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The Wealth of Ideas: A History of Economic Thought PDF

596 Pages·2007·5.85 MB·English
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The Wealth of Ideas A History of Economic Thought Alessandro Roncaglia The Wealth of Ideas The Wealth of Ideas traces the history of economic thought, from its prehistory (the Bible, Classical antiquity) to the present day. In this eloquently written, scientifically rigorous and well-documented book, chapters on William Petty, Adam Smith, David Ricardo, Karl Marx, William Stanley Jevons, Carl Menger, Le´on Walras, Alfred Marshall, John Maynard Keynes, Joseph Schumpeter and Piero Sraffa alternate withchaptersonotherimportantfiguresandondebatesoftheperiod. Economicthoughtisseenasdevelopingbetweentwooppositepoles:a subjectiveone,basedontheideasofscarcityandutility,andanobjec- tive one based on the notions of physical costs and surplus. Professor Roncagliafocusesonthedifferentviewsoftheeconomyandsocietyand ontheirevolutionovertimeandcriticallyevaluatesthefoundationsof thescarcity–utilityapproachincomparisonwiththeClassical/Keynesian approach.   is Professor of Economics in the Depart- mentofEconomicSciences,UniversityofRome‘LaSapienza’.Heisa memberoftheAccademiaNazionaledeiLinceiandeditorofBNLQuar- terly Review and Moneta e Credito. His numerous publications include Piero Sraffa: His Life, Thought and Cultural Heritage (2000) and the Italianeditionofthisbook,Laricchezzadelleidee(2001)whichreceived the 2003 Je´rome Adolphe Blanqui Award from the European Society fortheHistoryofEconomicThought. Contents Preface page ix 1 Thehistoryofeconomicthoughtanditsrole 1 1. Introduction 1 2. Thecumulativeview 2 3. Thecompetitiveview 5 4. Thestagesofeconomictheorising:conceptualisationand model-building 11 5. Politicaleconomyandthehistoryofeconomicthought 13 6. Whichhistoryofeconomicthought? 14 2 Theprehistoryofpoliticaleconomy 18 1. Whywecallitprehistory 18 2. Classicalantiquity 23 3. Patristicthought 28 4. TheScholastics 31 5. Usuryandjustprice 34 6. Bullionistsandmercantilists 41 7. ThebirthofeconomicthoughtinItaly:AntonioSerra 46 3 WilliamPettyandtheoriginsofpoliticaleconomy 53 1. Lifeandwritings 53 2. Politicalarithmeticandthemethodofeconomicscience 55 3. Nationalstateandeconomicsystem 58 4. Commodityandmarket 63 5. Surplus,distribution,prices 69 4 Frombodypolitictoeconomictables 76 1. Thedebatesofthetime 76 2. JohnLocke 80 3. Themotivationsandconsequencesofhumanactions 84 4. BernarddeMandeville 87 5. RichardCantillon 90 6. Franc¸oisQuesnayandthephysiocrats 96 7. ThepoliticaleconomyoftheEnlightenment:Turgot 103 8. TheItalianEnlightenment:theAbbe´Galiani 107 9. TheScottishEnlightenment:FrancisHutchesonandDavidHume 111 v vi Contents 5 AdamSmith 115 1. Life 115 2. Method 118 3. Themoralprincipleofsympathy 121 4. Thewealthofnations 126 5. Valueandprices 134 6. Naturalpricesandmarketprices 139 7. Theoriginofthedivisionoflabour:SmithandPownall 145 8. Economicandpoliticalliberalism:Smith’sfortune 149 6 EconomicscienceatthetimeoftheFrenchRevolution 155 1. Theperfectibilityofhumansocieties,betweenutopiasandreforms 155 2. Malthusandthepopulationprinciple 158 3. ‘Say’slaw’ 164 4. Under-consumptiontheories:Lauerdale,Malthus,Sismondi 167 5. Thedebateonthepoorlaws 169 6. Thedebateonthecolonies 172 7. Bentham’sutilitarianism 174 7 DavidRicardo 179 1. Lifeandworks 179 2. Ricardo’sdynamicvision 181 3. Fromthecornmodeltothelabourtheoryofvalue 186 4. Absolutevalueandexchangeablevalue:theinvariable standardofvalue 191 5. Moneyandtaxation 196 6. Internationaltradeandthetheoryofcomparativecosts 201 7. Onmachinery:technologicalchangeandemployment 203 8 The‘Ricardians’andthedeclineofRicardianism 207 1. Theforcesinthefield 207 2. RobertTorrens 209 3. SamuelBailey 215 4. ThomasDeQuincey 218 5. JohnRamseyMcCulloch 219 6. TheRicardiansocialistsandcooperativism 221 7. WilliamNassauSeniorandtheanti-Ricardianreaction 226 8. CharlesBabbage 230 9. JohnStuartMillandphilosophicalradicalism 233 10. Millonpoliticaleconomy 238 9 KarlMarx 244 1. Introduction 244 2. Lifeandwritings 245 3. Thecritiqueofthedivisionoflabour:alienationand commodityfetishism 249 4. Thecritiqueofcapitalismandexploitation 251 5. Accumulationandexpandedreproduction 256 6. Thelawsofmovementofcapitalism 261 7. Thetransformationoflabourvaluesintopricesofproduction 263 Contents vii 