andRinaldi,R.1997.ÔLÕinßazioneinItalia,1914Ð20.ConsiderazioniamarginedellatesidilaureadiPieroSraffaÕ,Rivistadistoriaeconomica13:3Ð40.Cipolla,C.M.1976.Beforetheindustrialrevolution.Europeansocietyandeconomy,1000Ð1700.London:Methuen;3rdedn.,London:Routledge1993.Clapham,J.A.1922.ÔOfemptyeconomicboxesÕ,EconomicJournal32:305Ð14.Clark,J.B.1886.Thephilosophyofwealth:economicprinciplesnewlyformulated.Boston:Ginn.Ñ1899.Thedistributionofwealth:atheoryofwages,interestsandproÞts.NewYork:Macmillan.Clark,J.B.andClark,J.M.1912.Thecontroloftrusts.NewYork:Macmillan.Clark,J.M.1923.Studiesintheeconomicsofoverheadcosts,Chicago:UniversityofChicagoPress.Ñ1926.Socialcontrolofbusiness.Chicago:UniversityofChicagoPress.Ñ1952.ÔJ.B.ClarkÕ,inH.W.Spiegel(ed.),Thedevelopmentofeconomicthought,NewYork:Wiley,pp.592Ð612.Clower,R.W.1965.ÔTheKeynesiancounter-revolution:atheoreticalappraisalÕ,inF.H.HahnandF.P.R.Brechling(eds.),Thetheoryofinterestrates,London:Macmillan,pp.103Ð25.Coase,R.H.1937.ÔThenatureoftheÞrmÕ,Economica41:386Ð405;repr.inR.H.Coase,TheÞrm,themarketandthelaw,Chicago:UniversityofChicagoPress1988,pp.33Ð55.Coats,A.W.1973.ÔTheeconomicandsocialcontextofthemarginalrevolutionofthe1980ÕsÕ,inBlack,CoatsandGoodwin(eds.),pp.37Ð58.

522ReferencesCobb,C.W.andDouglas,P.H.1928.ÔAtheoryofproductionÕ,AmericanEco-nomicReview18(Supplement):139Ð65.Colapietra,R.(ed.)1973.ProblemimonetarinegliscrittorinapoletanidelSeicento.Roma:AccademiaNazionaledeiLincei.Cole,G.D.H.1953.Socialistthought:theforerunners(1789Ð1850).Vol.1,London:Macmillan.Colletti,L.1969a.IlmarxismoeHegel.Bari:Laterza;3rdedn.1971.Ñ1969b.Ideologiaesociet`a.Bari:Laterza;2ndedn.1970.Colquhoun,P.1814.Treatiseonthewealth,powerandresourcesoftheBritishEmpire.London:J.Mawman.Comte,A.1830Ð42.Coursdephilosophiepositive.6vols.,Paris:Bachelier.Condillac,E.B.de1776.Lecommerceetlegouvernementconsid«er«esrelative-mentlÕun`alÕautre.Amsterdam.Englishtrans.,Commerceandgovernmentconsideredintheirmutualrelationship,ed.S.andW.Eltis,Cheltenham:EdwardElgar1997.Condorcet,M.J.A.N.(Caritat,Marquisde)1794.EsquissedÕuntableauhis-toriquedesprogr`esdelÕesprithumain.Paris:Agasse.Englishtrans.,Sketchforahistoricalpictureoftheprogressofthehumanmind,ed.J.Barraclough,London:Weidenfeld&Nicolson1955.Corry,B.A.1959.ÔMalthusandKeynes:areconsiderationÕ,EconomicJournal69:717Ð24.Corsi,M.1984.ÔIlsistemadifabbricaeladivisionedellavoro:ilpensierodiCharlesBabbageÕ,QuadernidistoriadellÕeconomiapolitica3:111Ð23.Ñ1991.Divisionoflabour,technicalchangeandeconomicgrowth.Aldershot:Avebury.Ñ1995.ÔLÕapprocciostocasticonelleteoriedelladistribuzionedelredditoÕ,inM.Corsi(ed.),Lediseguaglianzeeconomiche,Torino:Giappichelli,pp.1Ð47.Cournot,A.-A.1838.Recherchessurlesprincipesmath«ematiquesdelath«eoriedelarichesse.Paris:Hachette.Englishtrans.,Mathematicalprinciplesofthetheoryofwealth,London:Macmillan1897;repr.SanDiego:JamesandGordon1995.Coyer,G.-F.1768.Chinki,histoirecochinchinoisequipeutservir`adÕautrespays.London:nopublisher;Italiantrans.,Chinki,storiacocincinesechepu`oservireadaltripaesi,ed.G.Gianelli,Genova:Universit`adeglistudidiGenova,Facolt`adiscienzepolitiche,PubblicazionidellÕIstitutodistudieconomici.Croce,B.andEinaudi,L.1957.Liberismoeliberalismo.Ed.P.Solari,Milano-Napoli:RiccardoRicciardieditore.Cross,R.1982.ÔTheDuhemÐQuinethesis,LakatosandtheappraisaloftheoriesinmacroeconomicsÕ,EconomicJournal92:320Ð40.Custodi,P.1803.ÔNotiziedegliautoricontenutinelpresentevolumeÕ,inScrittoriclassiciitalianidieconomiapolitica,parteantica,tomo1,Milano:Destefanis.Cyert,R.M.andMarch,J.G.1963.AbehaviouraltheoryoftheÞrm.NewYork:Prentice-Hall.DÕAlembert,J.1751.ÔDiscourspr«eliminaireÕ,inJ.DÕAlembertandD.Diderot(eds.),Encyclop«edie,oudictionnaireraisonn«edessciences,desartsetdesm«etiers,parunesociet«edegensdelettres.Livourne:Imprimeriedes«editeurs,vol.1,pp.iÐxliv;repr.Paris:«EditionsGauthier,1965.

References523Dahrendorf,R.1979.Lebenschancen.Anl¬aufezursozialenundpolitischenTheorie.FrankfurtamMain:SuhrkampVerlag.Italiantrans.,Lalibert`achecambia,Roma-Bari:Laterza1994.Ñ1995.Economicopportunity,civilsocietyandpoliticalliberty.UnitedNationsResearchInstituteforSocialDevelopment,Discussionpaperno.58.Dardi,M.1984.IlgiovaneMarshall:accumulazioneemercato.Bologna:IlMulino.Darwin,C.1859.Ontheoriginofspeciesbymeansofnaturalselection.London:Murray;6thedn.,1872.Ñ1871.Thedescentofman,andselectioninrelationtosex.London:Murray;2ndedn.,1874.Ñ1958.TheautobiographyofCharlesDarwin(1809Ð1882)withoriginalomissionsrestored.Ed.N.Barlow,London:Collins.Repr.asvol.29ofTheWorksofCharlesDarwin,London:W.Pickering,1989.Dasgupta,A.1993.AhistoryofIndianeconomicthought.London:Routledge.Davanzati,B.1582.Notiziadeicambi.Repr.inScrittoriclassiciitalianidieconomiapolitica,ed.P.Custodi,parteantica,vol.2,Milano:Destefanis1804,pp.51Ð69.Ñ1588.Lezionedellemonete.Repr.inScrittoriclassiciitalianidieconomiapolitica,ed.P.Custodi,Parteantica,vol.2,Milano:Destefanis1804,pp.15Ð50.David,P.1985.ÔClioandtheeconomicsofQWERTYÕ,AmericanEconomicReview,PapersandProceedings75:332Ð7.Davidson,P.1972.Moneyandtherealworld.London:Macmillan;2ndedn.1978.Ñ1994.PostKeynesianmacroeconomictheory.Aldershot:EdwardElgar.Deane,P.1989.Thestateandtheeconomicsystem.Oxford:OxfordUniversityPress.Ñ2001.ThelifeandtimesofJ.NevilleKeynes.Cheltenham:EdwardElgar.Debreu,G.1959.Theoryofvalue.Anaxiomaticanalysisofeconomicequilibrium.CowlesFoundationMonograph,no.17,NewHaven:YaleUniversityPress.deCecco,M.1993.ÔPieroSraffaÕsÒMonetaryinßationinItalyduringandafterthewarÓ:anintroductionÕ,CambridgeJournalofEconomics17:1Ð5.DeFinetti,B.1930.ÔFondamentilogicidelragionamentoprobabilisticoÕ,Bollet-tinodellÕUnionematematicaitaliana9:258Ð61.Ñ1931.Probabilismo.Saggiocriticosullateoriadelleprobabilit`aesulvaloredellascienza.Napoli:Perrella.Ñ1937.ÔLapr«evision,sesloislogiques,sessourcessubjectivesÕ,AnnalesdelÕInstitutHenriPoincar«e7:1Ð68.Defoe,D.1719.ThelifeandstrangesurprizingadventuresofRobinsonCrusoe,ofYork,mariner.3vols.,London:W.Taylor.DeMarchi,N.1973.ÔMillandCairnesandtheemergenceofmarginalisminEnglandÕ,inBlack,CoatsandGoodwin(eds.),pp.78Ð97.Ñ1988.ThePopperianlegacyineconomics.Cambridge:CambridgeUniversityPress.DeMarchi,N.andBlaug,M.(eds.)1991.Appraisingeconomictheories.Studiesinthemethodologyofresearchprograms.Aldershot:EdwardElgar.Denis,H.1965.Histoiredelapens«ee«economique.Paris:PressesUniversitairesdeFrance.Italiantrans.,Storiadelpensieroeconomico,2vols.,Milano:Mon-dadori1968,2ndedn.1973.

524ReferencesDenison,E.F.1967.Whygrowthratesdiffer:post-warexperienceinnineWesterncountries.Washington:BrookingsInstitution.dÕ«epinay,L.andGaliani,F.[1769Ð82]1996.Epistolario.Ed.S.Rapisarda,Palermo:Sellerio.DeQuincey,T.1821Ð2.ÔConfessionsofanEnglishopiumeaterÕ,LondonMag-azine,Sept.1821ÐOct.1822;repr.involumeform,1822;2ndedn.1856;repr.London:GrantRichards1902.Ñ1824.ÔDialoguesofthreetemplarsonpoliticaleconomyÕ,LondonMagazine;repr.inT.DeQuincey,Collectedwritings,ed.D.Masson,Edinburgh:A.andC.Black,vol.9,repr.asPoliticaleconomyandpolitics,NewYork:AugustusM.Kelley1970,pp.37Ð112.Ñ1844.Thelogicofpoliticaleconomy.Edinburgh:WilliamBlackwoodandSons;repr.inT.DeQuincey,Collectedwritings,ed.D.Masson,Edinburgh:A.andC.Black,vol.9,pp.118Ð294.DeRoover,R.1958.ÔTheconceptofthejustprice:theoryandeconomicpolicyÕ,JournalofEconomicHistory18:418Ð34.Ñ1971.Lapens«ee«economiquedesscholastiques.Doctrinesetm«ethodes.Montr«eal:InstitutdÕ«etudesm«edi«evales.DeSantis,M.A.1605a.Intornoallieffetti,chefailcambioinRegno.Napoli:CostantinoVitale;repr.inColapietra1973,pp.111Ð41.Ñ1605b.SecondodiscorsointornoaglieffettichefailcambioinRegno.Sopraunarisposta,che`estatafattaavversodelprimo.Napoli:FeliceStigliola;repr.inColapietra1973,pp.143Ð62.Descartes,R.1637.Discoursdelam«ethode.Leyda:I.Maire.Englishtrans.,Dis-courseonthemethodforconductingoneÕsreasonwellandforseekingtruthinthesciences,Indianapolis:Hackett1988.Dewey,D.1987.ÔClark,JohnBatesÕ,inEatwell,MilgateandNewman(eds.),vol.1,pp.428Ð31.Diggins,J.P.1999.ThornsteinVeblen,theoristoftheleisureclass.Princeton:Prince-tonUniversityPress.Dobb,M.1928.Russianeconomicdevelopmentsincetherevolution.London:Rout-ledge.Ñ1946.Studiesinthedevelopmentofcapitalism.London:Routledge.Ñ1955.Oneconomictheoriesandsocialism.London:Routledge.Ñ1973.TheoriesofvalueanddistributionsinceAdamSmith.Cambridge:Cam-bridgeUniversityPress.Dobb,M.,Sweezy,P.,Takabashi,H.,Hulton,R.andHill,C.1954.Thetransitionfromfeudalismtocapitalism.Asymposium.NewYork:MonthlyReviewPress.Domar,E.D.1946.ÔCapitalexpansion,rateofgrowthandemploymentÕ,Econo-metrica14:137Ð47.Donzelli,F.1986.Ilconcettodiequilibrionellateoriaeconomicaneoclassica.Roma:NIS.Ñ1988.ÔIntroduzioneÕ,inF.A.vonHayek,Conoscenza,mercato,pianiÞcazione,Bologna:IlMulino,pp.7Ð91.Ñ1997.ParetoÕsmechanicaldream.WorkingPaperno.97/07,Universit`adegliStudidiMilano,Dipartimentodieconomiapoliticaeaziendale.

References525Dorfman,R.,Samuelson,P.andSolow,R.1958.Linearprogrammingandeconomicanalysis.NewYork:McGraw-Hill.Dosi,G.1988.ÔSources,procedures,andmicroeconomiceffectsofinnovationsÕ,JournalofEconomicLiterature26:1120Ð71.Dougherty,C.R.S.1972.ÔOntherateofreturnandtherateofproÞtÕ,EconomicJournal82:1324Ð50.Douglas,P.H.1934.Theoryofwages.NewYork:Macmillan.Dunlop,J.T.1938.ÔThemovementofrealandmoneywageratesÕ,EconomicJournal48:413Ð34.DuPontdeNemours,P.(ed.)1767Ð8.Physiocratie,ouConstitutionnaturelledugouvernementleplusavantageuxaugenrehumain.2vols.,Paris:Merlin.Ñ(ed.)1809Ð11.CEuvresdeM.Turgot.9vols.,Paris:Belin.Eatwell,J.1975a.ÔTheinterpretationofRicardoÕsÒEssayonproÞtsÓÕ,Economica42:182Ð7.Ñ1975b.ÔMr.SraffaÕsstandardcommodityandtherateofexploitationÕ,Quar-terlyJournalofEconomics89:543Ð55.Eatwell,J.,Milgate,M.andNewman,P.(eds.)1987.ThenewPalgrave.Adictio-naryofeconomics.4vols.,London:Macmillan.Eden,F.1797.Thestateofthepoor.3vols.,London:B.andJ.White;repr.London:Cass1966.Edgeworth,F.Y.1881.Mathematicalpsychics.Anessayontheapplicationofmath-ematicstothemoralsciences.London:C.KeganPaul;repr.SanDiego:JamesandGordon1995.Ñ1894a.ÔThepuretheoryofinternationalvaluesÕ,EconomicJournal4;repr.inEdgeworth1925,vol.2,pp.3Ð60.Ñ1894b.ÔDeQuincey,ThomasÕ,inR.H.I.Palgrave(ed.),Dictionaryofeconomics;repr.inEatwell,MilgateandNewman(eds.)1987,vol.1,pp.812Ð13.Ñ1925.Papersrelatingtopoliticaleconomy.3vols.,London:RoyalEconomicSociety;repr.,NewYork:BurtFranklin1970.Eggertsson,T.1990.Economicbehaviorandinstitutions.Cambridge:CambridgeUniversityPress.Egidi,M.1975.ÔStabilit`aedinstabilit`adeglischemisrafÞaniÕ,Economiainter-nazionale28:3Ð41.Eichner,A.S.1976.Themegacorpandoligopoly.Cambridge:CambridgeUniver-sityPress.Einaudi,L.1931.ÔPerunanuovacollanadieconomistiÕ,Lariformasociale42:394Ð99.Ñ1932.ÔDiunquesitointornoallanascitadellascienzaeconomicaÕ,Lariformasociale43:219Ð25.Ñ1938.ÔUnadisputaatortodimenticatafraautarcistieliberistiÕ,Rivistadistoriaeconomica3:132Ð63;repr.inL.Einaudi,SaggibibliograÞciestoriciintornoalledottrineeconomiche,Roma:Edizionidistoriaeletteratura1953,pp.117Ð51.Elias,N.1939.¬UberdenprozessderZivilisation.2vols.,Basel:HanszumFalken.Englishtrans.,Thecivilizingprocess,Oxford:BasilBlackwell1994.Ellman,M.1987.ÔPreobrazhensky,EvgeniiAlexeyeichÕ,inEatwell,MilgateandNewman(eds.),vol.3,pp.945Ð7.

526ReferencesEltis,W.1984.Theclassicaltheoryofeconomicgrowth.London:Macmillan.Eshag,E.1964.FromMarshalltoKeynes.Oxford:BasilBlackwell.Fanno,M.1912.Lebancheeilmercatomonetario.Roma:Athenaeum.Faucci,R.1986.Einaudi.Torino:Utet.Ñ1989.BrevestoriadellÕeconomiapolitica.Torino:Giappichelli;2ndedn.1991.Ñ1995.LÕeconomistascomodo.VitaeoperediFrancescoFerrara.Palermo:Sellerio.Ñ2000.LÕeconomiapoliticainItalia.DalCinquecentoainostrigiorni.Torino:Utet.Fawcett,H.1863.Manualofpoliticaleconomy.Cambridge;4thedn.,London:Macmillan1874.Ferguson,A.1767.Anessayonthehistoryofcivilsociety.Edinburgh:A.Kinkaid&J.Bell;repr.ed.D.Forbes,Edinburgh:EdinburghUniversityPress1966.Ferrara,F.1852.ÔPrefazioneÕ,inTrattatiitalianidelsecoloXVIII,BibliotecadellÕeconomista,Primaserie,vol.3,Torino:Pomba,pp.vÐlxx.Fetter,F.W.1953.ÔTheauthorshipofeconomicarticlesintheÒEdinburghReviewÓ,1802Ð1846Õ,JournalofPoliticalEconomy61:232Ð59.Ñ1958.ÔTheeconomicarticlesintheÒQuarterlyReviewÓandtheirauthors,1809Ð1852Õ,JournalofPoliticalEconomy66:47Ð64and154Ð70.Ñ1962a.ÔEconomicarticlesintheÒWestminsterReviewÓandtheirauthors,1824Ð51Õ,JournalofPoliticalEconomy70:570Ð96.Ñ1962b.ÔRobertTorrens:colonelofMarinesandpoliticaleconomistÕ,Econom-ica29:152Ð65.Ñ1965.ÔEconomiccontroversyintheBritishreviews,1802Ð1850Õ,Economica32:424Ð37.Feyerabend,P.1975.Againstmethod.Outlineofananarchisttheoryofknowledge.London:NewLeftBooks.Finley,M.I.1970.ÔAristotleandeconomicanalysisÕ,PastandPresent47:5Ð25.Ñ1973.Theancienteconomy.BerkeleyÐLosAngeles:UniversityofCaliforniaPress;repr.ofthe2ndedn.,Harmondsworth:PenguinBooks,1992.Fisher,I1892.Mathematicalinvestigationsinthetheoryofvalueandprices.NewHaven:TransactionsoftheConnecticutAcademyofArtsandSciences;repr.NewYork:A.M.Kelley1965.Fitzmaurice,E.1895.ThelifeofSirWilliamPetty,1623Ð1687.London:JohnMurray.Flux,A.W.1894.ÔReview:K.Wicksell,¬UberWert,KapitalundRente;P.H.Wicksteed,AnessayonthecoordinationofthelawsofdistributionÕ,EconomicJournal4:305Ð13.Foner,P.S.(ed.)1973.WhenKarlMarxdied.NewYork:InternationalPublishers.ForgesDavanzati,G.1994.ÔIntroduzioneÕ,inT.Mun,IltesorodellÕInghilterra,Napoli:EdizioniscientiÞcheitaliane,pp.13Ð42.Foxwell,H.S.1899.ÔIntroductionÕ,inA.Menger,Therighttothewholeproduceoflabour,London:Macmillan,pp.vÐcx;repr.NewYork:AugustusM.Kelley1970.Friedman,M.1953.ÔThemethodologyofpositiveeconomicsÕ,inEssaysinpositiveeconomics,Chicago:UniversityofChicagoPress;repr.1976,pp.3Ð43.

