Interpretative Lines [title added]

Epochs of Economic Theory

One of the most interesting and controversial of the arguments put forward by Schumpeter in The History of Economic Analysis is that the evolution of economic ideas does not proceed smoothly, but in jumps, through a succession of epochs of revolution and consolidation; of language confusion and ‘classical’ periods.  This is also a useful idea for the historian of economic thought because, if true, it would provide a clear organizational framework for the subject.  In fact, this idea immediately leads to an almost natural division of the history of economic thought into epochs, a division based on a succession of ‘classical situations’ and revolutionary periods.  Here, while agreeing with Schumpeter that any periodization, ‘though certainly based upon provable facts’, must not ‘be taken too seriously’ (p. 52), we will attempt one inspired by his idea.

Modern economic science originates from a first great theoretical revolution that occurred, roughly, in the period, 1750-80.  This was an epoch of great breaks with tradition; an epoch that began with Galiani, Beccaria, and Hume, continued through Genovesi, Verri, Ortes, Steuart, Anderson, Condillac, Mirabeau, Quesnay, Turgot, and the whole physiocratic movement; and reached its climax with The Wealth of Nations.  There was a chaotic flow of audacious and brilliant ideas which, even allowing for the diversity of, and conflicts among, the various approaches, was driven forward by a few fundamental themes.  Common to many of these authors was the revolt against mercantilism, the perception or the foreboding that there was to be a deep revolution in the economic structure of society, the faith in natural laws and in the possibility of understanding them scientifically, and, above all, the belief in free trade, which, even if it was only professed by some of the above-mentioned economists, was soon to become the basic ideology of the new science.  The Wealth of Nations was the supreme synthesis of all this work.  For twenty years after its appearance, as Schumpeter suggests, ‘there is little to report as far as analytical work is concerned’ (p. 379).

In fact, the recovery from theoretical stagnation occurred with the ‘new economics’, immediately after the Napoleonic wars, and was started by Ricardo.  He, far from being a servile follower of Smith, set to work on the arguments which differentiated his opinions from those of the great authorities - the greatest of which was The Wealth of Nations.  Ricardo was the first of a long series of great innovators, among the most important of whom were Sismondi, Malthus, Torrens, Bailey, Hodgskin, Thünen, Longfield, Rae, Senior, Cournot, Dupuit, List, Rodbertus, Jones, and Roscher.

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The period from 1815 to 1845 was one of the richest in the history of economic thought as well as that of socialist thought. (Owen, Saint-Simon, Fourier, Cabet, Blanqui, Rodbertus, and Proudhon all worked in this period.)  It was a period of crisis, as shown by the heterogeneous nature of the theories which fought for positions in the field: Ricardian, Ricardian socialists, Continental socialists, the old German Historical School, and the ‘anti-Ricardian reaction’.  The last was the most heterogeneous of all, and only later was it acknowledged as the precursor of the marginalist revolution.  Despite, or perhaps because of, the diverse and contrasting flows of ideas, the doctrinal counter-positions, and the Babel’s tower of terminologies and concepts, this period produced a supreme wealth of seeds, some of which were soon to bear fruit, others much later.

It was J. S. Mill who restored economics as a normal science made up of established and lasting truths, and with him the epoch closed.  It was followed by a new period of stagnation, if not decadence: the age of Fawcett and Cairnes in England and Bastiat in France, while in Germany the innovative spur faded away with the affirmation of the historical school.  After Bastiat, Reybaud could state that work in political economy had almost been exhausted and that there was nothing else to discover.  Cairnes, too, believed that the work of political economy was ‘pretty well fulfilled’.  It was 1870!  But still in 1876, as Schumpeter reminds us, there was a feeling that ‘though much remained for economists to do in the way of development and application of existing doctrine, the great work had been done’ (p. 830).