8. Acriticalassessment 268 9. MarxismafterMarx 272 10 Themarginalistrevolution:thesubjectivetheoryofvalue 278 1. The‘marginalistrevolution’:anoverview 278 2. Theprecursors:equilibriumbetweenscarcityanddemand 281 3. WilliamStanleyJevons 285 4. TheJevonianrevolution 288 5. Realcostandopportunitycost 292 6. PhilipHenryWicksteedandFrancisYsidroEdgeworth 294 11 TheAustrianschoolanditsneighbourhood 297 1. CarlMenger 297 2. The‘Methodenstreit’ 303 3. MaxWeber 306 4. EugenvonBo¨hm-Bawerk 308 5. KnutWicksellandtheSwedishschool 312 6. FriedrichvonHayek 315 12 Generaleconomicequilibrium 322 1. Theinvisiblehandofthemarket 322 2. Le´onWalras 326 3. VilfredoParetoandtheLausanneschool 336 4. IrvingFisher 340 5. Thedebateonexistence,uniquenessandstabilityofequilibrium 342 6. Thesearchforanaxiomaticeconomics 345 13 AlfredMarshall 350 1. Lifeandwritings 350 2. Thebackground 353 3. ThePrinciples 357 4. Economicsbecomesaprofession 366 5. Monetarytheory:fromtheoldtothenewCambridgeschool 368 6. MaffeoPantaleoni 370 7. MarshallismintheUnitedStates:fromJohnBatesClark toJacobViner 372 8. ThornsteinVeblenandinstitutionalism 374 9. Welfareeconomics:ArthurCecilPigou 376 10. Imperfectcompetition 379 11. Marshall’sheritageincontemporaryeconomicthought 382 14 JohnMaynardKeynes 384 1. Lifeandwritings 384 2. Probabilityanduncertainty 388 3. TheTreatiseonmoney 391 4. FromtheTreatisetotheGeneraltheory 395 5. TheGeneraltheory 398 6. Defenceanddevelopment 407 7. Theasymmetriesofeconomicpolicyinanopeneconomyand internationalinstitutions 409 viii Contents 8. MichalKalecki 411 9. ThenewCambridgeschool 413 15 JosephSchumpeter 416 1. Life 416 2. Method 420 3. Fromstaticstodynamics:thecycle 422 4. Thebreakdownofcapitalism 428 5. Thepathofeconomicscience 431 16 PieroSraffa 435 1. Firstwritings:moneyandbanking 435 2. FriendshipwithGramsci 438 3. CriticismofMarshalliantheory 440 4. Imperfectcompetitionandthecritiqueoftherepresentativefirm 443 5. Cambridge:WittgensteinandKeynes 445 6. ThecriticaleditionofRicardo’swritings 450 7. Productionofcommoditiesbymeansofcommodities 452 8. Critiqueofthemarginalistapproach 457 9. TheSraffianschools 460 17 Theageoffragmentation 468 1. Introduction 468 2. Themicroeconomicsofgeneraleconomicequilibrium 471 3. Thenewtheoriesofthefirm 474 4. Institutionsandeconomictheory 479 5. MacroeconomictheoryafterKeynes 480 6. Thetheoryofgrowth 488 7. Quantitativeresearch:thedevelopmentofeconometrics 491 8. Newanalyticaltechniques:theoryofrepeatedgames,theoryof stochasticprocesses,chaostheory 496 9. Interdisciplinaryproblemsandthefoundationsofeconomic science:newtheoriesofrationality,ethicsandnewutilitarianism, growthandsustainabledevelopment,economicdemocracyand globalisation 500 18 Wherearewegoing?Some(verytentative)considerations 505 1. Howmanypathshaseconomicthoughtfollowed? 505 2. Thedivisionoflabouramongeconomists:canweforgeahead alongdifferentpaths? 508 3. Whichofthevariouspathsshouldwebebettingon? 511 References 515 Indexofnames 564 Subjectindex 575 Preface The idea underlying this work is that the history of economic thought is essential for understanding the economy, which constitutes a central aspectofhumansocieties.Confrontedwithcomplex,ever-changingreali- ties,thedifferentlinesofresearchdevelopedinthepastarerichinsugges- tionsforanyonetryingtointerpreteconomicphenomena,evenforthose tackling questions of immediate relevance. In this latter case, indeed, the history of economic thought not only provides hypotheses for inter- pretationoftheavailableinformation,butalsoteachescautiontowardsa mechanicaluseofthemodelsdeducedfromthe(protempore)mainstream economictheory.Similarly,whenconfrontedwiththevarietyofdebates on economic issues, a good understanding of the cultural roots both of the line of reasoning chosen and of its rivals is invaluable for avoiding a dialogueofthedeaf. In fact, the comforting vision offered by the great majority of eco- nomicstextbooks,thatofageneralconsensuson‘economictruths’,is– atleastasfarasthefoundationsareconcerned–false.Inordertounder- standthevarietyofapproacheswithineconomicdebate,itisnecessaryto reconstruct the different views that have been proposed, developed and criticisedovertimeaboutthewayeconomicsystemsfunction.Thisisno easy task. The economic debate does not follow a linear path; rather, it resemblesatangledskein. Inattemptingtodisentangleit,wewillfocusontheconceptualfoun- dationsofthedifferenttheories.Oneoftheaspectsthatdistinguishesthis