References527Ñ1956.ÔThequantitytheoryofmoney.ArestatementÕ,inM.Friedman(ed.),Studiesinthequantitytheoryofmoney,Chicago:UniversityofChicagoPress,pp.3Ð21.Ñ1968.ÔTheroleofmonetarypolicyÕ,AmericanEconomicReview58:1Ð17.Frish,R.1933.ÔEditorialÕ,Econometrica1:1Ð4.Fu`a,G.(ed.)1976.IlÔModellaccioÕ:modellodellÕeconomiaitalianaelaboratodalgruppodiAncona.4vols.,Milano:FrancoAngeli.Ñ1993.Crescitaeconomica.Leinsidiedellecifre.Bologna:ilMulino.Fudenberg,D.andTirole,J.1991.Gametheory.Cambridge,Mass.:MITPress.FumagalliBeonioBrocchieri,M.T.andParodi,M.1989.StoriadellaÞlosoÞamedievale.Roma-Bari:Laterza.Galbraith,J.K.1955.Theafßuentsociety.Boston:HoughtonMifßin.Ñ1967.Thenewindustrialstate.Boston:HoughtonMifßin.Galiani,F.1751.Dellamoneta.Napoli:GiuseppeRaimondi;2ndedn.Napoli:Stamperiasimoniana1780;repr.Milano:Feltrinelli1963(Englishtrans.,Onmoney,ed.P.R.Toscano,AnnArbor:UniversityMicroÞlmInternational1977).Ñ1770.Dialoguessurlecommercedesbl«eds.Londres:nopublisher;repr.ed.F.Nicolini,Milano-Napoli:Ricciardi1959;Italiantrans.,Dialoghisulcommerciodeigrani,Roma:EditoriRiuniti1978.Galilei,G.1623.IlSaggiatore.Roma:GiacomoMascardieAccademiadeiLincei;repr.inOpere,Milano-Napoli:Ricciardi1953,pp.89Ð352.Gallaway,L.andShukla,V.1974.ÔTheneoclassicalproductionfunctionÕ,Amer-icanEconomicReview64:348Ð58.Gûardlund,T.1956.KnutWicksell,rebellldetnyariket.Stockholm:Bonniers;Englishtrans.,ThelifeofKnutWicksell,Stockholm:Almqvist&Wiksell1958;newedition,Cheltenham:Elgar1996.Garegnani,P.1960.Ilcapitalenelleteoriedelladistribuzione.Milano:Giuffr`e.Ñ1970.ÔHeterogeneouscapital,theproductionfunctionandthetheoryofdis-tributionÕ,ReviewofEconomicStudies37:407Ð36.Ñ1976a.ÔTheneoclassicalproductionfunction:commentÕ,AmericanEconomicReview66:424Ð27.Ñ1976b.ÔOnachangeinthenotionofequilibriuminrecentworkonvalueanddistribution:acommentonSamuelsonÕ,inM.Brown,K.SatoandP.Zarembka(eds.),Essaysinmoderncapitaltheory,Amsterdam:NorthHolland,pp.25Ð45.Ñ1981.Marxeglieconomisticlassici.Torino:Einaudi.Ñ1982.ÔOnHollanderÕsinterpretationofRicardoÕsearlytheoryofproÞtsÕ,Cam-bridgeJournalofEconomics6:65Ð77.Ñ1984.ÔValueanddistributionintheclassicaleconomistsandMarxÕ,OxfordEconomicPapers36:291Ð325.Ñ1988.ÔActualandnormalmagnitudes:acommentonAsimakopulosÕ,PoliticalEconomy4:251Ð8.Ñ1990.ÔSraffa:classicalversusmarginalistanalysisÕ,inBharadwajandSchefold(eds.),pp.112Ð41.Genovesi,A.1765Ð7.DellelezionidicommercioosiadÕeconomiacivile.2vols.,Napoli:FratelliSimone;repr.inScrittoriclassiciitalianidieconomiapolitica,ed.P.Custodi,vols.14Ð16,Milano:Destefanis,1803.

528ReferencesGeorge,H.1879.Progressandpoverty.Aninquiryintothecauseofindustrialdepres-sionsandofincreaseofwantwithincreaseofwealth.Theremedy.Middleton:J.Bagot.Georgescu-Roegen,N.1983.ÔIntroductionÕ,inH.H.Gossen,Thelawsofhumanrelationsandtherulesofhumanactionderivedtherefrom,Cambridge,Mass.:MITPress.Ñ1985.ÔTheinterplaybetweeninstitutionalandmaterialfactors:theproblemanditsstatusÕ,inKregel,MatznerandRoncaglia(eds.),pp.297Ð326.Gherity,J.A.1994.ÔTheevolutionofAdamSmithÕstheoryofbankingÕ,HistoryofPoliticalEconomy26:423Ð41.Giacomin,A.1996.Ilmercatoeilpotere.LeteoriedelladomandaeffettivadiBois-guilbert,Cantillon,Quesnay.Bologna:Clueb.Gilibert,G.1977.Quesnay.Milano:Etaslibri.Ñ1990.ÔLascuolarusso-tedescadieconomiamatematicaeladottrinadelßussocircolareÕ,inBecattini(ed.),pp.387Ð403.Ñ1998.ÔManivisibili,invisibilienascosteÕ,inSISSA-Laboratoriointerdisci-plinare,LaboratoriodellÕimmaginarioscientiÞco,AdamSmithedintorni,Napoli:Cuen,pp.137Ð56.Ginzburg,A.1976.ÔIntroduzioneÕ,inA.Ginzburg(ed.),Isocialistiricardiani,Milano:Isedi,pp.ixÐlxxx.Giuliani,A.1997.Giustiziaedordineeconomico.Milano:Giuffr`e.Gleick,J.1987.Chaos:makinganewscience.NewYork:VikingPress.Godwin,W.1793.Enquiryconcerningpoliticaljustice,anditsinßuenceonmoralsandhappiness.London:G.G.andJ.Robinson;repr.ed.I.Kramnick,Harmondsworth:PenguinBooks1976.Ñ1820.Ofpopulation.Anenquiryconcerningthepowerofincreaseinthenumbersofmankind,beingananswertoMr.MalthusÕsessayonthatsubject.London:Longman,Hurst,Rees,OrmeandBrown.Goldman,L.(ed.)1989.TheblindVictorian.HenryFawcettandBritishliberalism.Cambridge:CambridgeUniversityPress.Goodwin,R.M.1967.ÔAgrowthcycleÕ,inC.H.Feinstein(ed.),Socialism,capitalismandeconomicgrowth.EssayspresentedtoMauriceDobb,Cambridge:CambridgeUniversityPress,pp.54Ð8.Ñ1970.Elementaryeconomicsfromthehigherstandpoint.Cambridge:CambridgeUniversityPress.Ñ1982.Intervistaauneconomista.Ed.M.Palazzi,Bologna:BibliotecaWalterBigiavi,Facolt`adieconomiaecommercio.Ñ1990.Chaoticeconomicdynamics.Oxford:ClarendonPress.Gordon,D.1965.ÔTheroleofthehistoryofeconomicthoughtintheunderstand-ingofmoderneconomictheoryÕ,AmericanEconomicReview55:119Ð27.Gossen,H.H.1854.EntwickelungderGesetzedesmenschlichenVerkehrs,undderdarausßiessendenRegelnf¬urmenschlichesHandeln.Brunswick:Vieweg;2ndedn.Berlin:Prager1889.Englishtrans.,Thelawsofhumanrelationsandtherulesofhumanactionderivedtherefrom,ed.N.Georgescu-Roegen,Cambridge,Mass.:MITPress1983.Gramsci,A.1975.Quadernidelcarcere.ed.V.Gerratana,Torino:Einaudi.Gramsci,A.andSraffa,P.1924.ÔProblemidioggiedidomaniÕ,Ordinenuovo,1Ð15Apr.,1:4.

References529Graunt,J.1662.Naturalandpoliticalobservationsuponthebillsofmortality.London:JohnMartyn,JamesAllestryandThomasDicas;5thedn.London:JohnMartyn1676;repr.inPetty1899,pp.314Ð435.Gray,J.1825.Alectureonhumanhappiness.Philadelphia:D.&S.Neall.Gray,J.1984.Hayekonliberty.Oxford:Blackwell;repr.1986.Graziani,A.(ed.)1913.EconomistidelCinqueeSeicento.Bari:Laterza.Groenewegen,P.1995.Asoaringeagle:AlfredMarshall,1842Ð1924.Aldershot:EdwardElgar.Guger,A.andWalterskirchen,E.1988.ÔFiscalandmonetarypolicyintheKeynesÐKaleckitraditionÕ,inKregel,MatznerandRoncaglia(eds.),pp.103Ð32.Haavelmo,T.1944.ÔTheprobabilityapproachineconometricsÕ,Econometrica12(Supplement):1Ð118.Haberler,G.1950.ÔJosephAloisSchumpeter,1883Ð1950Õ,QuarterlyJournalofEconomics64:333Ð72.Hacking,I.1990.Thetamingofchance.Cambridge:CambridgeUniversityPress.Hahn,F.1982a.ÔTheneo-RicardiansÕ,CambridgeJournalofEconomics6:353Ð74.Ñ1982b.ÔStabilityÕ,inK.ArrowandM.Intriligator(eds.),Handbookofmathe-maticaleconomics,Amsterdam:NorthHolland,vol.2,ch.16.Hahn,F.andMatthews,R.C.O.1964.ÔThetheoryofeconomicgrowth:asurveyÕ,EconomicJournal74:779Ð902.Hal«evy,E.1900.Laformationduradicalismephilosophique.Lar«evolutionetladoc-trinedelÕutilit«e(1789Ð1815).Paris:F.Alcan.Englishedn.,Thegrowthofphilosophicradicalism,London:FaberandGwyer1928;repr.London:FaberandFaber1972.Hamowy,R.1987.TheScottishEnlightenmentandthetheoryofspontaneousorder.Carbondale:SouthernIllinoisPress.Hands,D.W.2001.Reßectionwithoutrules.Cambridge:CambridgeUniversityPress.Hansen,A.1938.Fullrecoveryorstagnation?NewYork:Norton.Harcourt,G.C.1969.ÔSomeCambridgecontroversiesinthetheoryofcapitalÕ,JournalofEconomicLiterature7:369Ð405.Ñ1972.SomeCambridgecontroversiesinthetheoryofcapital.Cambridge:Cam-bridgeUniversityPress.Harrod,R.F.1930.ÔNotesonsupplyÕ,EconomicJournal40:232Ð41.Ñ1939.ÔAnessayindynamictheoryÕ,EconomicJournal49:14Ð33.Ñ1951.ThelifeofJohnMaynardKeynes.London:Macmillan.Ñ1961.ÔReviewofP.Sraffa,ProductionofcommoditiesbymeansofcommoditiesÕ,EconomicJournal71:783Ð7.Hart,N.1996.ÔMarshallÕstheoryofvalue:theroleofexternaleconomiesÕ,Cam-bridgeJournalofEconomics20:353Ð69.Harvey,W.1628.Exercitatioanatomicademotucordisetsanguinis.Francoforti:G.Fitzeri.Englishtrans.,Theanatomicalexercises,ed.G.Keynes,NewYork:DoverPublications1995.Hausman,D.M.andMcPherson,M.S.1996.Economicanalysisandmoralphilosophy.Cambridge:CambridgeUniversityPress.Hawtrey,R.G.1919.Currencyandcredit.London:Longman.

530ReferencesHayek,F.von1931.Pricesandproduction.London:Routledge(Italiantrans.,Prezzieproduzione,ed.M.Colonna,Napoli:EdizioniScientiÞcheItaliane1990).Ñ1931Ð2.ÔReßectionsonthepuretheoryofmoneyofMr.J.M.KeynesÕ,Eco-nomica11(1931):270Ð95and12(1932):22Ð44;repr.inF.vonHayek,ContraKeynesandCambridge,ed.B.Caldwell,ThecollectedworksofF.A.Hayek,vol.9,Chicago:UniversityofChicagoPress1995,pp.121Ð46and174Ð97.Ñ1932a.ÔMoneyandcapital:areplyÕ,EconomicJournal42:237Ð49.Ñ1932b.ÔAnoteonthedevelopmentofthedoctrineofÒforcedsavingÓÕ,Quar-terlyJournalofEconomics47:123Ð33.Ñ(ed.)1935.Collectivisteconomicplanning.London:Routledge.Ñ1941.Thepuretheoryofcapital.London:Routledge&KeganPaul.Ñ1944.Theroadtoserfdom.Chicago:ChicagoUniversityPress;repr.(withanintroductionbyM.Friedman)1994.Ñ1988.Conoscenza,mercato,pianiÞcazione.Ed.F.Donzelli,Bologna:ilMulino.Ñ1991.Thetrendofeconomicthinking.Essaysonpoliticaleconomistsandeconomichistory.InW.W.BartleyIIIandS.Kresge(eds.),ThecollectedworksofF.A.Hayek,vol.3,Chicago:UniversityofChicagoPress.Ñ1994.HayekonHayek.Ed.S.KresgeandL.Wenar,Chicago:UniversityofChicagoPress.Heckscher,E.F.1931.Mercantilism.2vols.,London:Allen&Unwin;2ndedn.1955.Heertje,A.(ed.)1981.SchumpeterÕsvision.Capitalism,socialismanddemocracyafter40years.EastburneandNewYork:Praeger.Helvetius,C.A.1758.DelÕ«esprit.Paris:Durand.Hennings,K.H.1997.TheAustriantheoryofvalueandcapital.Cheltenham:EdwardElgar.Hey,J.D.andWinch,D.(eds.)1990.Acenturyofeconomics.100yearsoftheRoyalEconomicSocietyandtheEconomicJournal.Oxford:BasilBlackwell.Hicks,J.1932.Thetheoryofwages.London:Macmillan.Ñ1937.ÔMr.Keynesandtheclassics:asuggestedinterpretationÕ,Econometrica5:147Ð59.Ñ1939.Valueandcapital.Oxford:ClarendonPress;2ndedn.1946.Ñ1969.Atheoryofeconomichistory.Oxford:OxfordUniversityPress.Ñ1973.Capitalandtime.Aneo-Austriantheory.Oxford:ClarendonPress.Hicks,J.andAllen,R.D.G.1934.ÔAreconsiderationofthetheoryofvalueÕ,Economica1:52Ð76and196Ð219.Hicks,J.andHollander,S.1977.ÔMrRicardoandthemodernsÕ,QuarterlyJour-nalofEconomics91:351Ð69.Higgs,H.1897.Thephysiocrats.London:Macmillan;repr.Bristol:ThoemmesPress1993.Hilferding,R.1910.DasFinanzkapital.Wien:WienerVolksbuchhandlungIgnazBrand.Englishtrans.,Financecapital:astudyofthelatestphaseofcapitalistdevelopment,London:Routledge&KeganPaul1981.Hirsch,F.1976.Sociallimitstogrowth.Cambridge,Mass.:HarvardUniversityPress.

References531Hirschman,A.1977.Thepassionsandtheinterests.Princeton:PrincetonUniver-sityPress.Ñ1982.ÔRivalinterpretationsofmarketsociety:civilizing,destructive,orfeeble?Õ,JournalofEconomicLiterature20:1463Ð84.Hobbes,T.1651.Leviathan.AndrewCrooke,London;repr.ed.C.B.Macpher-son,Harmondsworth:PenguinBooks1968,repr.1987.Hobson,J.1902.Imperialism:astudy.London:Nisbet.Ñ1914.Workandwealth.London:Macmillan.Hodgskin,T.1820.LettertoFrancisPlaceofMay28.ManuscriptkeptattheBritishMuseum,London;Italiantrans.inA.Ginzburg(ed.),Socialistiricardiani,Milano:Isedi1976,pp.295Ð308.Ñ1825.Labourdefendedagainsttheclaimsofcapitalortheunproductivenessofcapitalproved.London:KnightandLacey;repr.London:HammersmithBookshop1964.Ñ1827.Popularpoliticaleconomy.London:C.Tait.Hodgson,G.M.2003.ÔInstitutionaleconomicsÕ,inSamuels,BiddleandDavis(eds.),pp.462Ð70.Hollander,J.1904.ÔThedevelopmentofRicardoÕstheoryofvalueÕ,QuarterlyJournalofEconomics18:455Ð91.Ñ1910.DavidRicardoÐacentenaryestimate.Baltimore;repr.NewYork:McKelley1968.Hollander,S.1973a.ÔRicardoÕsanalysisoftheproÞtrate,1813Ð15Õ,Economica40:260Ð82.Ñ1973b.TheeconomicsofAdamSmith.Toronto:UniversityofTorontoPress.Ñ1975.ÔRicardoandthecornproÞtmodel:replytoEatwellÕ,Economica42:188Ð202.Ñ1979.TheeconomicsofDavidRicardo.Toronto:UniversityofTorontoPress.Ñ1985.TheeconomicsofJohnStuartMill.2vols.,Toronto:UniversityofTorontoPress.Horwitz,S.2003.ÔTheAustrianmarginalists:Menger,B¬ohm-Bawerk,andWieserÕ,inSamuels,BiddleandDavis(eds.),pp.262Ð77.Hosseini,H.1998.ÔSeekingtherootsofAdamSmithÕsdivisionoflabourinmedievalPersiaÕ,HistoryofPoliticalEconomy30:653Ð81.Howey,R.S.1960.Theriseofthemarginalutilityschool,1870Ð1889.Lawrence:UniversityofKansasPress;repr.NewYork:ColumbiaUniversityPress1989.Hume,D.1739Ð40.Atreatiseofhumannature.3vols.,London:JohnNoon;repr.Oxford:ClarendonPress1978;repr.Bristol:Thoemmes1990.Ñ[1740]1938.Anabstractofatreatiseonhumannature.Withanintroductionanded.J.M.KeynesandP.Sraffa,Cambridge:CambridgeUniversityPress.Ñ1752.Politicaldiscourses.Edinburgh:A.KincaidandA.Donaldson;repr.inEssays:moral,political,andliterary,ed.E.F.Miller,Indianapolis:LibertyPress1987.Ñ1777.ThelegacyofDavidHume,Esq.:writtenbyhimself.London:WilliamStrahan;repr.inHume,Essays:moral,politicalandliterarycit.,pp.xxviiiÐxlix.Huntington,S.P.1996.Theclashofcivilizationandtheremakingoftheworldorder.NewYork:Simon&Schuster.