Yet it was just at that time that a new revolution was breaking through.  The marginalist revolution occurred between 1870 and 1890: it was opened by Menger, Jevons, and Walras, was continued by Edgeworth, Wieser, Böhm-Bawerk, Pantaleoni, and Clark, and closed by Fisher and Marshall.  Also in this period, due to its revolutionary and transitional nature, there was no predominant orthodoxy; in fact, the epoch was characterized by conflict among a remarkable number of contrasting theoretical positions.  First of all, there was a revival of socialist theories in the most diverse forms, from the Marxist school to the Fabians and from Christian to agrarian socialism.  Institutionalism and the Young Historical School (not only German) also began during this period and were to develop more fully later.  Finally, it is important to note that there were major differences in approach, among the marginalist writers themselves, which caused bitter controversies.  These were so widespread that still today it is difficult to recognize a homogeneous school of thought in the early marginalist approaches.  Their way of seeing the world, in any case, seemed new and unfamiliar to many theorists, and this caused a great deal of resistance.  It was only in the 1890s that a new ‘classical situation’ was established, and a new feeling of repose spread among the economists.  In fact, it was only towards the end of the century that the fundamental homogeneity of the various versions of marginalist theory was perceived by the historians of economic thought.

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The great neoclassical economists of the third generation, Cassel, Pareto, and Wicksell, were lucky enough to work within what had almost become a new tradition and orthodoxy, and had no need, therefore, to be revolutionary.  The next revolutionary period occurred during the years of ‘high theory’, in the 1920s and 1930s.  It was, as G. L. S. Shackle stated, ‘an immense creative spasm... yielding six or seven major innovations of theory, which together have completely altered the orientation and character of economics’ (The Years of High Theory, p. 5).  But perhaps there were more than six or seven: a great many of the modern theories of growth, cycle, input-output relations, firm, general equilibrium, money, expectations, employment, distribution, demand, welfare, planning, and socialism - originate from the seeds sown in those years.

Coming to the epoch in which we live, there is no doubt that a new classical situation was created during the 1950s and 1960s.  Even though dissent was not completely silenced, as shown by the post-Keynesian attacks on the neoclassical theory of distribution and growth and by the clamour of the debate on capital theory, it is evident that the ‘neoclassical synthesis’ constituted at that time the authentic ‘single track’ for economic research.  Beginning with the attempt to graft the Keynesian seedling onto the old trunk of marginalist theory, the neoclassical synthesis culminated in an impressive ordering of ideas and suggestions derived from the years of the high theory.  Then, strengthened by the formal elegance of the Arrow-Debreu-McKenzie general-equilibrium model, the theoretical versatility of the Hicks-Modigliani macroeconomic-equilibrium model, and the analytical simplicity of the Solow-Swan growth-and-distribution model, it was able to orient economic research and economic policy in a way that no other scientific orthodoxy had been able to do.  Moreover, the fact that it even managed to transform the critical potential of many dissident theories into internal debates is a demonstration of its hegemonic strength.

During the 1970s, 1980s and 1990s the castle of neoclassical orthodoxy underwent a sort of a breakdown.  The last thirty years have constituted another period of theoretical confusion.  A large number of theories have emerged, all, to differing degrees, imperfect, fascinating, and revolutionary.  None is completely satisfactory, none dominant.  From the ‘new classical macroeconomics’ to the non-Walrasian equilibrium theory, from post-Keynesian theories to the various neo-institutionalist approaches, and from the neo-Austrian schools to post- and neo-Marxism (the last being subdivided into several versions, Sraffian, anti-Sraffian, regulationist, neo-Schumpeterian, Keynesian, etc.), competition in modern academic markets in again strong, incessant, and almost perfect.