workfromotherhistoriesofeconomicthoughtisitsrecognitionthatthe meaningofaconcept,eventhoughitmayretainthesamename,changes whenwemovefromonetheorytoanother.Changesinanalyticstructure are connected to changes in conceptual foundations; all too often this factisoverlooked. Inthiscontext,theSchumpeteriandistinctionbetweenhistoryofanal- ysis and history of thought – the former concerning analytic structures, the latter ‘visions of the world’ – proves not so much misleading as largely useless. Equally inappropriate is the sharp dichotomy between ix x Preface ‘rational reconstructions’ and ‘historical reconstructions’ of the history of economic thought. It is hard to see why reconstructing the logical structureofaneconomist’sideasshouldclashwithrespectinghisorher views.Indeed,inthefieldofthehistoryofthought,asinanalogousfields, thecriterionofphilologicalexactnessisthemainelementdifferentiating scientificfromnon-scientificresearch. Thelimitsofthepresentworkhencedependnotsomuchonapriori fidelitytoaspecificlineofinterpretationasontheinevitablelimitations– ofability,cultureandtime–ofitsauthor.Forinstance,Ihavenotcon- sidered the contributions of Eastern cultural traditions, and very little space–asinglechapter–isgiventothetwentycenturiesconstitutingthe prehistory of modern economic science. Of course Western economic theory is deeply rooted in classical thought – both Greek and Roman – and thanks to the mediation of a medieval culture which is richer and more complex than is commonly perceived. Thus, the decision to treat such a long and important period of time in just a few pages is obvi- ouslycontroversial.However,insowideafield,choicesofthiskindare unavoidable.Naturallytheresultspresentedinthepagesthatfolloware, notwithstandingeffortsatsystematicexposition,clearlyprovisional,and commentsandcriticismswillbehelpfulforfutureresearch. Our journey begins with a chapter on methodological issues. It is not intendedasasurveyof,oranintroductionto,theepistemologicaldebate. Wewillonlytrytoshowthelimitsofthe‘cumulativeview’,andtheimpor- tance of studying the conceptual foundations of different theoretical approaches. The following three chapters are devoted to pre-Smithian economic thought. Chapter 2 concerns the prehistory of economic science, from classicalantiquitytomercantilism.Chapter3isdevotedtoWilliamPetty andhispoliticalarithmetic:acrucialepisodeofourscience,withrespect both to method and to the formation of a system of concepts for rep- resenting economic reality. Focusing upon an individual or a particular groupofthinkers,hereasinotherchapters,willillustrateaphaseinthe evolution of economic thought and a line of research, looking back and lookingon,toprecursorsandfollowers. Betweentheendoftheseventeenthcenturyandthemiddleoftheeigh- teenth(asweshallseeinchapter4)differentlinesofresearchintersect. Althoughinterestingcontributionsfromthestrictlyanalyticalpointwere relativelyscarceinthisperiod,weshallnoteitsimportanceforthecloser relations between economic and other social sciences characterising it. The problem of how human societies are organised and what motiva- tions determine human actions – passions and interests, in particular self-interest – as well as the desired or involuntary outcomes of such Preface xi actions,areinthisperiodatthecentreoflivelydebateattheintersection betweeneconomics,politicsandmoralscience. Alreadyinthisfirststagetwodistinctviewsareapparent:adichotomy which,togetherwithitslimits,willbecomeclearerasourstoryunfolds. Ontheonehand,theeconomyisseenascentredonthecounter-position between supply and demand in the market: we may call this the ‘arc’ view,analogoustotheelectricalarc,inwhichthetwopoles–demandand supply–determinethesparkoftheexchange,andhencetheequilibrium. In this view the notion of equilibrium is central. On the other hand, we havetheideathattheeconomicsystemdevelopsthoughsuccessivecycles of production, exchange and consumption: a ‘spiral’ view, since these cycles are not immutable, but constitute stages in a process of growth anddevelopment. Recapitulation and an original reformulation of such debates is pro- vided by Adam Smith’s writings, which we shall consider in chapter 5: thedelicatebalancebetweenself-interestandthe‘ethicsofsympathy’is theothersideofthedivisionoflabouranditsresults. The debate on typically Smithian themes