532ReferencesHutcheson,F.1755.Asystemofmoralphilosophy.3vols.,London:A.Millar.Hutchison,T.W.1953.Areviewofeconomicdoctrines.Oxford:OxfordUniversityPress;repr.Bristol:ThoemmesPress1993.Ñ1956.ÔBenthamasaneconomistÕ,EconomicJournal66:288Ð306.Ñ1973.ÔTheÒmarginalrevolutionÓandthedeclineandfallofEnglishclassicalpoliticaleconomyÕ,inBlack,CoatsandGoodwin(eds.),pp.176Ð202.Ñ1988.BeforeAdamSmith.Theemergenceofpoliticaleconomy1662Ð1776.Oxford:BasilBlackwell.ImHof,U.1993.DasEuropaderAufkl¬arung.M¬unchen:C.H.Beck;Italiantrans.,LÕEuropadellÕilluminismo,Roma-Bari:Laterza1993.INED(InstitutnationaldÕ«etudesdemographiques)1958.FranücoisQuesnayetlaphysiocratie.2vols.,Paris:PressesUniversitairesdeFrance.Ñ1966.PierredeBoisguilbertorlanaissancedelÕ«economiepolitique.2vols.,Paris:PressesUniversitairesdeFrance.Ingram,J.K.1888.Ahistoryofpoliticaleconomy.Edinburgh:A.&C.Black.Ingrao,B.andIsrael,G.1987.Lamanoinvisibile.LÕequilibrioeconomiconellastoriadellascienza.Roma-Bari:Laterza.Englishtrans.,Theinvisibilehand.Economicequilibriuminthehistoryofscience.Cambridge,Mass.:MITPress,1990.Ingrao,B.andRanchetti,F.1996.Ilmercatonelpensieroeconomico.Milano:UlricoHoepli.InstituteofStatistics,OxfordUniversity.1944.Theeconomicsoffullemployment.Oxford:BasilBlackwell.Isnard,A.N.1781.Trait«edesrichesses.2vols.,LondonandLausanne:F.Grasset.Jaff«e,W.1983.EssaysonWalras.Cambridge:CambridgeUniversityPress.James,P.1979.PopulationMalthus:hislifeandtimes.London:Routledge.Jennings,R.1855.Naturalelementsofpoliticaleconomy.London:Longman,Brown,GreenandLongmans.Jevons,W.S.1865.Thecoalquestion.London:Macmillan;repr.NewYork:Augus-tusM.Kelley1965.Ñ1871.Thetheoryofpoliticaleconomy.London:Macmillan;2ndedn.1879;repr.Harmondsworth:PenguinBooks1970.Ñ1874.Theprinciplesofscience:atreatiseonlogicandscientiÞcmethod.London:Macmillan;2ndedn.1877.Ñ1881.ÔRichardCantillonandthenationalityofpoliticaleconomyÕ,Contempo-raryReview,January;repr.inR.Cantillon,Essaisurlanatureducommerceeng«en«eral,ed.H.Higgs,London:Macmillan1931(repr.NewYork:Kelley1964),pp.333Ð60.Ñ1972Ð81.Papersandcorrespondence.7vols.,ed.R.D.CollisonBlackandR.K¬onekamp,London:Macmillan.Johnson,H.G.1962.ÔReviewofProductionofcommoditiesbymeansofcommoditiesÕ,CanadianJournalofEconomicsandPoliticalScience28:464Ð5.Judges,A.V.1939.ÔTheideaofamercantilestateÕ,TransactionsoftheRoyalHistoricalSociety,4thseries21:41Ð69.

References533Kadish,A.andFreeman,R.D.1990.ÔFoundationandearlyyearsÕ,inHeyandWinch(eds.),pp.22Ð48.Kahn,R.F.1931.ÔTherelationofhomeinvestmenttounemploymentÕ,EconomicJournal41:173Ð98;repr.inKahn,1972,pp.1Ð27.Ñ1954.ÔSomenotesonliquiditypreferenceÕ,ManchesterSchool22:229Ð57;repr.inKahn1972,pp.72Ð96.Ñ1972.Selectedessaysonemploymentandgrowth.Cambridge:CambridgeUni-versityPress.Ñ1973.ÔSDRandaidÕ,LloydBankReview,October,1Ð18.Ñ1974.Onre-readingKeynes.ProceedingsoftheBritishAcademy,vol.60,pp.361Ð92;repr.Oxford:OxfordUniversityPress1975.Ñ[1929]1983.LÕeconomiadelbreveperiodo.Ed.M.Dardi,Torino:Boringhieri;Englishedn.,Theeconomicsoftheshortperiod,NewYork:St.MartinÕsPress1989.Ñ1984.ThemakingofKeynesÕsgeneraltheory.Cambridge:CambridgeUniversityPress.Kaldor,N.1942.ÔProfessorHayekandtheconcertinaeffectÕ,Economica9:359Ð82.Ñ1956.ÔAlternativetheoriesofdistributionÕ,ReviewofEconomicStudies23:94Ð100.Ñ1957.ÔAmodelofeconomicgrowthÕ,EconomicJournal67:591Ð624.Ñ1961.ÔCapitalaccumulationandeconomicgrowthÕ,inF.A.Lutz(ed.),Thetheoryofcapital,London:Macmillan,pp.177Ð220.Ñ1966.ÔMarginalproductivityandthemacro-economictheoriesofdistributionÕ,ReviewofEconomicStudies33:309Ð19.Ñ1972.ÔTheirrelevanceofequilibriumeconomicsÕ,EconomicJournal82:1237Ð55.Kaldor,N.andMirrlees,J.1962.ÔAnewmodelofeconomicgrowthÕ,ReviewofEconomicStudies29:174Ð92.Kalecki,M.1943.Studiesineconomicdynamics.London:Allen&Unwin.Ñ1954.Theoryofeconomicdynamics:anessayoncyclicalandlong-runchangesincapitalisteconomy.London:Allen&Unwin.Ñ1967.ÔZagadnienierealizacjiuTugana-BaranowskiegoiR«ozyLuksemburgÕ,Ekonomista2:241Ð9.Englishtrans.,ÔTheproblemofeffectivedemandwithTugan-BaranowskiandRosaLuxemburgÕ,inKalecki1971,pp.146Ð55.Ñ1971.Selectedessaysonthedynamicsofthecapitalisteconomy.Cambridge:CambridgeUniversityPress.Ñ1972,Selectedessaysontheeconomicgrowthofthesocialistandthemixedeconomy.Cambridge:CambridgeUniversityPress.Kant,I.1784.ÔIdeezueinerallgemeinenGeschichteinWeltb¬urgerlicherAbsichtÕ,BerlinischeMonatsschrift4:385Ð411.Italiantrans.,Ideadiunasto-riauniversaledalpuntodivistacosmopolitico,inI.Kant,Scrittipolitici,Torino:Utet1956,3rdedn.1995,pp.123Ð39(Englishtrans.,Perpetualpeace,ed.byM.CampbellSmith,NewYork:Garland1972).Kauder,E.1965.Ahistoryofmarginalutilitytheory.Princeton:PrincetonUniversityPress.

534ReferencesÑ1970.ÔAustro-Marxismvs.Austro-MarginalismÕ,HistoryofPoliticalEconomy2:398Ð418.Kautilya[fourthcentury]1967.Arthasastra.Ed.R.Shamasastri,Mysore:MysorePrintingandPublishingHouse.Kaye,F.B.1924.ÔIntroductionÕ,inB.Mandeville,Thefableofthebees,ed.F.B.Kaye,Oxford:ClarendonPress,pp.xviiÐcxlvi;repr.Indianapolis:LibertyPress1988.Keynes,J.M.1913.IndiancurrencyandÞnance.London:Macmillan;repr.inJ.M.Keynes,Collectedwritings,vol.1,London:Macmillan1971.Ñ1919.Theeconomicconsequencesofthepeace.London:Macmillan;repr.inJ.M.Keynes,Collectedwritings,vol.2,London:Macmillan1971.Ñ1921.Atreatiseonprobability.London:Macmillan;repr.inJ.M.Keynes,Collectedwritings,vol.8,London:Macmillan1973.Ñ1923.Tractonmonetaryreform.London:Macmillan;repr.inJ.M.Keynes,Collectedwritings,vol.4,London:Macmillan1971(Italiantrans.,ed.P.Sraffa,Lariformamonetaria,Milano:FratelliTreves1925).Ñ1924.ÔAlfredMarshall,1842Ð1924Õ,EconomicJournal34:311Ð72and627Ð37.Repr.(Þrstpartonly)inKeynes1933,pp.150Ð266(pp.161Ð231ofthe1972edn.).Ñ1925.TheeconomicconsequencesofMr.Churchill.London:HogarthPress;repr.inKeynes1931,pp.207Ð30andinJ.M.Keynes,Collectedwritings,vol.9,pp.272Ð94.Ñ1926.Theendoflaissez-faire.London:HogarthPress;partlyrepr.inKeynes1931.Ñ1930.Atreatiseonmoney.2vols.,London:Macmillan;repr.inJ.M.Keynes,Collectedwritings,vols.5and6,London:Macmillan1971.Ñ1931.Essaysinpersuasion.London:Macmillan;repr.inJ.M.Keynes,Collectedwritings,vol.9,London:Macmillan1972.Ñ1933.Essaysinbiography.London:Macmillan;repr.inJ.M.Keynes,Collectedwritings,vol.10,London:Macmillan1972.Ñ1936.Thegeneraltheoryofemployment,interestandmoney.London:Macmil-lan;repr.inJ.M.Keynes,Collectedwritings,vol.7,London:Macmillan1973.Ñ1937.ÔThegeneraltheoryofemploymentÕ,QuarterlyJournalofEconomics51:200Ð23,repr.inKeynes1973,vol.14,pp.109Ð23.Ñ1940.Howtopayforthewar.London:Macmillan;repr.inJ.M.Keynes,Collectedwritings,vol.9,London:Macmillan1972,pp.367Ð439.Ñ1973.Thegeneraltheoryandafter.InCollectedwritings,vols.13(PartI:prepa-ration)and14(PartII:defenseanddevelopment),ed.D.Moggridge,London:Macmillan.Keynes,J.N.1891.Thescopeandmethodofpoliticaleconomy.London:Macmillan.Kindleberger,C.P.1978.Manias,panicsandcrashes.AhistoryofÞnancialcrisis.NewYork:BasicBooks.Ñ1989.Economiclawsandeconomichistory.Cambridge:CambridgeUniversityPress.Ñ1996.Worldeconomicprimacy:1500to1990.Oxford:OxfordUniversityPress.

References535Klein,L.R.1991.ÔEconometriccontributionsoftheCowlesCommission,1944Ð47.AretrospectiveviewÕ,BancaNazionaledelLavoroQuarterlyReview44:107Ð17.Knight,F.H.1921.Risk,uncertaintyandproÞt.Boston:HoughtonMifßin.Konus,A.A.1970.ÔTheempiricalassumptionsofRicardoÕs93%labortheoryofvalueÕ,Economica37:185Ð6.Kregel,J.A.1976.ÔEconomicmethodologyinthefaceofuncertainty.Themod-ellingmethodsofKeynesandthepost-KeynesiansÕ,EconomicJournal86:209Ð25.Ñ1983.ÔEffectivedemand:originsanddevelopmentofthenotionÕ,inJ.A.Kregel(ed.),Distribution,effectivedemandandinternationaleconomicrelations,London:Macmillan,pp.50Ð68.Ñ1992.ÔWalrasÕauctionneerandMarshallÕswellinformeddealers:time,marketpricesandnormalsupplypricesÕ,QuadernidistoriadellÕeconomiapolitica10:531Ð51.Ñ1996.OriginiesviluppodeimercatiÞnanziari.Arezzo:BancaPopolaredellÕEtruriaedelLazio.Kregel,J.A.,Matzner,E.andRoncaglia,A.(eds.)1988.Barrierstofullemploy-ment.London:Macmillan.Krugman,P.R.1990.Rethinkinginternationaltrade.Cambridge,Mass.:MITPress.Kuhn,T.S.1962.ThestructureofscientiÞcrevolutions.Princeton:PrincetonUniversityPress;2ndedn.1970.Kula,W.1958.Rozwazaniaohistorii.Warszawa:Pa«nstwoweWydawnictwoNaukowe.Italiantrans.,Rißessionisullastoria,Venezia:Marsilio1990(Englishtrans.,Theproblemsandmethodsofeconomichistory,Aldershot:Ashgate2001).Ñ1962.Teoriaekonomicznaustrojufeudalnego.Warszawa:Pa«nstwoweWydawn-ictwoNaukowe.Englishtrans.,Aneconomictheoryofthefeudalsystem,London:NewLeftBooks1976.Ñ1970.Miaryiludzie.Warszawa:Pa«nstwoweWydawnictwoNaukowe.Englishtrans.Measuresandmen,Princeton:PrincetonUniversityPress.Kurz,H.andSalvadori,N.1995.Theoryofproduction.Alongperiodanalysis.Cambridge:CambridgeUniversityPress.Kydland,F.E.andPrescott,E.C.1982.ÔTimetobuildandaggregateßuctua-tionsÕ,Economica50:1345Ð70.Lafargue,P.1880.ÔLedroit`alaparesseÕ,LÕ«egalit«e;repr.Paris:Maspero1969.Englishtrans.,Therighttobelazy,Chicago:C.H.Kerr1989.Laidler,D.1981.ÔAdamSmithasamonetaryeconomistÕ,CanadianJournalofEconomics14:185Ð200.Lakatos,I.1970.ÔFalsiÞcationandthemethodologyofscientiÞcresearchpro-grammesÕ,inI.LakatosandA.Musgrave(eds.),Criticismandthegrowthofknowledge,Cambridge:CambridgeUniversityPress,pp.91Ð196.Ñ1978.ThemethodologyofscientiÞcresearchprogrammes.Philosophicalpapers.Cambridge:CambridgeUniversityPress.Lancaster,K.J.1971.Consumerdemand:anewapproach.NewYork:ColumbiaUniversityPress.

536ReferencesLandes,D.S.1986.ÔWhatdobossesreallydo?Õ,JournalofEconomicHistory46:585Ð623.Lange,O.1936Ð7.ÔOntheeconomictheoryofsocialismÕ,ReviewofEconomicStudies4:53Ð71and123Ð42.Langholm,O.1987.ÔScholasticeconomicsÕ,inLowry(ed.)1987b,pp.115Ð35.Ñ1998.ThelegacyofScholasticismineconomicthought.Cambridge:CambridgeUniversityPress.Lansdowne.H.1927.ÔIntroductionÕ,inW.Petty,Papers,2vols.,London:Constable,pp.xiiiÐxli.Latsis,S.(ed.)1976.Methodandappraisalineconomics.Cambridge:CambridgeUniversityPress.Lauerdale(JamesMaitland,countof)1804.Inquiryintothenatureandoriginsofpublicwealth.2ndedn.1819;repr.,NewYork:AugustusM.Kelley1962.Leijonhufvud,A.1968.OnKeynesianeconomicsandtheeconomicsofKeynes.London:OxfordUniversityPress.Lenin(VladimirIlyichUlianov)1898.Englishtrans.,ThedevelopmentofcapitalisminRussia,Moscow:ForeignLanguagesPublishingHouse1956.Ñ1916.Englishtrans.,Imperialism,thehigheststageofcapitalism,London:Junius1996.Leontief,W.1941.ThestructureoftheAmericaneconomy,1919Ð1939.NewYork:OxfordUniversityPress;2ndedn.1951.Leontief,W.,Carter,A.P.andPetri,P.A.1977.Thefutureoftheworldeconomy.AUnitedNationsstudy.NewYork:OxfordUniversityPress.Lerner,A.andColander,D.1980.MAP,amarketanti-inßationplan.NewYork:Harcourt,BraceandJovanovich.Letwin,W.1959.SirJosiahChild,merchanteconomist.Boston:HarvardGraduateSchoolofBusiness.Levhari,D.1965.ÔAnonsubstitutiontheoremandswitchingoftechniquesÕ,QuarterlyJournalofEconomics79:98Ð105.Levhari,D.andSamuelson,P.1966.ÔThenonswitchingtheoremisfalseÕ,Quar-terlyJournalofEconomics80:518Ð19.Levy,D.M.2001.Howthedismalsciencegotitsname.AnnArbor:UniversityofMichiganPress.Lippi,M.1976.Marx.Ilvalorecomecostosocialereale.Milano:Etaslibri.Englishtrans.,ValueandnaturalisminMarx,London:NewLeftBooks,1979.Ñ1979.Iprezzidiproduzione.Bologna:ilMulino.Lipsey,R.G.andLancaster,K.1956.ÔThegeneraltheoryofsecondbestÕ,ReviewofEconomicStudies24:11Ð32.List,F.1841.DasnationaleSystemderpolitischenOekonomie.Stuttgart:J.G.Cotta.Englishtrans.,Thenationalsystemofpoliticaleconomy,ed.S.S.Lloyd,London:Longmans,GreeneandCo.1909.Lloyd,W.F.1837.Lecturesonpopulation,value,poorlawsandrent.London;repr.NewYork:A.M.Kelley1968.Locke,J.1689.Anessayconcerninghumanunderstanding.London:ThomasBasset;repr.ed.P.H.Nidditch,Oxford:ClarendonPress1975.Ñ1690.Twotreatisesofgovernment.London:AwnshamandJohnChurchill;criti-caledn.,ed.P.Laslett,Cambridge:CambridgeUniversityPress1960;edn.quoted,London:J.M.Dent(EverymanÕsLibrary)1975.