Thus, in 250 years of the history of economic thought, from the middle of the eighteenth century to the present day, there have been four great cycles of progress followed by periods of stagnation of ideas, four long revolutionary phases followed by four equally long consolidation phases.  We are now right

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in the middle of the fifth cycle.  Each cycle begins with a period of brilliant ideas, innovations, and breaks with the tradition, controversies, bitter conflicts, and terminological confusion; in short, a stimulating process of creative destruction in the production of economic ideas.  Old schools disintegrate, dwarfs give way to giants and, just when one believes that economic science has attained perfection, chaos breaks out again.  Later, out of that hive of activity, the need for a new synthesis gradually emerges.  This is finally reached after two or three decades, and produces a new classical situation.  Then, for another twenty or thirty years political economy becomes a tranquil profession again: stable academic circles form, and members of the profession return to concerns with elegance, generality, and the solution of puzzles.  Research follows well-trodden paths and produces excellent textbooks, refinements, generalizations, and varied applications.

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Plurality of Interpretations

The subjective nature of the criteria we have adopted to decide what is to be considered innovative or orthodox is inevitable, as is the ‘qualitative’ nature of the periodization derived from it.  We are also aware of the inadequacy of our appeal to the authority of Schumpeter.  On the other hand, the idea that economic science progresses in jumps rather than in linear progression should not cause concern; rather, the problem is how to take account of this phenomenon.

One position is represented by the so-called ‘incrementalist’ approach to the history of economic thought; an approach according to which ‘scientific progress’ has been compared - for example, by Pantaleoni - to the growth of a snowball which rolls down a mountain slope, gathering extra snow, with its surface representing the unknown’ (Scritti varii di economia, p. 4).  This point of view implies the possibility, according to Pantaleoni, of separating economic science from its metaphysical contour, or rather, according to Schumpeter, separating analysis from visions.  By thus reducing the history of economic thought to that of analysis (or ‘science’), it is conceived as the narration of the slow and continual growth in knowledge: looking backwards through time, and ‘starting from what economic science is in the present moment’, its history will be a ‘history of the economic truths’ (Pantaleoni, p. 484).  In recent times, the most convinced supporters of this point of view have been neoclassical economists such as Knight, Stigler, Blaug, and Gordon.  But it is not a point of view which originated within neoclassical theory; Say and Ferrara, for example, had held it before.

Obviously, the supporters of this position do not accept that the history of economic thought proceeds in jumps and advances by revolutions.  Crises, periods of stagnation, and slow-downs are admitted, but only as perverse effects of the ‘metaphysical foundations’ and the psychological conditions in which the individual authors formulated their theories, all

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factors which do not damage the substance of the scientific element.  Thus their history would be a history of mistakes.

A different point of view, which has been called ‘catastrophist’ or ‘discontinuist’, is linked to Kuhn’s theory of the structure of scientific revolutions.  This approach, which views the evolution of knowledge as passing through revolutions and explains the latter as caused by the accumulation of anomalies within the dominant paradigms, seems extremely useful in tackling the problem we have raised.  However, the application of Kuhn’s arguments to the history of economic thought has encountered serious difficulties, difficulties which can be linked both to the ambiguities of the Kuhnian definition of a ‘paradigm’ and to its origin in the history of the natural sciences.  So much so that the characteristics of a truly Kuhnian revolution in the history of economic thought have only been identified, and then not without controversy, in the Keynesian revolution.  In fact, this revolution could be interpreted, not as a theoretical response to the stimulus supplied by the occurrence, in a historically determined socio-institutional environment, of some new economic facts (crisis, depression, price rigidity, or mass unemployment), but as the realization of the importance of some anomalies which had always existed and yet had always been relegated to the footnotes by the dominant paradigm.  But how does this idea fit in with the fact that the Keynesian revolution was only part of the process of deep upheaval which engulfed the years of high theory?  About other revolutions, many neoclassical economists deny that it is possible to find those characteristics in the marginalist revolution, and refuse even to acknowledge its revolutionary nature, believing instead that it consisted of the purification, refinement, and generalization of the truly scientific elements which were already present in classical economics.  Finally, the free-trade and Ricardian revolutions cannot be analysed according to Kuhn’s schema, as they were linked to a great historical event, the birth of industrial capitalism, and not determined by a logic which was strictly internal to the evolution of a paradigm.