of economic and social progressisillustratedinchapter6.TheFrenchRevolutionandtheTerror constitutethebackgroundtotheconfrontationbetweensupportersofthe idea of perfectibility of human societies, and those who consider inter- ferenceinthemechanismsregulatingeconomyandsocietyuseless,ifnot dangerous. We thus arrive with chapter 7 at David Ricardo, the first author we cancreditwitharobustanalyticalstructure,systematicallydevelopedon the foundation of Smithian concepts. Ricardo stands out among other protagonists of an extremely rich phase of economic debate, although Torrens, Bailey, De Quincey, McCulloch, James and John Stuart Mill, Babbageandthe‘Ricardiansocialists’areautonomouspersonalitieswith leading roles to play in their own right; they are discussed in chapter 8. In chapter 9 we consider Karl Marx, in particular those aspects of his thoughtthataredirectlyrelevantfromtheviewpointofpoliticaleconomy. Thegoldenageoftheclassicalschoolruns,moreorless,fromSmith to Ricardo. The turning point, traditionally located around 1870 and termed the ‘marginalist revolution’, returns us to the ‘arc’ view of the counter-position between demand and supply in the market. Although longpresentintheeconomicdebate,theviewnowassumesamoremature form thanks both to the robust analytic structure of the subjective the- ory of value and the greater consistency of the conceptual picture. The central problem of economic science is no longer one of explaining the functioningofamarketsocietybasedonthedivisionoflabour,butoneof interpretingthechoicesofarationalagentintheirinteractions,through themarket,withotherindividualswhofollowsimilarrulesofbehaviour. xii Preface The main characteristics of this turn and the long path preparatory to it are discussed in chapter 10. In addition, this and the two subse- quentchaptersillustratethethreemainstreamsintowhichthemarginalist approachistraditionallysubdivided:Jevons’sEnglish,Menger’sAustrian and, finally, Walras’s (general equilibrium) French approach. An ecu- menical attempt at synthesis between the classical and the marginalist approaches marks Alfred Marshall’s work. This attempt, and its limits, arediscussedinchapter13. Marginalism is strictly connected to a subjective view of value, with a radical transformation of utilitarianism, which originally consti- tuted the foundation for a consequentialist ethic. Jevons’s utilitarian- ism reduces homo oeconomicus to a computing machine that maximises a mono-dimensional magnitude: it is on this very thin foundation, as we shall see, that the subjective theory of value builds its analytical castle. The case of Marshall is quite interesting, since it shows how difficult it is to connect coherently a complex and flexible vision of the world to an analytic structure constrained by the canons of the concept of equi- librium. Something similar happens in the case of the Austrian school, as well as in the thought of Schumpeter, whose theory is illustrated in chapter 15. We can thus understand the contrasting evaluations formu- latedovertimeonseveralleadingfigures(exaltedordespiseddepending onthepointofviewfromwhichtheyarejudged),takingaccountofthe richness and depth of their conceptual representation of reality, or the weaknessesandrigidityoftheiranalyticstructure. Theproblemoftherelationshipbetweenconceptualfoundationsand analytic structure takes different forms in John Maynard Keynes and Piero Sraffa, whose contributions are discussed in chapters 14 and 16. Keyneshopedtomakehisthesesacceptable,revolutionaryastheywere, toscholarstrainedwithinthemarginalisttradition.However,hisconcil- iatorymannergeneratedglaringdistortionsofhisthought,whichbecame sterilisedinthecanonicalversionofthe‘neo-classicalsynthesis’.Sraffa, ontheotherhand,formulatedhisanalysisinsuchawayastorenderpos- sibleitsusebothinaconstructiveway,withinaclassicalperspective,and for the purpose of criticism, within the marginalist approach. However, this made it more difficult to reconstruct the method and conceptual foundations of his contribution, again opening the way to a number of misunderstandings. Finally, mainly on the basis of Keynes’s and Sraffa’s contributions, and taking into account recent developments illustrated in chapter 17, chapter 18 presents some tentative and provisional reflections on the prospectforeconomicscience.

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