References537Ñ1692.Someconsiderationsontheconsequencesoftheloweringofinterest,andraisingthevalueofmoney.London:A.andJ.Churchill;repr.inLockeonmoney,2vols.,ed.P.H.Kelly,Oxford:ClarendonPress1991.LongÞeld,M.1834.Lecturesonpoliticaleconomy.Dublin:R.Milliken&Son.Ñ1835.Threelecturesoncommerce,andoneonabsenteeism.Dublin:WilliamCurry,Junior&Co.Lowry,S.T.1987a.ÔTheGreekheritageineconomicthoughtÕ,inLowry1987b,pp.7Ð30.Ñ(ed.)1987b.Pre-classicaleconomicthought.Boston-Dordrecht-Lancaster:KluwerAcademicPublishers;repr.1994.Ñ2003.ÔAncientandmedievaleconomicsÕ,inSamuels,BiddleandDavis(eds.),pp.11Ð27.Lucas,R.E.1972.ÔExpectationsandtheneutralityofmoneyÕ,JournalofEconomicTheory4:103Ð24.Ñ1976.ÔEconometricpolicyevaluation:acritiqueÕ,inK.BrennerandA.M.Meltzer(eds.),ThePhillipscurveandlabormarkets,Amsterdam:NorthHolland,pp.19Ð46.Luxemburg,R.1913.DieAkkumulationdesKapitals.EinBeitragzur¬okonomischenErkl¬arungdesImperialismus.Berlin:PaulSinger.Italiantrans.,LÕaccumulazionedelcapitale,Torino:Einaudi1960;repr.1968.Englishtrans.,Theaccumulationofcapital,London:Routledge2003.MacÞe,A.L.1967.Theindividualinsociety.London:Allen&Unwin.Machiavelli,N.[1513]1960.Ilprincipe.Milano:Feltrinelli.Englishtransl.,Theprince,ed.R.M.Adams,NewYork:Norton1992.Maddison,A.1984.ÔOriginsandimpactofthewelfarestate,1883Ð1983Õ,BancaNazionaledelLavoroQuarterlyReview37:55Ð87.Magnusson,L.(ed.)1993.Mercantilisteconomics.Boston-Dordrecht-Lancaster:KluwerAcademicPublishers.Ñ2003.ÔMercantilismÕ,inSamuels,BiddleandDavis(eds.),pp.46Ð60.Malcom,N.1958.LudwigWittgenstein:amemoir.Oxford:OxfordUniversityPress.Malinvaud,E.1977.Thetheoryofunemploymentreconsidered.Oxford:BasilBlackwell.Maloney,J.1985.Theprofessionalizationofeconomics.AlfredMarshallandthedom-inanceoforthodoxy.Cambridge:CambridgeUniversityPress;2ndedn.,NewBrunswick,NJ:TransactionPublishers1991.Malthus,T.R.1798.Anessayontheprincipleofpopulationasitaffectsthefutureimprovementofsociety.London:J.Johnson;2ndedn.1803;criticaledn.,ed.P.James,Cambridge:CambridgeUniversityPress1989.Ñ1800.Aninvestigationofthecauseofthepresenthighpriceofprovisions.London:J.Johnson.Ñ1815.Aninquiryintothenatureandprogressofrentandtheprinciplesbywhichitisregulated.London:JohnMurray.Ñ1820.Principlesofpoliticaleconomy.London:JohnMurray;2ndedn.,London:WilliamPickering1836;repr.NewYork:AugustusM.Kelley1964.Ñ1823.Themeasureofvaluestatedandillustrated,withanapplicationofittothealterationsinthevalueoftheEnglishcurrencysince1970.London:JohnMurray;repr.inD.Ricardo,NotesonMalthusÕsÔMeasureofValueÕ,ed.P.Porta,Cambridge:CambridgeUniversityPress1992.

538ReferencesMandeville,B.1705.Thegrumblinghive:or,knavesturnÕdhonest.London:Ballard;repr.inMandeville1714,pp.17Ð37ofthe1924edn.Ñ1714.Thefableofthebees,orprivatevices,publicbeneÞts.London:J.Roberts;crit-icaledn.,ed.F.B.Haye,Oxford:ClarendonPress1924;repr.Indianapolis:LibertyPress1988.Ñ1720.Freethoughtsonreligion.London:Roberts.Ñ1732.AlettertoDion.London:Roberts;repr.,ed.J.Viner,AugustanReprintSocietyno.41,1953.Mangoldt,K.E.von1863.GrundrissderVolkswirtschaftslehre.Stuttgart:Maier.Mann,T.1901.Buddenbrooks.VerfalleinerFamilie.M¬unchen:Fisher.Mantoux,E.1946.TheCarthaginianpeace,ortheeconomicconsequencesofMr.Keynes.London:OxfordUniversityPress.Marcet,J.1806.Conversationsonchemistry.London:Longman,Hurst,Rees&Orme.Ñ1816.Conversationsinpoliticaleconomy.London:Longman,Hurst,Rees&Orme.Marcuse,H.1956.One-dimensionalman.Boston:BeaconPress.Marcuzzo,M.C.andRosselli,A.1986.Lateoriadelgoldstandard.Bologna:ilMulino.Englishtrans.,Ricardoandthegoldstandard.Thefoundationsofinternationalmonetaryorder,London:Macmillan1991.Ñ,Ñ1994.ÔRicardoÕstheoryofmoneymattersÕ,Revue«economique45:1251Ð67.Marglin,S.A.1974.ÔWhatdobossesdo?Õ,ReviewofRadicalPoliticalEconomy6:60Ð112.Marris,R.1964.TheeconomictheoryofÔmanagerialÕcapitalism.London:Macmillan.Marshall,A.1872.ÔMr.JevonsÕsTheoryofpoliticaleconomyÕ,Academy,1April;repr.inMarshall1925,pp.93Ð100.Ñ(andMaryPaley).1879a.Theeconomicsofindustry.London:Macmillan;Italiantrans.,Economiadellaproduzione,Milano:Isedi1975.Ñ1879b.Thepuretheoryofforeigntrade.Thepuretheoryofdomesticvalues.Cambridge:Privatelyprinted;repr.inMarshall1975,vol.2,pp.117Ð236.Ñ1890.Principlesofeconomics.London:Macmillan;8thedn.1920;criticaledn.,ed.C.W.Guillebaud,2vols.,London:Macmillan1961.Ñ1892.Elementsoftheeconomicsofindustry.London:Macmillan.Ñ1919.Industryandtrade.London:Macmillan.Ñ1923.Money,creditandcommerce.London:Macmillan;repr.,FairÞeld:AugustusM.Kelley1991.Ñ1925.MemorialsofAlfredMarshall.Ed.A.C.Pigou,London:Macmillan.Ñ1926.OfÞcialpapers.Ed.J.M.Keynes,London:Macmillan.Ñ1975.TheearlyeconomicwritingsofAlfredMarshall,1867Ð1890.Ed.J.K.Whitaker,2vols.,London:Macmillan.Ñ1995.Lecturestowomen.Ed.T.Raffaelli,E.BiaginiandR.McWilliamsTullberg,Aldershot:EdwardElgar.Ñ1996a.ThecorrespondenceofAlfredMarshall,economist.Ed.J.K.Whitaker,3vols.,Cambridge:CambridgeUniversityPress.Ñ1996b.OfÞcialpapersofAlfredMarshall.Asupplement.Ed.P.Groenewegen,Cambridge:CambridgeUniversityPress.

References539Martineau,H.1832Ð4.Illustrationsofpoliticaleconomy.9vols.,London:CharlesFox.Marx,K.[1844]1932.¬Okonomisch-philosophischeManuskripteausdemJahre1844.InKarlMarxÐFriedrichEngelsHistorisc-kritischeGesamtausgabe,ed.V.Adoratskij,Berlin:Marx-EngelsGesamtausgabe(MEGA).Englishtrans.,ÔEconomicandphilosophicalmanuscriptsÕ,inK.Marx,Earlywritings,ed.T.B.Bottomore,London:C.A.Watts&Co.1963,pp.61Ð219.Ñ[1845]1888.ÔFeuerbachÕ,appendixtoF.Engels,LudwigFeuerbach,Stuttgart:Dietz.Englishtrans.,ÔThesesonFeuerbachÕ,inMarxandEngels1959,pp.283Ð6.Ñ1847.Mis`eredelaphilosophie.R«eponse`alaphilosophiedelamis`eredeM.Proudhon.Paris:A.Frank,andBruxelles:C.G.Vogler.Englishtrans.,Thepovertyofphilosophy,Moscow:ForeignLanguagesPublishingHouse1962.Ñ1852.DerachtzelinteBrumairevonLouisBonaparte.DieRevolution,no.1.Englishtrans.,excerpts,ÔTheeighteenthbrumaireofLouisBonaparteÕ,inMarxandEngels1959,pp.358Ð88.Ñ1857.ZurKritikderPolitischen¬Okonomie.Berlin:Dietz.Englishtrans.,Contri-butionstothecritiqueofpoliticaleconomy,London:Lawrence&Wishart1970;passagesquotedfromMarxandEngels1959,pp.83Ð7.Ñ[1857Ð8]1939Ð41.GrundrissederKritikderpolitischen¬Okonomie.2vols.,Moscow:Marx-Engels-LeninInstitute;repr.Berlin:DietzVerlag1953.Englishtrans.,Foundationsofacritiqueofpoliticaleconomy,Harmondsworth:PenguinBooks1972.Ñ1867Ð94.DasKapital.3vols.,Hamburg:O.Meissner.Englishtrans.,Capital,London:Dent1946(forvols.1and2)andHarmondsworth:PenguinBooks1976,repr.1986(forvol.3).Ñ1905Ð10.Theorien¬uberdenMehrwert.Ed.K.Kautsky,Stuttgart:Dietz.Englishtrans.,Theoriesofsurplus-value.Moscow:ForeignLanguagesPublishingHouseandLondon:LawrenceandWishart,Part1,1963;Part2,1969;Part3,1972.Marx,K.andEngels,F.[1845Ð6]1932.DieDeutscheIdeologie.Berlin:Marx-EngelsGesamtausgabe(MEGA).Englishtrans.,TheGermanideology,London:LawrenceandWishart1939;passagesquotedfromMarxandEngels1959,pp.287Ð302.Ñ,Ñ1848.ManifestderKommunistischenPartei.London.:J.E.Burghard,Bildungs-Gesellschaftf¬urArbeiter;Italiantrans.,Manifestodelpartitocomu-nista,Torino:Einaudi,4thedn.1966.Englishtrans.,ÔManifestooftheCom-munistPartyÕ,inMarxandEngels1959,pp.43Ð82.Ñ,Ñ1878.ÔKritikdesGothaerProgrammsÕ,DieNeueZeit,no.18.Englishtrans.,ÔCritiqueoftheGothaprogrammeÕ,inMarxandEngels1959,pp.153Ð73.Ñ,Ñ1959.Basicwritingsonpoliticsandphilosophy.Ed.L.S.Feuer,NewYork:AnchorBooks;newedn.,LondonandNewYork:Fontana-Collins,1969.Mas-Colell,A.,Whinston,M.D.andGreen,J.R.1995.Microeconomictheory.NewYork:OxfordUniversityPress.

540ReferencesMassie,J.1750.Anessayonthegoverningcausesoftherateofinterest.London:T.Payne;repr.Baltimore:JohnsHopkinsUniversityPress1912.Mays,W.1962.ÔJevonsÕsconceptionofscientiÞcmethodÕ,ManchesterSchool30:223Ð49.McCloskey,D.1985.Therhetoricofeconomics.Madison:UniversityofWisconsinPress.Ñ1994.Knowledgeandpersuasionineconomics.Cambridge:CambridgeUniversityPress.McCordWright,D.1950.ÔSchumpeterandKeynesÕ,WeltwirtschaftlichesArchiv65:185Ð96.McCulloch,J.R.1825.Theprinciplesofpoliticaleconomy.Edinburgh:WilliamandCharlesTait,andLondon:LongmansandCo.Ñ1845.Theliteratureofpoliticaleconomy.London:Longman,Brown,GreenandLongmans;repr.,FairÞeld:AugustusM.Kelley1991.Ñ(ed.)1856.AselectcollectionofearlyEnglishtractsoncommerce.London:PoliticalEconomyClub;repr.Cambridge:EconomicHistorySociety1952;repr.McCulloch1995,vol.1.Ñ(ed.)1995.Classicalwritingsineconomics.6vols.,London:Pickering&Chatto.McKenzie,L.W.1954.ÔOnequilibriuminGrahamÕsmodelofworldtradeandothercompetitivesystemsÕ,Econometrica2:147Ð61.McLean,I.andHewitt,F.1994.ÔIntroductionÕ,inCondorcet,Foundationsofsocialchoiceandpoliticaltheory,Aldershot:EdwardElgar,pp.1Ð90.Meade,J.E.1972.ÔThetheoryoflabour-managedÞrmsandofproÞtsharingÕ,EconomicJournal82:402Ð28.Meadows,D.H.,MeadowsD.L.,RandersD.L.andBeherensW.W.III1972.Thelimitstogrowth.NewYork:NewAmericanLibrary.Medio,A.1972.ÔProÞtsandsurplusvalue:appearanceandrealityincapitalistproductionÕ,inE.K.HuntandJ.G.Schwartz(eds.),Acritiqueofeconomictheory,Harmondsworth:Penguin,pp.312Ð46.Meek,R.L.1950Ð1.ÔThomasJoplinandthetheoryofinterestÕ,ReviewofEconomicStudies18:154Ð63.Ñ(ed.)1953.MarxandEngelsonMalthus.London:LawrenceandWishart;repr.MarxandEngelsonthepopulationbomb,Berkeley:RampartsPressInc.1971.Ñ1956.Studiesinthelabourtheoryofvalue.London:LawrenceandWishart;2ndedn.1973.Ñ1961.ÔMr.SraffaÕsrehabilitationofclassicaleconomicsÕ,ScottishJournalofPoliticalEconomy8:119Ð36;repr.inMeek1967.Ñ1962.Theeconomicsofphysiocracy.Essaysandtranslations.London:Allen&Unwin.Ñ1967.Economicsandideologyandotheressays.London:ChapmanandHall.Ñ1976.Socialscienceandtheignoblesavage.Cambridge:CambridgeUniversityPress.Ñ1977.Smith,Marxandafter.London:ChapmanandHall.Meenai,S.A.1956.ÔRobertTorrensÐ1780Ð1864Õ,Economica22:49Ð61.Meikle,S.1995.AristotleÕseconomics.Oxford:OxfordUniversityPress.Meldolesi,L.1971.ÔIlcontributodiBortkiewiczallateoriadelvalore,delladistribuzioneedellÕoriginedelproÞttoÕ,inL.vonBortkiewicz,LateoriaeconomicadiMarxealtrisaggi,Torino:Einaudi,pp.ixÐlxxxiii.

References541Menger,A.1886.DasRechtaufdenvollenArbeitsertrag.Stuttgart:J.C.Cotta;2ndedn.1891.Englishtrans.,Therighttothewholeproduceoflabour,London:Macmillan1899;repr.NewYork:AugustusM.Kelley1970.Ñ1871.Grunds¬atzederVolkswirtschaftslehre.Wien:Braumuller;2ndedn.,ed.K.Menger,1923.Englishtrans.,Principlesofeconomics,NewYork:NewYorkUniversityPress1981.Ñ1883.Untersuchungen¬uberdieMethodederSozialwissenschaftenundderpolitischenOekonomieinsbesondere.Berlin:Dunker&Humblot.Englishtrans.,Problemsofeconomicsandsociology,Urbana:UniversityofIllinoisPress1963;repr.asInvestigationsintothemethodofthesocialscienceswithspecialreferencetoeconomics,NewYork:NewYorkUniversityPress1985.Ñ1884.DieIrrth¬umerdesHistorismusindendeutschenNational¬okonomie.Wien:H¬older;Italiantrans.,Glierroridellostoricismo,Milano:Rusconi1991.MercierdelaRivi`ere,P.-P.1767.LÕordrenatureletessentieldessoci«et«espolitiques.2vols.,Londres:JeanNourse.Milgate,M.1979.ÔOntheoriginofthenotionofintertemporalequilibriumÕ,Economica44:1Ð10.Ñ1987.ÔCarlyle,ThomasÕ,inEatwell,MilgateandNewman(eds.),vol.1,p.371.Mill,J.1807.Commercedefended,London:C.andR.Baldwin;repr.inJ.Mill,Selectedeconomicwritings,ed.D.Winch,EdinburghandLondon:Oliver&Boyd1966,pp.85Ð159.Ñ1818.ÔColoniesÕ,inSupplementtotheEncyclopaediaBritannica(4th,5thand6thedns.),vol.3,pp.257Ð73.Ñ1821.Elementsofpoliticaleconomy.London:Baldwin,CradockandJoy;repr.inJ.Mill,Selectedeconomicwritings,ed.D.Winch,EdinburghandLondon:Oliver&Boyd1966,pp.203Ð366.Mill,J.S.1838.ÔBenthamÕ,LondonandWestminsterReview,no.29:467Ð506;repr.inJ.S.MillandJ.Bentham,Utilitarianismandotheressays,ed.A.Ryan,London:PenguinBooks1987,pp.132Ð75.Ñ1840.ÔColeridgeÕ,LondonandWestminsterReview,no.33:257Ð302;repr.inJ.S.MillandJ.Bentham,Utilitarianismandotheressays,ed.A.Ryan,London:PenguinBooks1987,pp.177Ð226.Ñ1843.Asystemoflogic.2vols.,London:JohnW.Parker.Ñ1844.Essaysonsomeunsettledquestionsofpoliticaleconomy.London:JohnW.Parker;2ndedn.1874;repr.Clifton:AugustusM.Kelley,1974;Italiantrans.,AlcuniproblemiinsolutidellÕeconomiapolitica,Milano:Isedi1976.Ñ1848.Principlesofpoliticaleconomy.London:JohnW.Parker.Ñ1859.Onliberty.London:J.W.Parker.Repr.Northbrook,Ill.:AHMPublish-ingCo.1947.Ñ1861.ÔUtilitarianismÕ,FraserÕsMagazine64:383Ð4;repr.inJ.S.MillandJ.Bentham,Utilitarianismandotheressays,ed.A.Ryan,London:PenguinBooks1987,pp.272Ð338.Ñ1869.ÔThorntononlabouranditsclaimsÕ,FortnightlyReview,MayÐJune,pp.505Ð18and680Ð700.Ñ1873.Autobiography.London:Longmans,Green,ReadandDyer;repr.,London:OxfordUniversityPress1971.Minsky,H.P.1975.JohnMaynardKeynes.NewYork:ColumbiaUniversityPress.