Recently, there have also been attempts to apply Lakatos’s ‘methodology of the scientific research programmes’ to the history of economic thought.  The best-known examples are those by Weintraub and Latsis.  According to this approach, a research programme will be successful if it shows itself to be progressive, both theoretically (being able to predict new facts) and empirically (if such predictions are confirmed).  It will be abandoned when it becomes degenerating (needing to be modified in order to account for known facts without being able to predict new ones), and if a ‘better’ programme - i.e. one that is endowed with greater empirical content - is available.  The attempts to apply Lakatos’s approach to economics have produced interesting results with regard to research methodology, especially in the direction of weakening faith in empiricist and positivist epistemologies, and of a greater open-mindedness towards methodological pluralism.

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However, as far as the history of economic thought is concerned, Lakatos’s approach has not produced decisively important results and has, on the contrary, represented a step backwards relative to Kuhn, who at least admitted the importance, if not the centrality, of scientific revolutions.  Lakatos’s approach, instead - especially because of the emphasis it places on the ‘progressiveness’ of successful research programmes, and on their greater empirical content relative to those which have been surpassed - seems to be moving towards a resumption of the ‘incrementalist’ arguments.

Both the incrementalist and catastrophist approaches are open to criticism at the level of their similar epistemological roots.  They have in common a point of view which Blaug, in Economic Theory in Retrospect, has defined as ‘absolutist’ (pp. 20-l) - in the sense that the historian is only interested in the intellectual development of the theories, without being concerned with their relationships to the socio-economic conditions in which they emerged.  The absolutist point of view is clearly present in the incrementalist approach, for which the evolution of thought is nothing more than a series of marginal increments of knowledge upon a stock of acquired truth.  But this is also true of the catastrophist approach, in which scientific revolutions are caused by a threshold effect generated by the accumulation of anomalies within each paradigm.  In both cases there is no way of linking changes in thought to changes in social and economic life.

The approach which studies the history of economic ideas in relation to socio-economic contexts in which they have arisen has been defined by Blaug as ‘relativist’ (pp. 20-1).  With a little more vispolemica, Pantaleoni called it ‘mesological’ (p. 491).  It is a point of view which is held by a large number of institutionalist, historicist, and Marxist scholars, and, in general, by historians with non-positivist backgrounds.  Mitchell, Stark, Roll, Rogin, and Dasgupta, to name a few, are all authors who have explicitly theorized and knowingly utilized the mesological approach.  The epistemological foundation of this position is based - according to Roll – ‘on the conviction that the economic structure of any given epoch and the changes which it undergoes are the major influences on economic thinking’ (A History of Economic Thought, p. 14).

One of the mesological approaches aims at identifying the relationships existing between economic theory and the real socioeconomic structure.  And the simplest type of relationship seems to be that between a historically determined reality and a specific thought that ‘reflects’ it.  Working along this line, Stark has proposed an interpretation of the Schumpeterian notion of ‘classical situations’ which leads to a simple and apparently obvious explanation of the phenomenon in question.  When comparing the classical situations represented by the theories of Smith and Walras, Stark observed that, while these are two different doctrines, they are still two theories of equilibrium.  He suggests that they reflect two different economic orders which prevailed in different historical epochs.

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Smith’s teachings thus reflected the first real historical situation in which the capitalist order was in equilibrium conditions, an equilibrium based on the small, non-mechanized factory and on an exchange economy fully developed within a national market, in which the invisible hand was able to integrate agricultural with industrial production.  On the other hand, Walras’s system represented an international economic order in which competition was almost perfect, both on the commodity and labour markets, at least in the most developed economies.

