Money as Organization, Gustavo Del Vecchio's Theory

Gianfranco Tusset

• Publisher: Routledge
• Year: 2015
• Print ISBN: 9781848934252
• eBook ISBN: 9781317319238
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Between 1909-17, Gustavo Del Vecchio developed a 'theory of circulation'. In a series of articles he set out his thoughts on the utility and value of money, credit, discount rates, banking and international payments. Tusset re-evaluates Del Vecchio's theory, concluding that money represents a technology which organizes both economy and society.

1 Making Economic Relationships Dynamic

‘Economics studies certain processes instead of making an inventory of wealth’.¹ This youthful statement says much about Del Vecchio’s conception of the role that economics must play as a social science. Firstly, economics studies processes, conceived as a set of relationships among agents which changes or evolves over time. Hence economic change lies at the centre of this representation, as Del Vecchio himself had warned with his constant references to the need to include a dynamic perspective in economic analysis. Time is an obligatory dimension of economics, and Del Vecchio’s time was irreversible, not mechanical, time. This view can be condensed by labelling it ‘economic becoming’, where the focus is on the flows instead of stocks. Then, given his interest in general economic equilibrium, Del Vecchio immediately dealt with the difficulty of producing a general scheme which included time. To be noted is that Walras’s general equilibrium, with which Del Vecchio’s theoretical proposal was connected, was timeless.

But time is not only the legacy of the past. Time implies a forward-looking perspective that calls forecasts and expectations into question. Therefore, subjective choices become crucial for the working of the entire economic system, especially because choices are taken with uncertainty. Moreover, the fact that Del Vecchio depicted the economic capitalism of the time as intrinsically unstable can be read as a consequence of such uncertainty.

However, differently from subsequent views, uncertainty was not explained by monetary variables. On the contrary, money plays a crucial role in the working of the economic system. In 1954, Del Vecchio wrote: ‘When economic analysis ignores monetary phenomenon, we do not have economic science’.² Money was obviously associated with the circulation of goods, but money was also ‘other’, in the sense that it played a specific role in this evolving process, which was a process of organization, if not self-organization. Hence process, relationships, time, money, uncertainty and expectations are the prime ingredients of the complex theoretical artefact called ‘economic becoming’, much more than equilibrium, stability, veil or optimization: a set of ingredients destined to be gradually enriched.

The next section presents Del Vecchio’s methodological inquiry starting from a long-standing issue: the relationship between theory and history. The following two sections take the reader into the dynamic world that informs all the analysis considered here. First the concepts of ‘economic change’ and ‘economic dynamics’ are treated. Then ‘economic relationships’, a peculiarity of Del Vecchio’s approach, are examined, to conclude by combining dynamism and relationships in the last section, which seeks to give an organic interpretation of the overall method.

Theory and History

Gustavo Del Vecchio was extremely careful to relate theory to economic reality, but he never clarified or investigated the epistemological implications of his nevertheless original analysis. He did not devote a paper to economic method.

Del Vecchio conceived economics as a unified science. It is a ‘constant, continuous and evolutionary work’, which can be compared to a ‘multi-level building’ where each further level must be ‘solid and harmonious’ with ‘the existing ones’.³ On recognizing that David Ricardo established the ‘general principles’ on which abstract reasoning can be grounded,⁴ one may maintain, on the one hand, that Friedrich von Hermann tried to make the Ricardian scheme more ‘flexible’ by introducing first the ‘decomposition’ of the classical concept of profit into its elements and then subjective features;⁵ and, on the other, that Del Vecchio recognized the need to make Ricardian economics more ‘unified’. In other words, he maintained that Ricardian economics should still be regarded as the source of pure economic theory in its entirety, including both production and distribution analyses. Consequently, the only way to improve economic theory is to build on previous results, bearing in mind that theoretical effectiveness does not lie in a stronger connection between theory and facts: theory does not describe facts, theory means thought experiments about economic reality. Afterwards Del Vecchio wrote: ‘Economic theory is an empirical-experimental theory, not a historical-political or ethical-political doctrine’,⁶ meaning that the linking theme of his reasoning was the evolution of economic theories, which he treated as thought experiments (esperimenti ideali),⁷ and as such all worthy of interest. Although mental, the idea of experiment is crucial in Del Vecchio’s thought. ‘By experimenting, thought stops being a presupposition or a paradigmatic anticipation of things; rather, it becomes concrete, because it grows with things’⁸ – not Del Vecchio’s own writing, but his Marxist mentor’s, Antonio Labriola, to whom Del Vecchio owed his conception of history.