542ReferencesÑ1982.CanÔitÕhappenagain?EssaysoninstabilityandÞnance.Armonk,NY:M.E.Sharpe.Mirabeau(VictorRiquetti,Marquisde)1756.LÕamideshommes.Avignon:nopublisher.Mirowski,P.1989.Moreheatthanlight.Economicsassocialphysics,physicsasnatureÕseconomics.Cambridge:CambridgeUniversityPress.Ñ2002.Machinedreams.Economicsbecomesacyborgscience.Cambridge:Cam-bridgeUniversityPress.Mises,L.von1912.TheoriedesGeldesundderUmlaufsmittel.MunichandLeipzig:Dunker&Humblot;2ndedn.1924;Italiantrans.,Teoriadellamonetaedeimezzidicircolazione.Napoli:EdizioniscientiÞcheitaliane,1999.Ñ1920.ÔDieWirtschaftsrechnungimSozialistischenGemeinwesenÕ,Arkivf¬urSozialwissenschaftundSozialpolitik47:86Ð121;Englishtransl.inHayek(ed.)1935.Mishan,E.J.1967.Thecostsofeconomicgrowth.London:StaplesPress.Modigliani,F.1944.ÔLiquiditypreferenceandthetheoryofinterestandmoneyÕ,Econometrica12:45Ð88.Ñ1958.ÔNewdevelopmentsontheoligopolyfrontÕ,JournalofPoliticalEconomy66:215Ð32.Ñ1963.ÔThemonetarymechanismanditsinteractionwithrealphenomenaÕ,ReviewofEconomicsandStatistics45(Supplement):79Ð107.Modigliani,F.andMiller,M.1958.ÔThecostofcapital,corporationÞnanceandthetheoryofinvestmentÕ,AmericanEconomicReview48:161Ð97.Moggridge,D.E.1976.Keynes.Glasgow:Collins;2ndedn.London:Macmillan1980.Ñ1992.MaynardKeynes.AneconomistÕsbiography.London:Routledge.Montchr«etien,A.de1615.Traict«edelÕoeconomiepolitique.Paris;criticaledn.,ed.F.Billacois,Gen`eve:Droz1999.Montesquieu,C.-L.deSecondatde1748.DelÕespritdeslois.2vols.,Gen`eve:BarillotetFils.Englishtrans.,Thespiritofthelaws,ed.A.M.Cohler,B.C.MillerandH.S.Stone,Cambridge:CambridgeUniversityPress1989.More,T.1516.Utopia.Louvain:T.Martens.Englishtrans.,Utopia,inThecom-pleteworksofStThomasMore,vol.4,ed.E.SurtzandJ.H.Hexter,NewHaven:YaleUniversityPress1965;repr.1979.Morelly,1775.Codedelanature.Paris:Chezlevraisage.Morishima,M.1973.MarxÕseconomics.Adualtheoryofvalueandgrowth.Cambridge:CambridgeUniversityPress.Ñ1977.WalrasÕeconomics.Cambridge:CambridgeUniversityPress.Moulin,H.andYoung,H.P.1987.ÔCondorcet,MarieJeanAntoineNicolasCaritat,MarquisdeÕ,inEatwell,MilgateandNewman(eds.),vol.1,pp.566Ð7.Mun,T.1621.AdiscourseoftradefromEnglanduntotheEast-Indies.London:JohnPiper;repr.inMcCulloch1856,pp.1Ð47.Ñ[c.1630]1664.EnglandÕstreasurebyforraigntrade.London:ThomasClark;repr.inMcCulloch1856,pp.115Ð209;Italiantrans.,IltesorodellÕInghilterra,Napoli:EdizioniscientiÞcheitaliane1994.

References543Murphy,A.E.1986.RichardCantillon:entrepreneurandeconomist.Oxford:Claren-donPress.Ñ1997.JohnLaw.Economictheoristandpolicy-maker.Oxford:ClarendonPress.Muth,J.F.1961.ÔRationalexpectationsandthetheoryofpricemovementsÕ,Econometrica29:315Ð35.Naldi,N.1989.ÔPettyÕslabourtheoryofpricesÕ,QuadernidistoriadellÕeconomiapolitica7:3Ð36.Ñ1998a.ÔSomenotesonPieroSraffaÕsbiography,1917Ð27Õ,ReviewofPoliticalEconomy10:493Ð515.Ñ1998b.ÔSraffaaPerugia:novembre1923Ðfebbraio1926Õ,HistoryofEconomicIdeas6:105Ð32.Ñ1998c.ÔDicembre1922:PieroSraffaeBenitoMussoliniÕ,Rivistaitalianadeglieconomisti3:271Ð99.Napoleoni,C.1962.ÔLaposizionedelconsumonellateoriaeconomicaÕ,Larivistatrimestrale,no.1:3Ð26.Ñ1965.LÕequilibrioeconomicogenerale.Studiointroduttivo.Torino:Boringhieri.Ñ1972.LezionisulCapitolosestoineditodiMarx.Torino:Boringhieri.Ñ1976.Ilvalore.Milano:Isedi.Nash,J.F.1950.ÔEquilibriumpointsinN-persongamesÕ,ProceedingsoftheNationalAcademyofSciences(USA)36:48Ð9.Neisser,H.1932.ÔLohnhoheundbesch¬aftigungsgradinMarktgleichgewichtÕ,WeltwirtschaftlichesArchiv36:415Ð55.Nelson,R.andWinter,S.1982.Anevolutionarytheoryofeconomicchange.Cambridge,Mass.:HarvardUniversityPress.Neumann,J.von1937.Ô¬Uberein¬okonomischesGleichungssystemundeineVerallgemeinerungdesBrouwerschenFixpunktsatzesÕ,inK.Menger(ed.),ErgebrisseeinesmathematischenKolloquiums,1935Ð36,vol.8,pp.73Ð83,Wien:Deuticke.Englishtrans.,ÔAmodelofgeneraleconomicequilibriumÕ,ReviewofEconomicStudies13(1945):1Ð9.Neumann,J.vonandMorgenstern,O.1944.Theoryofgamesandeconomicbehaviour.Princeton:PrincetonUniversityPress;2ndedn.1947;3rdedn.1953.Niehans,J.1990.Ahistoryofeconomictheory.Classiccontributions,1720Ð1980.Baltimore:JohnsHopkinsUniversityPress.Nikolaevskij,B.andMaenchen-Helfen,O.1963,KarlMarx.EineBiogra-phie.Hannover:Dietz.Englishtrans.,KarlMarx:manandÞghter,Harmondsworth:Penguin1976.North,D.1691.Discoursesupontrade.London:Basset;repr.inMcCulloch1856,pp.509Ð40.North,D.C.1990.Institutions,institutionalchangeandeconomicperformance.Cambridge:CambridgeUniversityPress.Nove,A.1970.ÔM.I.Tugan-Baranowsky(1865Ð1919)Õ,HistoryofPoliticalEcon-omy2:246Ð62.Nuccio,O.1984Ð7.Ilpensieroeconomicoitaliano.I.Lefonti(1050Ð1450).3vols.(1984,1985,1987),Sassari:EdizioniGallizzi.OÕBrien,D.P.1970.J.R.McCulloch.Astudyinclassicaleconomics.London:Allen&Unwin.

544ReferencesÑ1975.Theclassicaleconomists.Oxford:ClarendonPress.Ñ2003.ÔClassicaleconomicsÕ,inSamuels,BiddleandDavis(eds.),pp.112Ð29.OÕDonnell,R.1990.AdamSmithÕstheoryofvalueanddistribution.Areappraisal.NewYork:St.MartinÕsPress.Ortes,G.1790.RißessionisullapopolazionedellenazioniinrapportoallÕeconomianazionale.Firenze,s.e.,repr.inP.Custodi(ed.),Scrittoriclassiciitalianidieconomiapolitica,Partemoderna,vol.24,Milano:Destefanis1804,pp.5Ð111.Overstone(S.JonesLloyd,Lord)1971.ThecorrespondenceofLordOverstone,ed.D.P.OÕBrien,3vols.,London:CambridgeUniversityPress.Owen,R.1813.Anewviewofsociety.London:CadellandDavies;repr.inR.Owen,ReporttothecountyofLanark.Anewviewofsociety,Harmondsworth:PenguinBooks1970,pp.85Ð198.Ñ1820.ReporttothecountyofLanark.Lanark,1May;repr.inOwen1857Ð8,vol.2,pp.261Ð310;repr.inR.Owen,ReporttothecountyofLanark.Anewviewofsociety,Harmondsworth:PenguinBooks1970,pp.199Ð270.Ñ1857Ð8.ThelifeofRobertOwen,writtenbyhimself.2vols.,London:EfÞnghamWilson;repr.FairÞeld:AugustusM.Kelley1977.Oxley,G.1974.PoorreliefinEnglandandWales,1601Ð1834.London:DavidandCharles.Pack,S.J.1991.Capitalismasamoralsystem.Aldershot:EdwardElgar.Paine,T.1776.Commonsense.London:J.Almon;repr.inCommonsense,rightsofmanandotheressentialwritings,NewYork:SignetClassic2003.Ñ1791.Rightsofman.London:J.S.Jordan;repr.inCommonsense,rightsofmanandotheressentialwritings,NewYork,SignetClassic2003.Pantaleoni,M.1883.ÔContributoallateoriadelripartodellespesepubblicheÕ,Rassegnaitaliana,15ottobre;repr.inM.Pantaleoni,Scrittivaridieconomia,vol.1,Milano-Palermo-Napoli:RemoSandron1904,pp.49Ð110.Ñ1889.Principiidieconomiapura.Firenze:G.Barbera;2ndedn.1894.Englishtrans.,Pureeconomics,London:Macmillan1898.Ñ1895.ÔLacadutadellaSociet`aGeneralediCreditoMobiliareItalianoÕ,Gior-naledeglieconomisti,aprile,pp.357Ð417;maggio,pp.517Ð64;novembre,pp.437Ð503;repr.inM.Pantaleoni,Scrittivaridieconomia,vol.3,Roma:Castellani1910,pp.323Ð615.Ñ1898.ÔDeicriterichedevonoinformarelastoriadelledottrineeconomicheÕ,Giornaledeglieconomisti,4novembre,repr.inPantaleoni1925,pp.211Ð45.Ñ1925.Erotemidieconomia.2vols.,Bari:Laterza;repr.Padova:Cedam1963.Pareto,V.1896.ÔLacourbedelar«epartitiondelarichesseÕ,inRecueilpubli«eparlaFacult«edeDroitdelÕUniversit«edeLausanne`alÕoccasiondelÕExpositionnationalede1896,pp.373Ð87.Italiantrans.,Lacurvadiripartizionedellaricchezza,inM.Corsi(ed.),Lediseguaglianzeeconomiche,Torino:Giappichelli1995,pp.51Ð70.Ñ1896Ð7.CoursdÕ«economiepolitique.2vols.,Lausanne:F.Rouge.Ñ1901Ð2.Lessyst`emessocialistes.2vols.,Paris:GiardetBri`ere;2ndedn.1926.Ñ1906.Manualedieconomiapolitica.Milano:Societ`aeditricelibraria;repr.Roma:Bizzarri1965.

References545Ñ1916.Trattatodisociologiagenerale.2vols.,Firenze:Barbera;repr.Roma:Bizzarri1964.Ñ1960.LettereaPantaleoni.3vols.,Roma:BancaNazionaledelLavoro.Ñ1964Ð89.Oeuvrescompl`etes.30vols.,ed.G.Busino,Gen`eve:Droz.Ñ1973.Epistolario,1890Ð1923.2vols.,ed.G.Busino,Roma:AccademiaNazionaledeiLincei.Parrinello,S.1970.ÔIntroduzioneaunateorianeoricardianadelcommerciointer-nazionaleÕ,Studieconomici25:267Ð321.Pasinetti,L.1960.ÔAmathematicalformulationoftheRicardiansystemÕ,ReviewofEconomicStudies27:78Ð98(repr.inPasinetti1974).Ñ1962.ÔRateofproÞtandincomedistributioninrelationtotherateofeco-nomicgrowthÕ,ReviewofEconomicStudies29:267Ð79(repr.inPasinetti1974).Ñ1965.ÔAnewtheoreticalapproachtotheproblemsofeconomicgrowthÕ,AcademiaePontiÞciaeScientiarumScriptaVaria,no.28:571Ð696.Ñ1966.ÔChangesintherateofproÞtsandswitchesoftechniquesÕ,QuarterlyJournalofEconomics80:503Ð17.Ñ1969.ÔSwitchesoftechniqueandtheÒrateofreturnÓincapitaltheoryÕ,EconomicJournal79:508Ð31.Ñ1970.ÔAgainoncapitaltheoryandSolowÕsÒrateofreturnÓÕ,EconomicJournal80:428Ð31.Ñ1972.ÔReplytoMr.DoughertyÕ,EconomicJournal82:1351Ð2.Ñ1973.ÔThenotionofverticalintegrationineconomicanalysisÕ,Metroeconomica25:1Ð29.Ñ1974.Growthandincomedistribution.Essaysineconomictheory.CambridgeCambridgeUniversityPress.Ñ1975.Lezioniditeoriadellaproduzione.Bologna:ilMulino.Englishtrans.,Lecturesonthetheoryofproduction,London:Macmillan1977.Ñ(ed.)1977.Contributiallateoriadellaproduzionecongiunta.Bologna:ilMulino.Ñ1979a.ÔTheunpalatabilityofthereswitchingoftechniquesÕ,RevuedÕ«economiepolitique89:637Ð42.Ñ1979b.ÔTheÒunobtrusivepostulateÓofneoclassicaleconomictheoryÕ,RevuedÕ«economiepolitique89:654Ð6.Ñ1981.Structuralchangeandeconomicgrowth.Cambridge:CambridgeUniversityPress.Ñ1984.ÔThedifÞculty,andyetthenecessity,ofaimingatfullemployment:acommentonNinaShapiroÕsNoteÕ,JournalofPostKeynesianEconomics7:246Ð8.Ñ2000.ÔCritiqueoftheneoclassicaltheoryofgrowthanddistributionÕ,BancaNazionaledelLavoroQuarterlyReview53:383Ð431.Pasquinelli,A.andMarzettiDallÕAsteBrandolini,S.1994.ÔIntroduzioneÕ,inJ.M.Keynes,Trattatosullaprobabilit`a,Bologna:Clueb,pp.ixÐxxvi.Patinkin,D.1956.Money,interestandprices.Aninterpretationofmoneyandvaluetheory.Evanston,Ill.:Peterson;2ndedn.,abridged,Cambridge,Mass.:MITPress1989.Ñ1976.KeynesÕsmonetarythought:astudyofitsdevelopment.Durham:DukeUniversityPress.

546ReferencesÑ1987.ÔKeynes,JohnMaynardÕ,inEatwell,MilgateandNewman(eds.),vol.3,pp.19Ð41.Peach,T.1993.InterpretingRicardo.Cambridge:CambridgeUniversityPress.Peart,S.J.andLevy,D.M.2003.ÔPost-RicardianBritisheconomics,1830Ð1870Õ,inSamuels,BiddleandDavis(eds.),pp.130Ð47.Pecchio,G.1832.StoriadellÕeconomiapubblicainItalia.Lugano:Ruggia;repr.Milano:Sugarco1992.Perrotta,C.1988.ProduzioneelavoroproduttivonelmercantilismoenellÕilluminismo.Galatina:Congedo.Ñ1991.ÔIsthemercantilisttheoryofthefavorablebalanceoftradereallyerroneous?Õ,HistoryofPoliticalEconomy23:301Ð36.Ñ1993.ÔEarlySpanishmercantilism:theÞrstanalysisofunderdevelopmentÕ,inMagnusson(ed.)1993,pp.17Ð58.Ñ1997.ÔThepreclassicaltheoryofdevelopment:increasedconsumptionraisesproductivityÕ,HistoryofPoliticalEconomy29:295Ð326.Pesciarelli,E.1989.ÔIntroduzioneÕ,inA.Smith,LezionidiGlasgow,Milano:Giuffr`e,pp.ixÐxviii.Petty,W.1662.Atreatiseoftaxesandcontributions.London:N.Brooke;repr.inPetty1899,pp.1Ð97.Ñ1674.ThediscoursemadebeforetheRoyalSociety,the26November1674concerningtheuseofduplicateproportioninsundryimportantparticulars.London:JohnMartyn;partiallyrepr.inPetty1899,pp.622Ð4.Ñ1690.Politicalarithmetick.London:RobertClavelandHenryMortlock;repr.inPetty1899,pp.233Ð313.Ñ1691a.ThepoliticalanatomyofIreland.London:D.BrownandW.Rogers;repr.inPetty1899,pp.121Ð231.Ñ1691b.Verbumsapienti.InappendixtoW.Petty1691a;repr.inPetty1899,pp.99Ð120.Ñ1695.Quantulumcumqueconcerningmoney.London:A.andJ.Churchill;repr.inPetty1899,pp.437Ð48.Ñ1899.Economicwritings.Ed.C.Hull,2vols.,Cambridge:CambridgeUniversityPress;repr.NewYork:AugustusM.Kelley1963.Ñ1927.Papers.2vols.,ed.H.Lansdowne,London:Constable.Ñ1928.PettyÐSouthwellcorrespondence1676Ð1687.Ed.H.Lansdowne,London:Constable.Ñ1977.ÔAdialogueonpoliticalarithmeticÕ,inS.Matsukawa,ÔSirWilliamPetty:anunpublishedmanuscriptÕ,HitostubashiJournalofEconomics17:33Ð50.Phelps,E.S.1967.ÔPhillipscurves,expectationsofinßationandoptimalunem-ploymentovertimeÕ,Economica34:254Ð81.Phillips,A.W.1958.ÔTherelationshipbetweenunemploymentandtherateofchangeofmoneywageratesintheUnitedKingdom,1861Ð1957Õ,Economica25:283Ð99.Pietranera,G.1963.LateoriadelvaloreedellosviluppocapitalisticoinAdamoSmith.Milano:Feltrinelli.Pigou,A.C.1912.Wealthandwelfare.London:Macmillan;newedn.,Theeconomicsofwelfare,London:Macmillan1920.

References547Ñ1922.ÔEmptyeconomicboxes:areplyÕ,EconomicJournal32:458Ð65.Ñ1927a.Industrialßuctuations.London:Macmillan.Ñ1927b.ÔThelawsofdiminishingandincreasingcostÕ,EconomicJournal37:188Ð97.Ñ1928.ÔAnanalysisofsupplyÕ,EconomicJournal38:238Ð57.Ñ1933.Thetheoryofunemployment.London:Macmillan.Ñ1950.KeynesÕsGeneralTheory:aretrospectiveview.London:Macmillan.Place,F.1822.Illustrationsandproofsoftheprincipleofpopulation.London:Long-manandCo.;repr.London:Allen&Unwin1930.Plato1926.Laws.Ed.R.G.Burey,LoebClassicLibrary,London:HeinemannandCambridge,Mass.:HarvardUniversityPress.Ñ1930.Therepublic.Books1Ð5(vol.1),withanEnglishtrans.byP.Shorey,LoebClassicLibrary,London:HeinemannandCambridge,Mass.:HarvardUniversityPress.Poinsot,L.1803.«El«ementsdestatique.Paris;8thedn.Paris:Bachelier1842.PoliticalEconomyClub1882.Minutesofproceedings.vol.4,London:Macmillan.Ñ1921.Minutesofproceedings,1899Ð1920,Rollofmembersandquestionsdis-cussed,1821Ð1920,withdocumentsbearingonthehistoryoftheClub.London:Macmillan.Pollard,S.1968.Theideaofprogress.London:C.A.Watts;repr.Harmondsworth:PenguinBooks1971.Popper,K.R.1934.LogikderForschnung.Wien:Springer.EnlargedEnglishedn.,ThelogicofscientiÞcdiscovery,London:Hutchinson1959.Ñ1944Ð5.ÔThepovertyofhistoricismÕ,Economica11:86Ð103and119Ð37;12:69Ð89;repr.involume,London:Routledge&KeganPaul1957;2ndedn.1960;repr.1972.Ñ1945.Theopensocietyanditsenemies.2vols.,London:Routledge&KeganPaul;5thedn.1966.Ñ1969.Conjecturesandrefutations.London:Routledge&KeganPaul.Ñ1976.Unendedquest.Anintellectualautobiography.Glasgow:Fontana-Collins.Postlethwayt,M.1751Ð5.Universaldictionaryoftradeandcommerce.London:W.Strahan.Pownall,T.1776.AletterfromGovernorPownalltoAdamSmith,L.L.D.F.R.S.,beinganexaminationofseveralpointsofdoctrine,laiddowninhisÔInquiryintothenatureandcausesofthewealthofnationsÕ.London;repr.NewYork:AugustusM.Kelley1967;repr.inSmith1977,pp.337Ð76.Preobrazhensky,E.A.1922.Otnepaksotzializmu.Moscow.Englishtrans.,Theneweconomics,Oxford:ClarendonPress1965.Pribram,K.1983.Ahistoryofeconomicreasoning.Baltimore:JohnsHopkinsUniversityPress.Proudhon,P.-J.1840.QuÕest-cequelapropri«et«e?Paris:Brocard.Englishtrans.,Whatisproperty?,Cambridge:CambridgeUniversityPress1994.Pufendorf,S.1672.Deiurenaturaeetgentiumlibriocto.Lund:A.Junghans.Englishtrans.byC.andW.Oldfather,Theclassicsofinternationallaw,vol.2no.17,Oxford:ClarendonPress1934.