Stark says nothing about the other classical situations, neither does he offer clarification about what is reflected by the theoretical formulations which occur in periods of intellectual revolution.  But his arguments seem perfectly compatible with the following suggestion by Shackle concerning the state of economic theory in the 1920s: these years had marked the end of ‘a belief in a self-regulating, inherently and naturally self-optimizing, stable and coherent system’ (p. 5).  When the economists realized that they were no longer able, with the old intellectual instruments, to restore the old order of things, they began to search for new theories; in this way, by the end of the 1930s economic science ‘had come to terms with the restless anarchy and disorder of the world of fact’ (p. 6).  This point of view has an unpleasant premise: that social reality is only the object and thought only the subject of scientific activity, such that the latter does not obey the laws which govern the former and is able to reflect them objectively.  Equally unpleasant consequences would be that the evolution of economic theory is unequivocally determined by the evolution of the objective reality; and that, once again, there is (even though through a series of oscillations) a certain type of progress through the accumulation of truth.

Another group of mesological approaches considers the political element as the most important link between theory and reality.  This is the well-known argument of the ‘political demand’ for economic ideas, according to which the emergence of specific, real economic problems stimulates the creation of political solutions and therefore of theories which are capable of scientifically justifying those solutions.  Then, the theories which supply the correct solutions are grouped together and are slowly refined until an orthodox theoretical system is formed.

Myrdal developed a similar conception, but added several interesting observations concerning the role played by the process of younger generations replacing older ones within scientific communities.  The study of the new facts which emerge in the course of economic evolution, would modify political attitudes, especially among young researchers.  These, rather than the older upholders of the orthodoxy, would be able to change the directions of research ‘under the pressure of what is becoming politically important to the society’ (‘Crises and Cycles in the Development of Economics’, p. 20).  It is in this way that recurrent theoretical revolutions would be triggered.  This position, even though it has the merit of giving the right weight to

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the political element, has the defect of reducing the problem to the single dimension of the adjustment of theories to problems: there is still the idea that the economist observes reality as in a laboratory and is not influenced by it.

These difficulties are not encountered by Neumark, who suggests that there is normally only one choice open to solve the fundamental economic problems: the choice between two great alternatives; and that this explains not only the perpetual oscillation of the dominant positions in economic policy between state control and laissez-faire, protectionism and free trade, balancing the budget and deficit spending, but also the oscillation of fundamental theoretical attitudes between preferences for the conceptions of value as ‘natural’ and ‘just’, between idealistic and materialist philosophies, and between industrialism and environmentalism.

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Our Point of View

This outline of the history of economic thought is not intended to be either a history of illustrious people, their lives, their work, and their personal contributions to the discovery of the truth, or a history of the errors by which the growth of scientific knowledge has occurred.  We do not share the idea that economics is a ‘Darwinian’ discipline, an idea which claims that the last link in the evolutionary chain contains all the preceding developments, and that these can all be dismissed as irrelevant or superseded.  Certainly, we do not deny the existence of some form of evolution in the process of historical change of economic ideas.  However, we deny that it is a unidirectional, homogeneous, and unique development; above all, we deny that the key to understanding this process must necessarily be provided by the theories which are in fashion today.

The approach that we follow has a great deal in common with the relativist position.  We wish, however, to avoid falling into certain ‘mesological’ naivities and simplifications, which often contribute to the production of histories of economic thought by portraits, or treating the evolution of ideas as an appendix to the evolution of economic facts.  We realize that the reality studied by the economist is not fixed like that of the natural sciences.  Economic facts change through time and space: problems which appear crucial in a certain period may be irrelevant in another, and those that are considered important in one country can be completely ignored in another.  This peculiarity of the subject of investigation may help to explain part of the history of economic thought, for instance, the existence of certain national peculiarities or the emergence of specific theories at certain historical moments.  But this does not explain everything, and perhaps it does not explain precisely what really deserves to be studied.

More important than the peculiarities of the object under study are those of the subject itself.  There is no doubt that the cultural background and the

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‘visions’ of the scientists have a strong effect on their research activities; and still more determinant are the common ideas and values accepted by the scientific communities, as it is precisely these which select and give direction to the individuals.  But, more generally, there is no doubt that it is the particular society as a whole which determines the cultural climate in which the choices available to individual scientists and the scientific community are provided and delimited.  Society as a whole decrees the importance of the problems to be studied, establishes the directions in which solutions should be sought, and, ultimately, decides which theories are correct.

