An Outline of the History of Economic Thought

AN OUTLINE OF THE HISTORY OF ECONOMIC THOUGHT This page intentionally left blank An Outline of the History of Economic Thought Second Edition Revised and Expanded ERNESTO SCREPANTI and STEFANO ZAMAGNI TranslatedbyDavidFieldandLynnKirby AC AC GreatClarendonStreet,OxfordOX26DP OxfordUniversityPressisadepartmentoftheUniversityofOxford. ItfurtherstheUniversity’sobjectiveofexcellenceinresearch,scholarship, andeducationbypublishingworldwidein Oxford NewYork Auckland CapeTown DaresSalaam HongKong Karachi KualaLumpur Madrid Melbourne MexicoCity Nairobi NewDelhi Shanghai Taipei Toronto Withof?cesin Argentina Austria Brazil Chile CzechRepublic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore SouthKorea Switzerland Thailand Turkey Ukraine Vietnam OxfordisaregisteredtrademarkofOxfordUniversityPress intheUKandincertainothercountries PublishedintheUnitedStates byOxfordUniversityPressInc.,NewYork #ErnestoScrepantiandStefanoZamagni,2005 Themoralrightsoftheauthorshavebeenasserted DatabaserightOxfordUniversityPress(maker) Firstpublished2005 Allrightsreserved.Nopartofthispublicationmaybereproduced, storedinaretrievalsystem,ortransmitted,inanyformorbyanymeans, withoutthepriorpermissioninwritingofOxfordUniversityPress, orasexpresslypermittedbylaw,orundertermsagreedwiththeappropriate reprographicsrightsorganization.Enquiriesconcerningreproduction outsidethescopeoftheaboveshouldbesenttotheRightsDepartment, OxfordUniversityPress,attheaddressabove Youmustnotcirculatethisbookinanyotherbindingorcover andyoumustimposethesameconditiononanyacquirer BritishLibraryCataloguinginPublicationData Dataavailable LibraryofCongressCataloginginPublicationData Dataavailable TypesetbyNewgenImagingSystems(P)Ltd.,Chennai,India PrintedinGreatBritain onacid-freepaperby BiddlesLtd.,King’sLynn,Norfolk ISBN0–19–927913–6(Hbk) 978–0–19–927913–5 ISBN0–19–927914–4(Pbk) 978–0–19–927914–2 1 3 5 7 9 10 8 6 4 2 PREFACE TO THE SECOND ENGLISH EDITION OursatisfactioninwritingthesecondEnglisheditionofthisbookiseasyto imagine:notonlyareweassuredoftheutilityofourwork,butalsohavethe opportunitytoenlargeandreviseit.Wehaveattemptedtodothisinvarious ways.Wehaveremovedoversightsanderrors;wehavemadeafewadditions and expanded a little on all chapters; we have re-written and simpli?ed various parts which students had found obscure or dif?cult to understand; lastly, we have updated the bibliography, with the aim of offering useful suggestions for further reading. Moresubstantialintegrationshavebeenmadetochapters1,2,4,9and11. Inthe?rstchapterwefeltitnecessarytorecalltheroleplayedbyhumanism andtheRenaissanceinthebirthofpoliticaleconomyand,inparticular,the contributiontheymadetotheformationof‘civilhumanism’,aphilosophical approachthatfellintodisusefollowingtheadventofutilitarianism,butnow appearssetforasecondrevival.InthechapteronSmithwehaveintegrated ourexpositionoftheinterpretationsofhisthoughtbyrecallingtheonethat istodayconsideredthemostconvincing,thatofSmithasaninstitutionalist economist.ThechapteronMarxhasalsobeenenlargedtorecallhisconcept of man and his investigation into the social and institutional conditions of capitalist production, two of the most topical parts of his thinking. Lastly, in chapter 9, we have separated treatment of the post-Keynesian approach from the so-called ‘new Keynesian macroeconomics’, by further expanding onbothandpointingouttheimportantdifferences thatdistinguishthetwo schools. We have also added a summary paragraph with a simple diagram comparingtheviewsofthevariouscontemporaryschoolsofmacroeconomics. Inchapter11wehaveaddedextensiveparagraphsonevolutionarygamesand thetheoriesofgrowthandcomplexity. In addition, we have introduced a new chapter—the twelfth—which deals with the current situation of economic science. The state of crisis which has beset our discipline over the last thirty years appears even more evident today than when we wrote the ?rst edition of this book. Now we believe it to be a healthy crisis and in chapter 12 we have endeavoured to explain why. A crisis can also be a revolution. We do not pretend to know what will happen in economic science over the next twenty years or so, but it seemed important to us to clarify the reason why, in our opinion, we are in the middle of a crisis of foundations that may make history begin again from Adam. Finally,aformalchangehasbeenmadewhichwehope willbeusefulfor students.Wehaveremovedmanyreferencestorelevantworksfromthemain textandenteredtheminspecialbibliographiclistsattheendofeachchapter. preface to the second english edition vi Onlythosereferencestofundamentalworks,whichnostudentcanaffordto overlook, have been left in the text. Let us conclude by thanking friends and colleagues who have taken it upon themselves to read and comment on the integrations to this edition: Elettra Agliardi,Luigino Bruni,Luca Fiorito,NicholasTheocarakis,Carlo Zappia, and Luca Zarri. PREFACE TO THE FIRST EDITION Our experience in the teaching of economics and its history has made one thing plain to us: that keeping the two subjects separate, if it was ever jus- ti?ed, is certainly not today. In the face of the crisis of the theoretical orthodoxies of the 1950s and 1960s, the ?owering of innovations in recent years,andthenumerousrediscoveriesoftraditionalwisdoms,itisnolonger aneasytasktoteacheconomicprinciples.Wefeelitnecessary,therefore,to teach economic theory by paying careful attention to its history. We