548ReferencesPyle,A.(ed.)1994.Population.ContemporaryresponsestoThomasMalthus.Bristol:ThoemmesPress.Quesnay,F.1756.ÔFermiersÕ,inEncyclop«edie,vol.6,pp.528Ð40;repr.inINED,1958,pp.427Ð58.Ñ1757.ÔGrainsÕ,inEncyclop«edie,vol.7,pp.812Ð31;repr.inINED,1958,pp.793Ð812.Ñ1758Ð9.Tableau«economique.Paris(1stedn.1758;2ndedn.1759;3rdedn.1759).Repr.withanEnglishtrans.inM.KuczynskiandR.L.Meek,QuesnayÕstableau«economique,London:MacmillanandNewYork:Kelley1972.Ñ1765.ÔObservationssurledroitnatureldeshommesr«eunisensoci«et«eÕ,JournaldelÕagriculture,ducommerceetdesÞnances2(Þrstpart):1Ð35;repr.inINED1958,pp.729Ð42.Quine,W.V.O.1951.ÔTwodogmasofempiricismÕ,PhilosophicalReview60:20Ð43.Quinton,A.1968.ÔThelaterphilosophyofWittgensteinÕ,inG.Pitcher(ed.),Wittgenstein.Acollectionofcriticalessays,London:Macmillan,pp.1Ð21.RadcliffeReport1959.Committeeontheworkingofthemonetarysystem,London:HMSO.Rae,J.1834.Statementofsomenewprinciplesonthesubjectofpoliticaleconomy.Boston:HilliardGrayandCo.Ramsey,F.P.1928.ÔAmathematicaltheoryofsavingÕ,EconomicJournal38:543Ð9.Ñ1931.Thefoundationsofmathematics.London:Routledge&KeganPaul.Raphael,D.D.andMacÞe,A.L.1976.ÔIntroductionÕtoSmith1759,criticaledn.,pp.1Ð52.Rau,K.H.1826.Grunds¬atzederVolkswirtschaftslehre.Heidelberg:C.F.Winter;4thedn.1841;7thedn.1863.Rauner,R.M.1961.SamuelBaileyandtheclassicaltheoryofvalue.London:G.BellandSons.Ravenstone,P.1821.Afewdoubtsastothecorrectnessofsomeopinionsgenerallyenter-tainedonthesubjectofpopulationandpoliticaleconomy.London:J.Andrews;repr.NewYork:A.M.Kelley1970.Ravix,J.andRomani,P.-M.(eds.)1997.Turgot.Formationetdistributiondesrichesses.Paris:Flammarion.Rawls,J.1971.Atheoryofjustice.Cambridge,Mass.:HarvardUniversityPress.Realfonzo,R.andGraziani,A.1992.ÔLaTeoriadelcreditoedellacircolazionediMarcoFannoÕ,inM.Fanno,Teoriadelcreditoedellacircolazione,Napoli:EdizioniscientiÞcheitaliane,pp.xiÐlxxiii.Remak,R.1929.ÔKanndieVolkswirtschaftslehreeineexakteWissenschaftwerden?Õ,Jahrbucherf¬urNational¬okonomieundStatistik131:703Ð36.Riazanov,D.1927.KarlMarxandFriedrichEngels.London:MartinLawrence.Ricardo,D.1951Ð5.Worksandcorrespondence.10vols.,ed.P.Sraffa,Cambridge:CambridgeUniversityPress(vol.11,Indexes,1973).Rickett,W.A.1985Ð98.Guanzi.2vols.,Princeton:PrincetonUniversityPress.RidolÞ,M.1972.ÔAspettidelsistemateoricodiAlfredMarshall:unarevisionecriticadiinterpretazionimoderneÕ,AnnalidellaFacolt`adiscienzepolitiche,Universit`adeglistudidiPerugia2:119Ð204.

References549Ñ1973.ÔIntroduzioneÕ,inF.Quesnay,IlÔtableau«economiqueÕealtriscrittidiecono-mia,Milano:Isedi,pp.ixÐlxxxi.Robbins,L.1928.ÔTherepresentativeÞrmÕ,EconomicJournal38:387Ð404.Ñ1932.AnessayonthenatureandsigniÞcanceofeconomicscience.London:Macmillan.Ñ1958.RobertTorrensandtheevolutionofclassicaleconomics.London:Macmillan.Ñ1971.Autobiographyofaneconomist.London:Macmillan.Robertson,D.1915.Astudyofindustrialßuctuations.London:P.S.King&Son;repr.,LondonSchoolofEconomicsandPoliticalScience1948.Ñ1924.ÔThoseemptyboxesÕ,EconomicJournal34:16Ð30.Ñ1926.Bankingpolicyandthepricelevel.Anessayinthetheoryoftradecycle.London:KingandSon.Ñ1930.ÔThetreesoftheforestÕ,EconomicJournal40:80Ð9.Robinson,J.1933.Theeconomicsofimperfectcompetition.London:Macmillan;2ndedn.1969.Ñ1953.ÔTheproductionfunctionandthetheoryofcapitalÕ,ReviewofEconomicStudies21:81Ð106.Ñ1956.Theaccumulationofcapital.London:Macmillan;3rdedn.1969.Ñ1961.ÔPreludetoacritiqueofeconomictheoryÕ,OxfordEconomicPapers13:53Ð8.Ñ1977.ÔMichalKaleckiontheeconomicsofcapitalismÕ,OxfordBulletinofEco-nomicsandStatistics39:7Ð17.Roll,E.1945.Ahistoryofeconomicthought.London:FaberandFaber.Romer,P.1986.ÔIncreasingreturnsandlong-rungrowthÕ,JournalofPoliticalEconomy94:1002Ð37.Roncaglia,A.1972.ÔIntroduzioneÕ,inR.Torrens,Saggiosullaproduzionedellaricchezza,Milano:Isedi,pp.ixÐxxxii.Ñ1973.ÔLariduzionedilavorocomplessoalavorosempliceÕ,Noteeconomiche6:97Ð112.Ñ1974.ÔLabour-power,subsistencewageandtherateofwagesÕ,AustralianEconomicPapers13:133Ð43.Ñ1975.Sraffaelateoriadeiprezzi.Roma-Bari:Laterza;2ndedn.1981.Englishtrans.Sraffaandthetheoryofprices,Chichester:Wiley1977.Ñ1977.Petty:lanascitadellÕeconomiapolitica.Milano:EtasLibri.Englishtrans.Petty.Theoriginsofpoliticaleconomy,Armonk:M.E.Sharpe1985.Ñ1982.ÔHollanderÕsRicardoÕ,JournalofPostKeynesianEconomics4:339Ð59.Ñ1983a.LÕeconomiadelpetrolio.Roma-Bari:Laterza1983.Englishtrans.Theinternationaloilmarket,London:Macmillan1985.Ñ1983b.ÔPieroSraffa:unabibliograÞaragionataÕ,Studieconomici38:137Ð66.Ñ1987.Schumpeter.`Epossibileunateoriadellosviluppoeconomico?Arezzo:BancaPopolaredellÕEtruria.Ñ1988.ÔWilliamPettyandtheconceptualframeworkfortheanalysisofeconomicdevelopmentÕ,inK.Arrow(ed.),Thebalancebetweenindustryandagricultureineconomicdevelopment,vol.1.Basicissues,London:Macmillan,pp.157Ð74.Ñ1989.ÔItalianeconomicgrowth:aSmithianviewÕ,QuadernidistoriadellÕeconomiapolitica7:227Ð34.Ñ1990a.ÔLescuolesrafÞaneÕ,inBecattini(ed.),pp.233Ð74.Englishtrans.,ÔTheSrafÞanschoolsÕ,ReviewofPoliticalEconomy1991,3:187Ð219.

550ReferencesÑ1990b.ÔIsthenotionoflong-periodpositionscompatiblewithclassicalpoliticaleconomy?Õ,PoliticalEconomy6:103Ð11.Ñ1993.ÔTowardapost-SrafÞantheoryofincomedistributionÕ,JournalofIncomeDistribution3:3Ð27.Ñ1994.ÔAntonioSerrasTheorieundihreRezeptionÕ,inA.Heertjeetal.,AntonioSerraundseinÔBreveTrattatoÕ,D¬usseldorf:VerlagWirtschaftunFinanzenGmbH,pp.41Ð64.Ñ1995a.ÔIntroduzioneÕ,inA.Smith,Laricchezzadellenazioni,Roma:Newton,pp.1Ð11.Ñ1995b.ÔOnthecompatibilitybetweenKeynesÕsandSraffaÕsviewpointsonoutputlevelsÕ,inG.Harcourt,A.RoncagliaandR.Rowley(eds.),Incomeandemploymentintheoryandpractice,London:Macmillan,pp.111Ð25.Ñ1995c.ÔCommentÕ,HistoryofPoliticalEconomy27:189Ð93.Ñ1999.Sraffa:labiograÞa,lÕopera,lescuole.Roma-Bari:Laterza.Englishtrans.,PieroSraffa.Hislife,thoughtandculturalheritage,London:Routledge2001.Roncaglia,A.andTonveronachi,M.1985.ÔThepre-KeynesianrootsoftheneoclassicalsynthesisÕ,CahiersdÕ«economiepolitique10:51Ð65.Rorty,R.1984.ÔThehistoriographyofphilosophyÕ,inR.Rorty,J.B.SchnewindandQ.Skinner(eds.),PhilosophyinHistory,Cambridge:CambridgeUniversityPress,pp.49Ð75.Roscher,W.1854.DieGrundlagenderNational¬okonomie.Stuttgart:GottaÕschenBuchhandlung.Englishtrans.,Principlesofpoliticaleconomy,Chicago:Callaghan1878.Rosdolsky,R.1955.ZurEntstehungsgeschichtedesMarxschenÔKapitalÕ.Frankfurt:Europ¬aischeVerlagsanstalt.Englishtrans.,ThemakingofMarxÕsÔCapitalÕ,ed.P.Burgess,London:PlutoPress1977.Rosenberg,N.1965.ÔAdamSmithonthedivisionoflabour:twoviewsorone?Õ,Economica32:127Ð39.Ross,I.S.1995.ThelifeofAdamSmith.Oxford:ClarendonPress.Ross,S.1973.ÔTheeconomictheoryofagency:theprincipalÕsproblemÕ,AmericanEconomicReview63:134Ð9.Rosselli,A.1985.ÔThetheoryofthenaturalwageÕ,inCaravale(ed.),pp.239Ð54.Ñ1995.ÔAntonioSerraelateoriadeicambiÕ,inA.Roncaglia(ed.),AlleoriginidelpensieroeconomicoinItalia.1.MonetaesvilupponeglieconomistinapoletanideisecoliXVIIÐXVIII,Bologna:ilMulino,pp.37Ð58.Rossi,E.1946.Abolirelamiseria.LaÞaccola;repr.ed.P.SylosLabini,Roma-Bari:Laterza1977.Rossi,P.1962.IÞlosoÞelemacchine,1400Ð1700.Milano:Feltrinelli.Ñ1997.LanascitadellascienzamodernainEuropa.Roma-Bari:Laterza.Rostow,W.W.1960.Thestagesofeconomicgrowth.Cambridge:CambridgeUniversityPress.Rotelli,C.1982.Leoriginidellacontroversiamonetaria(1797Ð1844).Bologna:IlMulino.Rothschild,E.1992.ÔAdamSmithandconservativeeconomicsÕ,EconomicHistoryReview45:74Ð96.

References551Ñ1994.ÔAdamSmithandtheinvisiblehandÕ,AmericanEconomicReview.PapersandProceedings84:319Ð22.Ñ1995.ÔSocialsecurityandlaissezfaireineigtheenth-centurypoliticaleconomyÕ,PopulationandDevelopmentReview21:711Ð44.Ñ2001.Economicsentiments.AdamSmith,CondorcetandtheEnlightenment.Cambridge,Mass.:HarvardUniversityPress.Rousseau,J.-J.1762.Ducontratsocial.Amsterdam:M.Rey.Englishtrans.,Thesocialcontract,London:J.M.Dent&Sons1973.Routh,G.1975.Theoriginsofeconomicideas.London:Macmillan.Russell,B.1945.AhistoryofWesternphilosophy.NewYork:SimonandSchuster;paperbackedn.,tenthrepr.1964.Russell,B.andWhitehead,A.N.1910Ð13.Principiamathematica.3vols.,Cambridge:CambridgeUniversityPress.Rutheford,M.2003.ÔAmericaninstitutionaleconomicsintheinterwarperiodÕ,inSamuels,BiddleandDavis(eds.),pp.360Ð76.Sabbatini,R.1989.ÔIlprogettodiKeynesdistabilizzazionedeiprezzidellematerieprimeÕ,QuadernidistoriadellÕeconomiapolitica7:55Ð73.Salvadori,M.L.1976.Kautskyelarivoluzionesocialista,1880Ð1938.Milano:Feltrinelli.Samuels,W.J.,Biddle,J.E.andDavis,J.B.(eds.)2003.Acompaniontothehistoryofeconomicthought.Oxford:Blackwell.Samuelson,P.A.1938.ÔAnoteonthepuretheoryofconsumersÕbehaviourÕ,Economica5:632Ð56.Ñ1947.Foundationsofeconomicanalysis.Cambridge,Mass.:HarvardUniversityPress.Ñ1948a.Economics.NewYork:McGraw-Hill.Ñ1948b.ÔInternationaltradeandtheequalizationoffactorpricesÕ,EconomicJournal58:163Ð84.Ñ1962.ÔParableandrealismincapitaltheory:thesurrogateproductionfunc-tionÕ,ReviewofEconomicStudies29:193Ð206.Ñ1966.ÔAsummingupÕ,QuarterlyJournalofEconomics80:568Ð83.Ñ1987.ÔSrafÞaneconomicsÕ,inEatwell,MilgateandNewman(eds.),vol.4,pp.452Ð61.Sardoni,C.1987.MarxandKeynesoneconomicrecession.Thetheoryofunemploy-mentandeffectivedemand.Brighton:Wheatsheaf.Savage,L.J.1954.Thefoundationofstatistics.NewYork:Wiley.Savary,J.1675.Leparfaitnegociant.Paris:LouisBillaine;repr.,D¬usseldorf:VerlagWirtschaftundFinanzen1993.Say,J.B.1803.Trait«edÕ«economiepolitique.Paris:Deterville.Englishtrans.Atreatiseonpoliticaleconomy,NewBrunswickandLondon:TransactionPublishers2000.ScarufÞ,G.1582.LÕAlitinolfo.Reggio:HercolianoBartoli;repr.asDiscorsosopralemoneteedellaveraproporzionetralÕoroelÕargento,inP.Custodi(ed.),Scrittoriclassiciitalianidieconomiapolitica,Parteantica,vol.2,Milano:Destefanis1804,pp.71Ð322.Schabas,M.1990.Aworldruledbynumber.Princeton:PrincetonUniversityPress.

552ReferencesSchefold,B.1989.MrSraffaonjointproductionandotheressays.London:Unwin&Hyman.Schelle,G.1913Ð23.CEuvresdeTurgotetdocumentsleconcernant.5vols.,Paris:Alcan.Schultz,H.1938.Theoryandmeasurementofdemand.Chicago:UniversityofChicagoPress.Schumpeter,J.1906.Ô¬UberdiemathematischeMethodedertheoretischen¬OkonomieÕ,Zeitschriftf¬urVolkswirtschaft,SozialpolitikundVerwaltung15:30Ð49.Ñ1908.DasWesenundderHauptinhaltdertheoretischenNational¬okonomie.M¬unchen-Leipzig:Duncker&Humblot.Italiantrans.,LÕessenzaeiprin-cipidellÕeconomiateorica,Roma-Bari:Laterza1982.Ñ1912.TheoriederwirtschaftlichenEntwicklung.M¬unchen-Leipzig:Duncker&Humblot;2ndedn.1926;3rdedn.1931;4thedn.1935.Englishedn.Thetheoryofeconomicdevelopment,Cambridge,Mass.:HarvardUniversityPress1934;repr.NewYork:OxfordUniversityPress1961;Italiantrans.ofthe2ndGermanedn.,Teoriadellosviluppocapitalistico.Firenze:Sansoni1971;repr.1977.Ñ1914.ÔEpochenderDogmen-undMethodengeschichteÕ,inGrundrissderSozial¬okonomie,T¬ubingen:Mohr,Þrstpart,pp.19Ð124.Englishtrans.,Eco-nomicdoctrineandmethod:anhistoricalsketch,London:Allen&UnwinandNewYork:OxfordUniversityPress,1954.Ñ1928.ÔTheinstabilityofcapitalismÕ,EconomicJournal38:361Ð86.Ñ1939.Businesscycles.Atheoretical,historicalandstatisticalanalysisofthecapitalistprocess.2vols.,NewYorkandLondon:McGraw-Hill;repr.,Philadelphia:PorcupinePress1982;partialrepr.ed.R.Fels,NewYorkandLondon:McGraw-Hill1964.Ñ1942.Capitalism,socialismanddemocracy.NewYork:Harper&Bros.;2ndedn.1947;3rdedn.1950;4thedn.1954;5thedn.1976;repr.London:Routledge1994.Ñ1946.ÔLÕavenirdelÕentreprisepriv«eedevantlestendencessocialistesmod-ernesÕ,inCommentsauvegarderlÕentreprisepriv«ee,EditionsAssociationProfessionelledesIndustriels,Canada,pp.103Ð8.Ñ1951a.Tengreateconomists:fromMarxtoKeynes.NewYork:OxfordUniversityPress.Ñ1951b.Imperialismandsocialclasses.NewYork:Kelley.Ñ1954.Historyofeconomicanalysis.Ed.E.BoodySchumpeter,NewYork:OxfordUniversityPress.Ñ1970.DasWesendesGeldes.Ed.F.K.Mann,G¬ottingen:Vanderl¬ockundRuprecht;Italiantrans.,LÕessenzadellamoneta,Torino:CassadirisparmiodiTorino1990.Schwartz,P.1968.ThenewpoliticaleconomyofJ.S.Mill.London:WeidenfeldandNicolson.Screpanti,E.andZenezini,M.(eds.)1978.Accumulazionedelcapitaleeprogressotecnico.Milano:Feltrinelli.Scribano,M.E.1974.ÔIntroduzioneÕ,inB.Mandeville,Ricercasullanaturadellasociet`a,Roma-Bari:Laterza,pp.viiÐxxxii.