None of this would merit our attention if society were a homogeneous entity.  But it is not.  In the field of the social sciences, a theory is a form of self-understanding and self-representation of a social subject.  The subjects are heterogeneous, however: there are differences of class, culture, and nationality.  Moreover, the relationships in which these subjects find themselves may be conflictual.  Thus society, while being a severe judge of scientific work, is not always impartial, nor does it always have clear ideas about what it wants.  And if it is true that only society decides the relevance of the problems, it is also true that its decisions are often ambiguous and contradictory . For example, some people consider an unemployment rate of 5 per cent as worrying, while others believe a 10 per cent rate is normal, even ‘natural’; and it is inevitable that these two different ways of thinking are connected to two contrasting economic theories.  Still more fleeting and biased are the criteria by which society decrees which theories are correct, because, in the end, as there is ‘only one truth’, the plurality of points of view, solutions, and directions of research which society itself generates must in some way be suppressed in favour of a single theory.  Obviously, the work of the scientists has an important role in establishing which theory should prevail, as there are requirements of logical coherence, generality, and explanatory power to which it is their duty to attend.  They are not the kings of the castle, however, and cannot do whatever they wish.

On some subjects and fundamental problems, base orientations are formed which embody diverse and often contradictory points of view.  These orientations give rise to strands of research which span the history of economic thought.  They are like rivers on limestone which sometimes disappear underground, giving the impression that they have dried up; but they can continue their underground life for a long time, banned from academia and deprived of scientific respectability.  Then they come to light again, when nobody expects it, and become more powerful and noisy until they silence their opponents.  For example, consider the orientation underlying criticism of Say’s Law and its use to demonstrate the impossibility of ‘general gluts’.  Who would have thought, considering the defeat of Malthus by Ricardo, or the sad academic destiny of Marx or Hobson, that with Keynes, justice would have been done?  In regard to this problem, two base orientations have always been in conflict, one leaning towards self-regulating markets, the other

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toward effective demand, and neither has ever gained a complete victory.  Another example comes from the theory of value, where the subjectivist and objectivist orientations have clashed continuously.  It seemed that Jevons had finally defeated Ricardo, but then, a century later, Sraffa put everything back into discussion.  We could go on to show the alternating destinies of the quantitative and endogenous orientations in regard to the money supply, or of the macroeconomic and microeconomic orientations concerning the distribution of income, and so on.

Matters are complicated by traditions, that is to say, by certain types of cultural identification which link economists of different generations.  Traditions may depend on the existence of certain national cultural backgrounds, on the formation of academic schools of thought, on the strength of certain political configurations, or on yet other causes.  Thus, it is possible to speak, for example, of an English tradition in the field of the construction of comprehensive grand theories, a tradition which links (despite their different theoretical positions) the magnificent syncretism of Smith with those of Stuart Mill and Marshall.  Or, observing the thin but strong connecting thread linking Davanzati, Montanan, Galiani, Ferrara, and Pareto, it is possible to speak of an Italian tradition in relation to the subjectivist theory of value.  It is also possible to speak of a socialist tradition regarding value and distribution, or of a Keynesian tradition concerning economic dynamics.  Traditions have an important role in guiding the scientific activity of individuals and research groups.  Developments in traditions intertwine with those of the base orientations, and contribute significantly to the evolution of economic thought.

In certain historical periods, the orientations underlying some basic theoretical principles sometimes combine with a certain specific tradition to contribute to the creation of a theoretical system, a general theory aspiring to give a coherent and complete answer to every problem that has arisen or can arise in a defined field of investigation.  The first requirement of a theoretical system is the definition of the scope of investigation.  Then, it is necessary to determine the fundamental principles around which all existing and potential knowledge can be organized, the methodological rules that establish the way in which the research is conducted and the results evaluated, and the linguistic canons which allow the classification, transmission, and communication of knowledge.