It is essential to remember that Del Vecchio recommended the use of different analytical instruments, according to whether the concern was theoretical or historical. This does not conflict with the concept of complementarity between the two domains, i.e. theory and history, since the need to develop two or more kinds of analyses strengthens, rather than undermines, the ‘unitariness’ of economic science. This complementarity between theoretical and historical features made Del Vecchio’s analysis very close to a theory of capitalist economy, where history is based on a scientific idea of economics.⁹ His theories on capitalist accumulation and economic crisis offer good examples of this approach. Let us consider the former.

Del Vecchio inferred the basic nature of accumulation from savings and even more from individual initiatives. He showed that savings, with the exception of life-pensions, ‘escape’ any economic criterion. This is because the bulk of savings, which are fundamental for economic life, are decided independently from hedonistic calculus and, therefore, regardless of changes in the interest rate.¹⁰ In fact, the supply of savings is decided by extra-economic factors such as the dynamism of social classes, the economic business trend, political revolutions, monetary changes and technical innovations.

Accumulation also depends on the behaviour of firms or, in other words, on the demand for capital. According to Del Vecchio, the main task is to show the linkage between growth of a firm’s capital and the lengthening of the production process. He argued that a change of capital involves not only its measurement in monetary terms but also evaluation of changes relative to aspects such as marginal productivity; the expected value of money; the certainty of investments; the demand for and supply of credit. It is evident that Del Vecchio did not restrict his capital theory to exclusively economic factors. According to the above statements, the resulting theory of capital is therefore a dynamic one, but it must be made clear that theory was always kept separate from history.

Del Vecchio constantly developed his theory on accumulation, which, although it was never the topic of a specific work, represented a constant in his thought. Accumulation is intrinsically dynamic, so that it can be related to other dynamic features. This compelled Del Vecchio to put forward dynamic and extra-economic interpretations of traditionally static theories such as those on money and credit. On the presumption that many answers to economic questions lie beyond economics itself, Del Vecchio fully investigated the disciplinary ‘borders’ of economics. Therefore, heterogeneous and changing relationships represent the core of his economic dynamics. He wrote that by conducting such inquiry we leave the field of economic theory and enter historical synthesis.¹¹

On introducing the notion of capitalism, Del Vecchio referred it to early historicism and to development through ‘stages’ as conceived by Bruno Hildebrand, Wilhelm Roscher and, above all, Karl Bücher.¹² However, because Del Vecchio believed that capitalism reflects a historical period, he raised it to the status of a ‘category’ or ‘ideal type’ or ‘economic style’ in the sense proposed by Arthur Spiethoff.¹³ Indeed, the notion of capitalism reflected the idea of economic progress as a movement onto which second-order phenomena, i.e. economic crises, are grafted. Del Vecchio’s treatment of economic crises provides another good example of what he meant by a matching between theory and history.

Economies were certainly changing, and economic theory could not ignore those changes. Accordingly, Del Vecchio studied the disciplinary ‘frontiers’ of economics by focusing on ‘residual aspects’, and distinguishing them from the ‘pure’ theory of economic facts. In his opinion, this was the only way to maintain adherence to the economic reality. But it was also the only way to build a ‘pure’ economic theory though anchored to economic reality.