References553Scrope,G.P.1833.Principlesofpoliticaleconomy.London:Longman;repr.NewYork:AugustusM.Kelley1969.Sebastiani,M.(ed.)1989.KaleckiÕsrelevancetoday.London:Macmillan.Ñ1994.Kaleckiandunemploymentequilibrium.London:Macmillan.Seligman,E.1903.ÔOnsomeneglectedBritisheconomistsÕ,EconomicJournal13:335Ð63,511Ð35.Sen,A.1984.Resources,valuesanddevelopment.Oxford:BasilBlackwell;Italiantrans.,Risorse,valoriesviluppo,Torino:Bollati-Boringhieri1992.Ñ1987.ÔRationalbehaviourÕ,inEatwell,MilgateandNewman(eds.),vol.4,pp.68Ð76.Ñ1991.Moneyandvalue:ontheethicsandeconomicsofÞnance.Roma:EdizionidellÕElefante.Sen,A.andWilliams,B.(eds.)1982.Utilitarianismandbeyond.Cambridge:CambridgeUniversityPress.Sen,S.R.1957.TheeconomicsofSirJamesSteuart.London:Bell.Senior,W.N.1827.Anintroductorylectureonpoliticaleconomy.London:J.Mawman.Ñ1836.Anoutlineofthescienceofpoliticaleconomy.London:W.ClovesandSons.Ñ1837.LettersontheFactoryAct.London:B.Fellowes.Serra,A.1613.BrevetrattatodellecausechepossonofarabbondareliregnidÕoroedÕargentodovenonsonominiereconapplicazionealRegnodiNapoli.Napoli:L.Scorriggio;repr.,D¬usseldorf:VerlagWirtschaftundFinanzenGmbH1994.Seton,F.1957.ÔTheÒtransformationproblemÓÕ,ReviewofEconomicStudies23:149Ð60.Shaftesbury,AnthonyAshleyCooper,countof,1711.Characteristicsofmen,man-ners,opinions,times.3vols.,s.e.,London;repr.Indianapolis:LibertyFund2001.Shaw,G.B.(ed.)1889.Fabianessaysinsocialism.London:WalterScott;repr.Gloucester,Mass.:PeterSmith1967.Shove,G.F.1928.ÔVaryingcostsandmarginalnetproductsÕ,EconomicJournal38:258Ð66.Ñ1930.ÔTherepresentativeÞrmandincreasingreturnsÕ,EconomicJournal40:94Ð116.Simon,H.A.1957.Modelsofman.NewYork:Wiley.Ñ1979.Modelsofthought.NewHaven:YaleUniversityPress.Sims,C.A.1980.ÔMacroeconomicsandrealityÕ,Econometrica48:1Ð48.Ñ1982.ÔPolicyanalysiswitheconometricmodelsÕ,BrookingsPapersonEconomicActivity,no.1:107Ð64.Sismondi,S.de1819.NouveauxprincipesdÕ«economiepolitique,ouDelarichessedanssesrapportsaveclapopulation.Paris:Delaunay;2ndedn.,Paris:TreutteletW¬urst1827.Englishtrans.,Newprinciplesofpoliticaleconomy,NewBrunswick,NJ:TransactionPublishers1991.Skidelsky,R.1983.JohnMaynardKeynes.Hopesbetrayed.1883Ð1920.London:Macmillan.Ñ1992.JohnMaynardKeynes.Theeconomistassaviour,1920Ð1937.London:Macmillan.

554ReferencesÑ2000.JohnMaynardKeynes.FightingforBritain,1937Ð1946.London:Macmillan.Skinner,A.andJones,P.(eds.)1992.AdamSmithreviewed.Edinburgh:EdinburghUniversityPress.Skinner,A.andWilson,T.(eds.)1975.EssaysonAdamSmith.Oxford:OxfordUniversityPress.Slutsky,E.1915.ÔSullateoriadelbilanciodelconsumatoreÕ,Giornaledeglieconomistierivistadistatistica51:1Ð26.Englishtrans.,ÔOnthetheoryofthebudgetoftheconsumerÕ,inK.E.BouldingandG.J.Stigler(eds.),Readingsinpricetheory,London:Allen&Unwin1953,pp.26Ð56.Smith,A.1759.Thetheoryofmoralsentiments.London:A.Millar;criticaledn.,ed.D.D.RaphaelandA.L.MacÞe,Oxford:OxfordUniversityPress1976.Ñ1776.Aninquiryintothenatureandcausesofthewealthofnations.London:W.StrahanandT.Cadell;criticaledn.,ed.R.H.CampbellandA.S.Skinner,Oxford:OxfordUniversityPress1976.Ñ1795.Essaysonphilosophicalsubjects.London:T.CadellandW.Davies;criticaledn.,ed.W.P.D.WightmanandJ.C.Bryce,Oxford:OxfordUniversityPress1980.Ñ1977.Correspondence.Ed.E.C.MossnerandI.S.Ross,Oxford:OxfordUni-versityPress.Ñ1978.Lecturesonjurisprudence.Ed.R.L.Meek,D.D.RaphaelandP.G.Stein,Oxford:OxfordUniversityPress.Ñ1983.Lecturesonrhetoricandbelleslettres.Ed.J.C.Bryce,Oxford:OxfordUniversityPress.Solow,R.M.1956.ÔAcontributiontothetheoryofeconomicgrowthÕ,QuarterlyJournalofEconomics79:65Ð94.Ñ1957.ÔTechnicalchangeandtheaggregateproductionfunctionÕ,ReviewofEconomicsandStatistics39:312Ð20.Ñ1963.Capitaltheoryandtherateofreturn.Amsterdam:NorthHolland.Ñ1967.ÔTheinterestrateandtransitionbetweentechniquesÕ,inC.H.Feinstein(ed.),Socialism,capitalismandeconomicgrowth.EssayspresentedtoMauriceDobb,Cambridge:CambridgeUniversityPress,pp.30Ð9.Ñ1970.ÔOntherateofreturn:replytoPasinettiÕ,EconomicJournal80:423Ð8.Ñ2000.ÔTheneoclassicaltheoryofgrowthanddistributionÕ,BancaNazionaledelLavoroQuarterlyReview53:349Ð81.Sowell,T.1960.ÔMarxÕsÒincreasingmiseryÓdoctrineÕ,AmericanEconomicReview50:111Ð20.Ñ1972.SayÕslaw:anhistoricalanalysis.Princeton:PrincetonUniversityPress.Spaventa,L.1968.ÔRealismwithoutparablesincapitaltheoryÕ,inRecherchesr«ecentessurlafonctiondeproduction,CentredÕ«etudesetderecherchesuniver-sitairedeNamur,pp.15Ð45.Spence,W.1807.Britainindependentofcommerce.London:T.CadellandW.Davies.Spiegel,H.W.1971.Thegrowthofeconomicthought.EnglewoodCliffs:Prentice-Hall;3rdedn.1991,Durham:DukeUniversityPress.

References555Ñ1987.ÔScholasticeconomicthoughtÕ,inEatwell,MilgateandNewman(eds.),vol.4,pp.259Ð61.Spini,G.1992.Leoriginidelsocialismo.DaUtopiaallabandierarossa.Torino:Einaudi.Sraffa,P.1920.LÕinßazionemonetariainItaliaduranteedopolaguerra.Milano:ScuolatipograÞcasalesiana.Englishtrans.,ÔMonetaryinßationinItalydur-ingandafterthewarÕ,CambridgeJournalofEconomics1993,17:7Ð26.Ñ1922a.ÔThebankcrisisinItalyÕ,EconomicJournal32:178Ð97.Ñ1922b.ÔItalianbankingtodayÕ,ManchesterGuardianCommercial.Therecon-structionofEurope,7December,no.11:675Ð6.Ñ1923.ÔOpinioniÕ,Larivoluzioneliberale2:128.Ñ1924.ÔObituary.MaffeoPantaleoniÕ,EconomicJournal34:648Ð53.Ñ1925.ÔSullerelazionifracostoequantit`aprodottaÕ,Annalidieconomia2:277Ð328.Englishtrans.,ÔOntherelationsbetweencostandquantityproducedÕ,ItalianEconomicPapers,1998,3:323Ð63.Ñ1926.ÔThelawsofreturnsundercompetitiveconditionsÕ,EconomicJournal36:535Ð50.Ñ1927.ÔDuelettereaTascaÕ,Statooperaio1:1089Ð95;repr.asIlverosigniÞcatodellaÔquota90Õ,inL.Villari(ed.),IlcapitalismoitalianodelNovecento,Bari:Laterza1972,pp.180Ð91.Ñ1930a.ÔAcriticismÕandÔARejoinderÕ,inÔSymposiumonincreasingreturnsandtherepresentativeÞrmÕ,EconomicJournal40:89Ð93.Ñ1930b.ÔAnallegedcorrectionofRicardoÕ,QuarterlyJournalofEconomics44:539Ð44.Ñ1932.ÔDr.HayekonmoneyandcapitalÕandÔArejoinderÕ,EconomicJournal42:42Ð53,249Ð51.Ñ1951.ÔIntroductionÕ,inRicardo1951Ð5,vol.1,pp.xiiiÐlxii.Ñ1960.Productionofcommoditiesbymeansofcommodities.Cambridge:CambridgeUniversityPress.Ñ1962.ÔProductionofcommodities:acommentÕ,EconomicJournal72:477Ð9.Ñ1991.LettereaTaniaperGramsci.Ed.V.Gerratana,Roma:EditoriRiuniti.Stackelberg,H.von1933.ÔZweikritischeBemerkungenzurPreistheorieGustavCasselÕ,Zeitschriftf¬urNational¬okonomie4:456Ð72.Steedman,I.1972.ÔJevonsÕstheoryofcapitalandinterestÕ,ManchesterSchool40:31Ð52;repr.inSteedman1989,pp.145Ð67.Ñ1977.MarxafterSraffa.London:NewLeftBooks.Ñ1979.Tradeamongstgrowingeconomies.Cambridge:CambridgeUniversityPress.Ñ1984.ÔNaturalprices,differentialproÞtratesandtheclassicalcompetitiveprocessÕ,ManchesterSchool52:123Ð39;repr.inSteedman1989,pp.98Ð116.Ñ1987.ÔWicksteed,PhilipHenryÕ,inEatwell,MilgateandNewman(eds.),vol.4,pp.915Ð19.Ñ1989.Fromexploitationtoaltruism.Cambridge:PolityPress.Ñ1991.ÔResearchprogrammes:aSrafÞanviewÕ,inDeMarchiandBlaug(eds.),pp.435Ð50.

556ReferencesÑ1992.ÔIntroductionÕ,inP.H.Wicksteed,Theco-ordinationofthelawsofdistri-bution,Aldershot:EdwardElgar,pp.3Ð45.Ñ(ed.)1995.Socialismandmarginalismineconomics,1870Ð1930.London:Rout-ledge.Steindl,J.1945.Smallandbigbusiness.EconomicproblemsofthesizeofÞrms.Oxford:BasilBlackwell;newItalianedn.,Piccolaegrandeimpresa.ProblemieconomicidelladimensionedellÕimpresa,Milano:FrancoAngeli1991.Ñ1952.MaturityandstagnationinAmericancapitalism.Oxford:BasilBlackwell;repr.NewYork:MonthlyReviewPress1976.Ñ1965.RandomprocessesandthegrowthofÞrms.London:GrifÞn.Ñ1990.Economicpapers,1941Ð88.London:Macmillan.Steuart,J.1767.Aninquiryintotheprinciplesofpoliticaloeconomy.2vols.,London:A.MillarandT.Cadell;criticaledn.,ed.A.S.Skinner,EdinburghandLondon:OliverandBoyd1966.Stewart,D.1794.ÔAccountofthelifeandwritingsofAdamSmithLL.D.Õ,TransactionsoftheRoyalSocietyofEdinburgh3:55Ð137;repr.inSmith1795(1980),pp.269Ð332.Stigler,G.J.1941.Productionanddistributiontheories.Theformativeperiod.NewYork:Macmillan.Ñ1950.ÔThedevelopmentofutilitytheoryÕ,JournalofPoliticalEconomy58:307Ð27and373Ð96;repr.inStigler1965,pp.66Ð155.Ñ1951.ÔThedivisionoflaborislimitedbytheextentofthemarketÕ,JournalofPoliticalEconomy59:185Ð93.Ñ1952.ÔTheRicardiantheoryofvalueanddistributionÕ,JournalofPoliticalEcon-omy60:187Ð207;repr.inStigler1965,pp.156Ð97.Ñ1958.ÔRicardoandthe93%labourtheoryofvalueÕ,AmericanEconomicReview48:357Ð67;repr.inStigler1965,pp.326Ð42.Ñ1965.Essaysinthehistoryofeconomics.Chicago:UniversityofChicagoPress.Ñ1973.ÔTheadoptionofthemarginalutilitytheoryÕ,inBlack,CoatsandGood-win(eds.),pp.305Ð20.Stolper,W.F.1951.ÔReßectiononSchumpeterÕswritingsÕinS.E.Harris(ed.),Schumpetersocialscientist,Cambridge,Mass.:HarvardUniversityPress,pp.102Ð9;repr.inReviewofEconomicsandStatistics33,1951:170Ð7.Stone,R.1997.SomeBritishempiricistsinthesocialsciences,1650Ð1900.Cambridge:CambridgeUniversityPress.Strachey,L.1931.Portraitsinminiatureandotheressays.London:ChattoandWindus.Streissler,E.W.1973.ÔTowhatextentwastheAustrianschoolmarginalist?Õ,inBlack,CoatsandGoodwin(eds.),pp.160Ð75.Ñ1990a.ÔTheinßuenceofGermaneconomicsontheworkofMengerandMarshallÕ,inCaldwell(ed.),pp.31Ð68.Ñ1990b.ÔCarlMengeroneconomicpolicy:thelecturestoCrownPrinceRudolfÕ,inCaldwell(ed.),pp.107Ð30.Streissler,E.W.andStreissler,M.(eds.)1994.CarlMengeroneconomicpolicy:thelecturestoCrownPrinceRudolfofAustria.Aldershot:EdwardElgar.Swan,T.W.1956.ÔEconomicgrowthandcapitalaccumulationÕ,EconomicRecord32:334Ð61.

References557Swedberg,R.1991.Schumpeter.Abiography.Princeton:PrincetonUniversityPress.Sweezy,P.1942.Thetheoryofcapitalistdevelopment.NewYork:MonthlyReviewPress;repr.1968.Ñ(ed.)1949.KarlMarxandthecloseofhissystem.NewYork:AugustusM.Kelley.Ñ1951.ÔIntroductionÕ,inSchumpeter1951b;repr.inS.E.Harris(ed.),Schum-petersocialscientist,Cambridge,Mass.:HarvardUniversityPress1951,pp.119Ð24.SylosLabini,P.1950.ÔLeprobl`emedescycles«economiquesdelonguedur«eeÕ,EconomieAppliqu«ee3:481Ð95.Ñ1954.ÔIlproblemadellosviluppoeconomicoinMarxedinSchumpeterÕ,inG.U.Papi(ed.),Teoriadellosviluppoeconomico,Milano:Giuffr`e.Englishtrans.,ÔTheproblemofeconomicgrowthinMarxandSchumpeterÕ,inSylosLabini1984,pp.37Ð78.Ñ1956.Oligopolioeprogressotecnico.Milano:Giuffr`e;4thedn.Torino:Einaudi1967.Englishtrans.,Oligopolyandtechnicalprogress,Cambridge,Mass.:HarvardUniversityPress1962;2ndedn.1969.Ñ1967.ÔPrices,distributionandinvestmentinItaly1951Ð1966:aninterpreta-tionÕ,BancaNazionaledelLavoroQuarterlyReview20:316Ð75.Ñ1972.Sindacati,inßazioneeproduttivit`a.Roma-Bari:Laterza.Englishtrans.,Tradeunions,inßationandproductivity,Westmead:SaxonHouse1974.Ñ(ed.)1973.Prezzirelativiedistribuzionedelreddito.Torino:Boringhieri.Ñ1974.Saggiosulleclassisociali.Roma-Bari:Laterza.Ñ1976.ÔCompetition:theproductmarketsÕ,inWilsonandSkinner(eds.),pp.200Ð32.Ñ1983.IlsottosviluppoelÕeconomiacontemporanea.Roma-Bari:Laterza.Ñ1984.Theforcesofeconomicgrowthanddecline.Cambridge,Mass.:MITPress.Ñ2000.Sottosviluppo.Unastrategiadiriforme.Roma-Bari:Laterza.Englishtrans.,Underdevelopment.Astrategyforreform,Cambridge:CambridgeUniversityPress2001.Tagliacozzo,G.(ed.)1937.Economistinapoletanideisec.XVIIeXVIII.Bologna:Cappelli.Tarantelli,E.1978.Ilruoloeconomicodelsindacato.Roma-Bari:Laterza.Ñ1986.Economiapoliticadellavoro.Torino:Utet.Tarascio,V.1971.ÔSomerecentdevelopmentsinthehistoryofeconomicthoughtintheUnitedStatesÕ,HistoryofPoliticalEconomy3:419Ð31.Ñ1973.ÔVilfredoParetoandmarginalismÕ,inBlack,CoatsandGoodwin(eds.),pp.140Ð59.Targetti,F.1988.NicholasKaldor.Bologna:ilMulino.Tarshis,L.1939.ÔChangesinrealandmoneywagesÕ,EconomicJournal49:150Ð4.Tawney,R.H.1926.Religionandtheriseofcapitalism.London:Murray;repr.Harmondsworth:PenguinBooks1975.Taylor,F.W.1947.ScientiÞcmanagement.NewYork:Harper&Bros.Thompson,W.1824.Aninquiryintotheprinciplesofthedistributionofwealthmostconducivetohumanhappiness.London:Longman,Hurst,Rees,Orme,BrownandGreen-WheatleyandAdlard.