The definition of the scope of investigation is fundamental.  It contains, in a nutshell, the whole development of the system, identifies the problems to be studied, establishes which economic factors act as parameters and which as variables, chooses the research directions to be followed and those to be ignored, and, finally, instructs the scientists as to what they are prohibited from doing.  The fundamental principles serve to hold together the parts of the theoretical system, to create a coherent and organic core

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doctrine, and to make it something more than a syncretic sum of diverse theories.  The methodological rules instruct the scientists on how to move across the unknown ground of the problems to solve and of the still unproven truths.  They, perhaps more than the other dimensions of a theoretical system, and in a way that often not all the researchers are perfectly aware of, make the scientists’ choices homogeneous and the research results coherent.  At the same time, they allow for a division of labour which may go beyond any possible planned structures of research activities.

Finally, the recomposition of the results of such a division of labour is made possible by well-determined linguistic canons.  Perhaps these are the least explicitly codified characteristics of a theoretical system, but they are not the least important.  Not only do they allow the communication of knowledge and the education of younger generations of researchers, which means the creation and reproduction of the scientific community, but, above all, they delimit the field of discourse.  A person who is not well versed in the linguistic terminology used by the scientific community sharing a particular theoretical system, that is, a person who is unable to follow its more or less tacit rules of communication, simply does not have the right to speak, especially when the system in question is the culturally dominant orthodoxy.  The history of economic thought is full of brilliant but unheeded self-taught men, living in the ‘underworlds’ of heretics and precursors.

In order to clarify what we mean by a ‘theoretical system’, it may be useful to give an example.  Let us consider the neoclassical system.  This originated towards the middle of the nineteenth century and, through phases of crises and successes, and even enduring the pressure and the centripetal forces of three or four great national traditions, it reached its first signs of systematic organization towards the end of the century.  Finally, and aided by the cosmopolitan push of the American neoclassical economists, it attained its supreme synthesis towards the middle of the twentieth century.  Some base orientations typical of this system manifested themselves in a subjectivist theory of value, a microeconomic theory of distribution, and a static theory of equilibrium.  These and other base orientations were organized around the principle of constrained maximization of individual objectives; while the scope of investigation was reduced to the problem of the optimal allocation of scarce resources.

The basic problem for the historian of thought is: how do such systems form?  Linked to this are other, equally important questions.  What determines the success of a system?  What causes its break up?  Why in certain periods does a ‘dictatorship’ of a certain system arise while in others there seems to be theoretical anarchy?  In the remainder of this book we have tried, within the limits set by a simple outline of the history of economic thought,

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to sketch a reply to these problems. Here, we will briefly explain some of the interpretative lines on which we have based our attempt.

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Interpretative Lines

1. Economic problems are strictly linked, so that a new theory concentrating on only one problem, or on a limited group of problems, is in a certain sense unstable.  Either it makes reference to an already existing theoretical system and tries to become integrated into it and possibly to generalize the system itself, or it proposes itself as a base for the organization of a new theoretical system.  A typical example is given by the Keynesian revolution, which began by claiming to be a general theory, but was later generalized by the system it wished to attack.  The operation was accomplished by the elimination of some of the base orientations that were present in Keynes, orientations that turned out to be incompatible with neoclassical theory.  On the other hand, and precisely by virtue of these orientations, attempts were made to construct, on the basis of the general theory, a post-Keynesian theoretical system conceived as an alternative to the neoclassical system.

2. The success of a theoretical system implies the realization of two conditions, one internal and one external.  The former concerns logical coherence, both in terms of the analytical rigour of the specific theories of which a system is formed and in terms of the relationships that link one theory to another.  The latter concerns the ability of the theoretical system to respond to a certain social need.  Society in certain periods of its evolution needs a general theory to represent it.  These are periods in which order and stability predominate.  The theories which are chosen must, in some way, be theories of order, equilibrium, and harmony.  Therefore, not all theoretical systems are predisposed to prevail, even if they are coherent.  Some, even though they are refined, rigorous, and heuristically powerful, are in any case destined to remain at the margins of the academic world.  There is another reason why the second condition is more important than the first: it is always necessary, while the first is not.  When society needs an organic, orthodox, general theory, it finds one.  If there are diverse theoretical systems available that satisfy the same needs, the one which best satisfies the conditions of internal coherence will presumably win.  And when the market does not offer a great deal, the best that exists is taken, even if the price of syncretism and analytical weakness has to be paid.  This was the case, for example, with the Bastiat-type theories of ‘social harmony’ that prevailed in the 1850s and 1860s.