Del Vecchio’s accumulation and crises theories show that he did not subordinate theory to history or, in Edgar Salin’s words, rationality to intuition (anschauliche).¹⁴ Therefore, his theory was not linked to temporal, spatial, national aspects, as Karl Knies stressed.¹⁵ Del Vecchio treated crises as dynamic phenomena depending on a progressive movement called capitalism. In other words, capitalism was depicted as an ‘economic style’ à la Spiethoff,¹⁶ and crises were symptomatic of this inexorable movement. From this viewpoint, crisis, and not capitalism, is the historical ‘fact’ which requires theoretical as well as historical methodologies.

The ‘political economy of crisis' defines the area of scientific investigation devoted to explaining the different movements of capitalism, of which crises are the inevitable expressions: ‘Economic progress and economic crises are both phenomena too important and characteristic of the modern economy to think that they are randomly correspondent’.¹⁷ While nothing could be said about the cycle’s influences on long-term trends, it was incontrovertible that crises act on economic progress to provoke a periodic re-organization of the market, including the elimination of non-competitive firms. Therefore, not only are economic crises phenomena deriving from a dynamic and progressive economy¹⁸ characterized by wide fluctuations determined by technology, population, institutions; they are also a necessary component of economic progress because they eliminate those ‘pathological phenomena’ that intensify during the expanding cycle.¹⁹ Crises are not mere consequences of economic progress; rather, they are its components.

Del Vecchio’s insistence on the need for a ‘political economy’ of crises, instead of a simple theory, is typical of his entire theoretical modus. Crises are historical facts characterizing capitalist reality that other economic theories cannot ignore. The five ‘research orders’ therefore represent the method with which to obtain complementarities between theory and history. At that point, theory must be linked to history, maintaining its nature as a thought experiment, its ‘pureness’. The area in which ‘pure theory’ matches history, in the sense that we can find both the analyses, is that of ‘economic change’.

Economic Change

The social dimension, dynamism and effectiveness are original features of Del Vecchio’s monetary theory, and their inclusion in that analysis can only be fully understood by considering the theoretical climate in which Del Vecchio’s theory took shape. At the end of the nineteenth century and the beginning of the twentieth, Italian political economy was dominated by the conflict between, on the one hand, pure individualistic theory and, on the other, evolutionary and historical approaches. In that theoretical conflict, the young Del Vecchio immediately joined the supporters of pure theory, whose main representative was Francesco Ferrara.²⁰ But that debate between individualism and evolutionary and historical views intensified the search for new areas of inquiry.

Essential for understanding Del Vecchio’s thought is the concept of economic dynamics, which was a topic particularly dear to the then community of Italian economists who shaped new paths for economic dynamics by basing them mainly on four different methods: evolutionary, mathematical, statistical and historical.²¹ These approaches were more interested in a theory of economic change than in economic dynamics strictly speaking, and they had an analytical criterion in common: time movements should be studied by stating the invariance/change relation. Each theory, whatever its disciplinary affiliation, attempted to combine an invariant element with some change.

This was an early attempt to unravel the alternative between a description without theory and a theory uncoupled from any concrete transformation: that is to say, an economic dynamics as an account of facts and a static economics without any contacts with reality. Synthesizing, the early researchers on economic dynamics moved in the following directions: the abstract analysis that, because of its derivation from mechanics, shed light more on invariance than change; and the descriptive method, which was commonplace among those authors adopting positivist, organic and historical perspectives. The latter grounded on an initial analogy with biology, adopted evolutionary, finalistic or teleological schemes.

The biological metaphor was commonly cited in the early economic texts on dynamics. This was because ...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Dedication
• Acknowledgements
• Introduction
• 1 Making Economic Relationships Dynamic
• 2 Valuing Individual Demand for Money
• 3 Distributing the Stock of Money
• 4 Supervising Monetary Balance
• 5 Making Monetary Wealth Circulate
• 6 Dealing with Irreducible Risk
• Epilogue
• Notes
• Works Cited
• Index