558ReferencesThornton,H.1802.EnquiryintothenatureandeffectsofthepapercreditofGreatBritain.London:Hatchard;repr.ed.F.Hayek,LondonSchoolofEco-nomics,1939.Thornton,W.T.1869.Onlabour:itswrongfulclaimsandrightfuldues,itsactualpresentandpossiblefuture.London:Macmillan;2ndedn.1870.Th¬unen,J.H.von1826Ð50.DerisolierteStaatinBeziehungaufLandwirtschaftundNational¬okonomie.Partone,Hamburg:Perthes1826;Parttwo,Rostock:Leopold1850;Partthree,Rostock:Leopold1850and1863.Englishtrans.ofPartone,Isolatedstate,ed.P.Hall,Oxford:PergamonPress1966.Thweatt,W.O.1976.ÔJamesMillandtheearlydevelopmentofcomparativeadvantageÕ,HistoryofPoliticalEconomy8:207Ð34.Tiberi,M.1969.Ladistribuzionedelredditoneimodellidisviluppoediequilibrioeconomicogenerale.Milano:Giuffr`e.Tirole,J.1988.Thetheoryofindustrialorganization.Cambridge,Mass.:MITPress.Tobin,J.1958.ÔLiquiditypreferenceasbehaviortowardsriskÕ,ReviewofEconomicStudies25:65Ð86.Togliatti,P.(ed.)1962.LaformazionedelgruppodirigentedelPartitocomunistaitaliano.Roma:EditoriRiuniti.Tonveronachi,M.1982.ÔMonetarismandÞxedrulesinH.C.SimonsÕ,BancaNazionaledelLavoroQuarterlyReview35:181Ð203.Ñ1983.J.M.Keynes.DallÕinstabilit`aciclicaallÕequilibriodisottoccupazione.Roma:NIS.Ñ1988.StrutturaedevoluzionedeisistemiÞnanziari.Arezzo:BancaPopolaredellÕEtruriaedelLazio.Ñ1990.ÔTeoriemonetarieaChicagoÕ,inBecattini(ed.),pp.349Ð85.Ñ1991.ÔAlcuneconsiderazioniintemaditeorieÞnanziarieeprocessidivaloriz-zazioneÕ,inJ.A.Kregel(ed.),NuoveinterpretazionidellÕanalisimonetariadiKeynes,Bologna:ilMulino,pp.59Ð66.Tooke,T.1838Ð57.Historyofprices,1793Ð1856.6vols.,London:Longman,Orme,Brown,Green&Longmans.Ñ1844.Aninquiryintothecurrencyprinciple.London:Longman,Brown,Green&Longmans;repr.,Seriesofreprintsofscarceworksinpoliticaleconomy,no.15,LondonSchoolofEconomicsandPoliticalSciences1959.Torrens,R.1808.Theeconomistsrefuted.London:S.A.Oddy,andDublin:C.LaGrange.Ñ1812.Anessayonmoneyandpapercurrency.London:J.Johnson&Co.Ñ1815.Anessayontheexternalcorntrade.London:J.Hatchard.Ñ1817.ÔApaperonthemeansofreducingthepoorsratesandofaffordingeffectualandpermanentrelieftothelabouringclassesÕ,ThePamphleteerno.20:509Ð28.Ñ1818.ÔStricturesonMr.RicardoÕsdoctrinerespectingexchangeablevalueÕ,EdinburghMagazine,Oct.,pp.335Ð8.Ñ1821.Anessayontheproductionofwealth.London:Longman,Rees,Orme,Brown&Longmans.Ñ1835.ColonizationofSouthAustralia.London:Longman,Rees,Orme,Brown&Green.

References559Ñ1837.AlettertotheRightHonourableLordViscountMelbourneonthecausesoftherecentderangementinthemoneymarketandonbankreform.London:Longman,Rees,Orme,Brown&Green.Ñ2000.Collectedworks.Ed.G.DeVivo,8vols.,Bristol:ThoemmesPress.TrifÞn,R.1940.Monopolisticcompetitionandgeneralequilibriumtheory.Cam-bridge,Mass.:HarvardUniversityPress.Tsuru,S.1942.ÔOnreproductionschemesÕ,inappendixtoSweezy,pp.365Ð74.Tucker,G.1960.ProgressandproÞtsinBritisheconomicthought1650Ð1850.Cambridge:CambridgeUniversityPress.Tugan-Baranovsky,M.J.1905.TheoretischeGrundlagendesMarxismus.Leipzig:Duncker&Humblot.Turgot,A.-R.-J.[1759].«ElogedeVincentdeGournai.OriginaltextinSchelle1913Ð23;repr.inRavixandRomani1997,pp.123Ð53.Ñ[1766].R«eßexionssurlaformationetladistributiondesrichesses.Publ.in1769Ð70inEph«em«eridesducitoyenwithchangesintroducedbyDuPontdeNemours;originaltextinSchelle,1913Ð23,vol.2,pp.533Ð601;repr.inRavixandRomani1997,pp.157Ð226.Urbinati,N.2002.Millondemocracy.FromtheAthenianpolistorepresentativegovernment.Chicago:UniversityofChicagoPress.Ure,A.1835.Thephilosophyofmanufacture.London:Knight.Vaggi,G.1987.TheeconomicsofFranücoisQuesnay.London:Macmillan.Ñ1993.ÔTeoriedellaricchezzadalmercantilismoaSmithÕ,inG.Lunghini(ed.),Valorieprezzi,Torino:Utet,pp.21Ð62.Valeriani,L.M.1806.Delprezzodellecosetuttemercatabili.Bologna:UlisseRamponi.Vanek,J.1970.Thegeneraltheoryoflabormanagedmarketeconomies.Ithaca:CornellUniversityPress.Veblen,T.1899.Thetheoryoftheleisureclass.NewYork:Macmillan.Ñ1904.Thetheoryofbusinessenterprise.NewYork:CharlesScribnerÕsSons.Ñ1919.Theplaceofscienceinmoderncivilization.NewYork:Huebsch.Venturi,F.(ed.)1958.Illuministiitaliani.TomoIII.Riformatorilombardi,piemontesietoscani.Milano-Napoli:Ricciardi.Venturi,F.(ed.)1962.Illuministiitaliani.TomoV.Riformatorinapoletani.Milano-Napoli:Ricciardi.Ñ1969Ð90.Settecentoriformatore.5vols.,Torino:Einaudi.Verdoorn,P.1949.ÔFattoricheregolanolosviluppodellaproduttivit`adellavoroÕ,LÕindustria1:3Ð10.Verri,P.1781.DiscorsisullÕindoledelpiacereedeldolore;sullafelicit`a;esullaeconomiapolitica.Milano:GiuseppeMarelli;repr.Roma:ArchiviEdizioni1974.Vianello,F.1973.ÔPluslavoroeproÞttonellÕanalisidiMarxÕ,inSylosLabini(ed.),pp.75Ð117.Vicarelli,F.1977.Keynes.LÕinstabilit`adelcapitalismo.Milano:Etaslibri.Englishtrans.,Keynes:theinstabilityofcapitalism,Philadelphia:UniversityofPenn-sylvaniaPress1984.Vicarelli,S.1975.ÔIlÒproblemadellatrasformazioneÓ:ÞnediunacontroversiaÕ,Noteeconomiche8:91Ð138.

560ReferencesVilar,P.1960.Oroymonedaenlahistoria(1450Ð1920).Barcelona:Edi-cionesAriel;Englishtrans.,Ahistoryofgoldandmoney,London:Verso1991.Villetti,R.1978.ÔLavorodivisoelavorocostrittivoÕ,inR.Villetti(ed.),Social-ismoedivisionedellavoro,QuadernidiMondoperaio,no.8,Roma:MondoOperaio-EdizioniAvanti!,pp.ixÐlxxii.Viner,J.1927.ÔAdamSmithandlaissez-faireÕ,JournalofPoliticalEconomy35:198Ð232;repr.inViner1991,pp.85Ð113.Ñ1931.ÔCostcurvesandsupplycurvesÕ,Zeitschriftf¬urNational¬okonomie3:23Ð46.Ñ1937.Studiesinthetheoryofinternationaltrade.NewYork:Harper.Ñ1949.ÔBenthamandJ.S.Mill:theutilitarianbackgroundÕ,AmericanEconomicReview39:360Ð82;repr.inViner1991,pp.154Ð75.Ñ1953.ÔIntroductionÕ,inB.deMandedville,AlettertoDion[1732],AugustanReprintSociety,no.41,Berkeley:UniversityofCalifornia,pp.1Ð15;repr.inViner1991,pp.176Ð88.Ñ1978.ÔReligiousthoughtandeconomicsociety:fourchaptersofanunÞnishedworkÕ,ed.andwithanintroductionbyJ.MelitzandD.Winch,HistoryofPoliticalEconomy10:1Ð192.Ñ1991.Essaysontheintellectualhistoryofeconomics.Ed.D.A.Irwin,Princeton:PrincetonUniversityPress.Vint,J.1994.Capitalandwages.ALakatosianhistoryofthewagesfunddoctrine.Aldershot:EdwardElgar.WakeÞeld,E.G.1829.AletterfromSidney,theprincipaltownofAustralasia.London:JosephCross.Ñ1833.EnglandandAmerica.2vols.,London:R.Bentley.Wald,A.1936.Ô¬UbereinigeGleichungssystemederMathematischen¬OkonomieÕ,Zeitschriftf¬urNational¬okonomie7:637Ð70.Englishtrans.,ÔOnsomesys-temsofequationsofmathematicaleconomicsÕ,Econometrica19(1951):368Ð403.Walker,D.A.1987.ÔBibliographyofthewritingsofL«eonWalrasÕ,HistoryofPoliticalEconomy19:667Ð702.Ñ1996.WalrasÕsmarketmodels.Cambridge:CambridgeUniversityPress.Ñ2003.ÔEarlygeneralequilibriumeconomicsÕ,inSamuels,BiddleandDavis(eds.),pp.278Ð93.Wallace,R.1761Variousprospectsofmankind,natureandprovidence.London:A.Millar.Walras,A.A.1831.DelanaturedelarichesseetdelÕoriginedelavaleur.Paris:AlexandreJohanneau.Ñ1849.Th«eoriedelarichessesocialeour«esum«edesprincipesfondamentauxdelÕ«economiepolitique.Paris:Guillaumin.Walras,L.1858.FrancisSauveur.Paris:E.Dentu.Ñ1867.ÔLaBourseetlecreditÕ,inParisguide,parlesprincipaux«ecrivainsetartistesdelaFrance,deuxi`emepartie,Paris:LibrairieInternationale,pp.1731Ð51;repr.inAugusteetLeonWalras,Oeuvres«economiquescompl`etes.Vol.7,M«elangesdÕ«economiepolitiqueetsociale,Paris:Economica1987,pp.180Ð200.

References561Ñ1874.«El«ementsdÕ«economiepolitiquepure.Lausanne:Corbaz;secondpart,1877;2ndedn.1889,3rdedn.1896,4thedn.1900,ÔdeÞnitiveÕedn.1926.Englishtrans.ofthe1926edn.,ed.W.Jaff«e,Elementsofpureeconomics,London:IrwinInc.1954;repr.London:Allen&Unwin1965.Ñ1880.ÔLaBourse,lasp«eculationetlÕagiotageÕ,Biblioth`equeUniverselleetRevueSuisseno.5(March):452Ð76andno.6(April):66Ð94.Ñ1896.«EtudesdÕ«economiesociale.Th«eoriedelar«epartitiondelarichessesociale.Lausanne:Corbaz;repr.Paris:Economica1990.Ñ1898.«EtudesdÕ«economiepolitiqueappliqu«ee.Th«eoriedelaproductiondelarichessesociale.Ed.deÞnitiveed.byG.Leduc,Lausanne1936;repr.Paris:Econom-ica1992.Ñ1965a.Correspondenceandrelatedpapers.Ed.W.Jaff«e,3vols.,Amsterdam:NorthHolland.Ñ[1909]1965b.ÔNoticeautobiographiqueÕ,inWalras1965a,vol.1,pp.1Ð15.Italiantrans.,NotaautobiograÞca,inIngraoandRanchetti1996,pp.258Ð71.Weber,M.1904Ð5.ÔDieprotestantischeEthikundderGeistdesKapitalismusÕ,Archivf¬urSozialwissenschaftundSozialpolitik20Ð1;2ndedn.inGesammelteAufs¬atzezurReligionssoziologie,T¬ubingen:Mohr1922.Englishtrans.,TheProtestantethicandthespiritofcapitalism,London:Allen&Unwin1930.Ñ1922.WirtschaftundGesellschaft.2vols.,T¬ubingen:Mohr.Englishtrans.,Econ-omyandsociety,NewYork:BedminsterPress1968.Weintraub,E.R.1991.Stabilizingdynamics.Cambridge:CambridgeUniversityPress.West,E.1815.Essayontheapplicationofcapitaltoland.London:T.Underwood.West,E.G.1976.AdamSmith.Themanandhisworks.Indianapolis:LibertyPress.Whately,R.1831.Introductorylecturesonpoliticaleconomy.London:B.Fellowes;2ndedn.1832.Whitaker,J.K.1990.ÔWhathappenedtothesecondvolumeofthePrinciples?ThethornypathtoMarshallÕslastbooksÕ,inJ.K.Whitaker(ed.),CentenaryessaysonAlfredMarshall,Cambridge:CambridgeUniversityPress,pp.193Ð222.Wicksell,K.1893.¬UberWert,Kapital,undRente.Jena:G.Fischer.Englishtrans.,Value,capitalandrent,London:Allen&Unwin1954.Ñ1898.GeldzinsundG¬uterpreisebestimmendenUrsachen.Jena:G.Fischer.Englishtrans.,Interestandprices,London:Macmillan.Ñ1900.ÔOmgr¬ansproduktivitatensûasomgrundvalf¬ordennationalekonomiskaf¬ordelningenÕ,EkonomiskTidskrift2:305Ð37.Englishtrans.,ÔMarginalproductivityasthebasisfordistributionineconomicsÕ,inK.Wicksell,Selectedpapersoneconomictheory,London:Allen&Unwin1958,pp.93Ð121.Ñ1901Ð6.Forelasningarinationalekonomi.2vols.,Stockholm-Lund:Fritzes-Berlingska.Englishtrans.,Lecturesonpoliticaleconomy,2vols.,London:Routledge&KeganPaul1934Ð5.Ñ1919.ÔProfessorCasselsekonomiskasystemÕ,EkonomiskTidskrift21:195Ð226.Englishtrans.,ÔProfessorCasselÕssystemofeconomicsÕ,inK.Wicksell,

562ReferencesLecturesonpoliticaleconomy,2vols.,London:Routledge&KeganPaul1934Ð5,pp.93Ð121.Ñ1923.ÔRealkapitalochkapitalr¬antaÕ,EkonomiskTidskrift25:145Ð80.Englishtrans.,ÔRealcapitalandinterestÕ,inK.Wicksell,Lecturesonpoliticaleconomy,2vols.,London:Routledge&KeganPaul1934Ð5,vol.1,pp.258Ð99.Wicksteed,P.H.1884.ÔDasKapital:acriticismÕ,To-Day2:388Ð409;repr.inP.H.Wicksteed,Thecommonsenseofpoliticaleconomyandselectedpapersandreviewsoneconomictheory,ed.L.Robbins,London:Routledge1934,vol.2,pp.705Ð24.Ñ1888.Thealphabetofeconomicscience.PartI,Elementsofthetheoryofvalueorworth.London:Macmillan.Ñ1894.Anessayontheco-ordinationofthelawsofdistribution.London:Macmillan;repr.ed.I.Steedman,Aldershot:EdwardElgar1992.Ñ1910.Thecommonsenseofpoliticaleconomy.London:Macmillan;repr.ed.L.Robbins,2vols.,London:Routledge1933.Wieser,F.von1884.¬UberdenUrsprungunddieHauptgesetzedeswirtschaftlichenWertes.Wien:H¬older.Ñ1889.DerNat¬urlicheWerth.Wien:H¬older.Englishtrans.,Naturalvalue,London:Macmillan1893.Ñ1914.TheoriedergesellschaftlichenWirtschaft.InGrundrissderSozial¬okonomik,vols.1and2,T¬ubingen:Mohr-Siebeck.Englishtrans.,Socialeconomics,NewYork:Greenberg1927.Ñ1926.DasGesetzderMacht.Wien:Springer.Wiles,R.C.1986.ÔThedevelopmentofmercantilisteconomicthoughtÕ.InLowry(ed.),pp.147Ð73.Williams,K.1981.Frompauperismtopoverty.London:Routledge.Williamson,O.1975.Marketsandhierarchies:analysisandantitrustimplications.NewYork:FreePress.Ñ1986.Economicorganization.Brighton:WheatsheafBooks.Wilson,T.1572.Adiscourseupponusurye.Londini:RychardiTottelli;repr.ed.R.H.Tawney,London:Bell1926;repr.London:FrankCass1963.Wilson,T.andSkinner,A.S.(eds.)1976.Themarketandthestate.Oxford:ClarendonPress.Winch,D.1962.ÔWhatpricethehistoryofeconomicthought?Õ,ScottishJournalofPoliticalEconomy9:193Ð204.Ñ1965.Classicalpoliticaleconomyandcolonies.London:Bell&Sons.Ñ1978.AdamSmithÕspolitics.Cambridge:CambridgeUniversityPress.Ñ1987.Malthus.Oxford:OxfordUniversityPress.Winternitz,J.1948.ÔValuesandprices:asolutionoftheso-calledtransformationproblemÕ,EconomicJournal58:276Ð80.Wittgenstein,L.1921.ÔLogisch-philosophischeAbhandlungÕ,AnnalenderNatur-philosophie,14:185Ð262.Englishedn.withrevisionsandtheGermantext,Tractatuslogico-philosophicus.London:KeganPaul,1922.Ñ1953.PhilosophischeUntersuchungen(withEnglishtrans.,Philosophicalinvesti-gations).Ed.G.E.M.AnscombeandR.Rhees,Oxford:Blackwell;repr.1972.Wood,A.1975.AtheoryofproÞts.Cambridge:CambridgeUniversityPress.Wood,D.2002.Medievaleconomicthought.Cambridge:CambridgeUniversityPress.

References563Wright,G.H.von1955.ÔLudwigWittgenstein:abiographicalsketchÕ,Philosoph-icalReview64;repr.inMalcom1958,pp.5Ð28.Xenophon1914.Cyropaedia.Englishtrans.byW.Miller,LoebClassicLibrary,London:Heinema

Collepals.com Plagiarism Free Papers

Are you looking for custom essay writing service or even dissertation writing services? Just request for our write my paper service, and we'll match you with the best essay writer in your subject! With an exceptional team of professional academic experts in a wide range of subjects, we can guarantee you an unrivaled quality of custom-written papers.

Get ZERO PLAGIARISM, HUMAN WRITTEN ESSAYS

Why Hire Collepals.com writers to do your paper?

Quality- We are experienced and have access to ample research materials.

We write plagiarism Free Content

Confidential- We never share or sell your personal information to third parties.

Support-Chat with us today! We are always waiting to answer all your questions.

The Wealth of Ideas_ A History of Economic Thought

Related Posts

Unit 2: Common Assessment/Project Part A Start Assignment

Person-Centered and Experiential Therapy

Read the Instructions for the Population Health Assessment & Prevention ?Download Instructions for the Population Health Assessment & Prevention