3. When a society enters a period of crisis, the prestige of the dominant theoretical system will be shaken.  In a society facing a serious crisis, the need to represent the economy as an organic and ordered body is weakened; and this occurs precisely when real problems emerge for which the general theories of order are unprepared.  In these periods, the pressure of the scientific community on individual researchers weakens, while methodological and doctrinal ties on scientific research are loosened.  In this way,

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creative energies are liberated.  At the same time, the research interests of the scientists are attracted and shaped more by the problems emerging from the real world than by those springing from theory.  Theoretical revolutions occur in these periods.  They are characterized by confusion of language; but in such a confusion the bases are laid down for the construction of new theoretical systems.  However, it could also happen that old systems are revitalised.  A theoretical system which enters a period of crisis does not necessarily leave the scene.  The crisis itself may even contribute to the system’s regeneration, a typical example being the resurgence of the neoclassical system after the crisis of the l920s and 1930s.

4. Although the history of economic thought cannot be interpreted simply in terms of the growth of knowledge, there are, however, certain forms of progress.  One type of evolution is that which occurs within a particular base orientation.  As an orientation refers to a specific problem, evolution consists in the progressive refinement of the theory accounting for the phenomenon.  In this way, the objectivist theory of value progressed as it moved from Ricardo to Marx and thence to Sraffa.  On the other hand, two different orientations focusing on the same problem are not comparable, as they are derived from different pre-analytical premisses.  In regard to the problem of the distribution of income, for example, there is an orientation, founded on the presupposition that an economy is a set of exchange relationships among individuals, which tends to reduce the problem to that of the determination of the prices of the productive services.  There is, however, another orientation, one based on the premise that the economy is a system of functional and/or conflictual relations among social classes, which considers the distributive problem as that of dividing the national product among the classes.  Now, whether one of these two orientations is able to explain a historical reality better than the other is not a question that can be resolved on the analytical level: the acceptance of one or other of the presuppositions on which the orientations are based implies a pre-analytical choice.  For this reason, the transfer of hegemony from a theory that proposes a certain orientation to one that proposes a different orientation cannot be evaluated in terms of progress.  There is a second type of evolution, one which concerns theoretical systems.  Here, in addition to the progress involving each of the individual components of the system, there is also progress in the overall organization of the components.  In this case, progress occurs through the substitution of a specific theory by another, if the new theory integrates better with the rest of the theories making up the system.  Another type of progress of a system concerns the internal substitution of partial theories by general theories.  Yet another consists of the integration, in the system, of theories relating to new problems.  This can happen either because the empirical research activated by the system itself leads to the discovery of new phenomena or because the system manages to focus on, and to provide solutions to, problems that have emerged in an autonomous way.  Thus, the progress of a system, even if it

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passes through scientific revolutions, in the end always comes down to a process of analytical refinement and/or theoretical generalization.  However, we are only dealing with progress of a system.  Also, in this case it is impossible to compare different theoretical systems in terms of progress.  This is both due to the incommensurability of the base orientations from which the different systems develop and because different systems define the very scope of investigation, and the problems to which they are applied, in different terms.

From the above, it will be easy to understand the methodological position we have adopted in this book.  Our outline of the history of economic thought is neither a history of illustrious personalities nor one of economic themes.  Rather, it takes a history-of-ideas approach, whose principal aims consist, on the one hand, of understanding the context in which the ideas are formed and, on the other, of explaining how the fundamental ideas lead to the creation of particular theoretical systems,

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Index

Elemental Economics