have triedtosatisfythisneedinourbook,andthisalreadysaysagreatdealabout the way it has been conceived. We have endeavoured to present traditional theories as living matter, as well as presenting modern theories as part of a historical process and not as established truths. On the one hand, we have tried to resist the double temptation of rereadingthepastonlyinthelightofthepresentandexplainingthepresent onlybythepast,or,tobemoreprecise,toavoidsearchinginthetraditional theories for the seeds of the modern theories and explaining the latter as simpleaccumulationsofknowledge. Ontheother hand,wehaveattempted todistanceourselvesfromtheimplicitbanalityofthegreathistoriographical alternatives, such as ‘internal’ and ‘external’ history or ‘continuism’ and ‘catastrophism’.Wehavealsotriedtoavoidthedichotomywhichstillexists today, and which seems to us to cause misleading simpli?cations, between the ‘pure’ historians of thought, who dedicate themselves exclusively to studying ‘facts’, and the ‘pure’ theorists, who are only interested in the evolution of the logical structure of theories. We believe that knowledge of the ‘environment’ in which a theory is formed is just as important as knowledge of its logical structure, and we do not accept the view that an analysisoftheemergenceofatheorymustbeconsideredasanalternativeto thestudyofitsinternalstructure.Thishistoricaloutlineis,therefore,neither a collection of discoveries nor a portrait gallery. Our choice to give a fair amount of historical weight to modern devel- opmentshasentailedtheproblemofwheretoendournarrative.Thiscannot butbeasubjectivedecision.Wehavechosenthe1970s,butwehavereserved therighttobreakthisruleeachtimewefeltitnecessary—forexample,inthe case of research work and debates which produced important results in the 1980s but which began earlier. The only precaution we have taken in these cases has been to avoid citing names and titles, with a few exceptions, and limiting ourselves to outlining the essential elements of the most recent theoretical developments. The reader accustomed to traditional history books may be surprised by the large amount of space we have reserved for the thought of the last ?fty years—approximatelyhalftheextentofabookthatstillremains(allthings preface to the first edition viii considered)fairlyconcise.Ifthereisanimbalanceofthistype,however,we believe it is that we have dedicated too little space to modern theories. Quantitativehistoriographicalresearchhasshown,whicheverindexisused, that scienti?c production has grown at an exponential rate in the last ?ve centuries, with the remarkable consequence that certainly more than 70percentofthescientistswhohaveeverlivedarelivingtoday,andperhaps agreatmanymore.Thedecisiontodevotelessthan70percentofourbook to modern theory was, in fact, prudent. Finally, we have no wish to avoid certain dif?culties, or, rather, responsibilities, connected with our endeavour to treat the present as history. We are well aware of the danger of the attempt to be wise in the senseadvocatedbyWilliamJames,whobelievedthattheartlaysinknowing what to leave out. We realize that this danger becomes greater the smaller the distance from the material dealt with and the larger the quantity of material about which decisions must be made; but we believe that these responsibilitiesmustbefaced.Wedonotknowwhetherwehavebeenwisein this sense, or to what degree, but we are convinced of one thing: even if we have omitted many things from this book, the resulting selection has been justi?ed, infact necessitated,by theimportance ofthematerialupon which we focus. This book is not directed to a specialist public, nor solely to a student audience.Wealsohopetoreachtheeducatedperson,or,rather,theperson whowishestoeducateherselforhimself.Specialisttrainingisnot,therefore, necessary to understand this book; a basic knowledge of economics, how- ever,especiallythemainthemesofmicro-andmacroeconomics,wouldbeof help. This is true for most of the book. There are, however, sections, espe- cially those dealing with the modern theories, in which the analytical dif?- cultiescannotbeavoidedwithoutfallingintothetrapofoversimpli?cation. Inthesecases,whichwehavetriedtokeeptoaminimum,wehavechosento avoid banality and to ask the reader for a little more effort. Thisknowledgeoftheaudiencetowhomthebookisdirectedmayhelpin understanding several things about its structure; we have chosen, for example,toavoidweighingdownthenarrativewithfootnotes,achoicethat has often restricted us, but which we hope will bene?t the reader. On the other hand the bibliographies presented at the end of each chapter do not pretend to be complete; they contain, apart from details of works quoted from, only a short guide to further reading. Finally,weshouldliketoexpressourgratitudetothemanycolleaguesand friendswhohavekindlyandgenerouslyagreedtoreadandcommentonthe ?rst drafts of our book, or on parts of it. In particular we would like to mentionDuccioCavalieri,MarcoDardi,FrancoDonzelli,RiccardoFaucci, GiorgioGattei,AugustoGraziani,PeterGroenewegen,VinicioGuidi,Geoff Hodgson, Alan Kirman, Jan Kregel, Marcello Messori, Pierluigi Nuti, Fabio Petri, Pier Luigi Porta, Maurizio Pugno, Piero Tani, and Warren preface to the first edition ix Young.Ofcourseanyinadequaciesormistakesinthisbookareourownsole responsibility.OurthanksalsogotoAndrewSchullerandAnnaZarankoof Oxford University Press for their perceptive editorial work and advice. E. S. S. Z.