Economic Theory in the Twentieth Century, An Intellectual History - Volume I

1890-1918. Economics in the Golden Age of Capitalism

Roberto Marchionatti

• Publisher: Palgrave Macmillan
• Year: 2020
• Print ISBN: 9783030402969
• eBook ISBN: 9783030402976
• Topic: Economics
• Subtopic: Econometrics
• Index: Economics

This book, set out over three volumes, provides a comprehensive history of economic thought in the 20th century with special attention to the cultural and historical background in the development of theories, to the leading or the peripheral research communities and their interactions or controversies, and finally to an assessment and critical appreciation of economic theories throughout these times. It takes as its subject matter the canon of publications by major thinkers who self-consciously conceived of themselves as 'economists' in the modern academic sense of the term. It is a history of how, when and where the discipline of Economics took root in major universities and scientific communities of economists, and evaluates the emergence of different 'schools' of thoughts.

Volume I addresses economic theory in the golden age of capitalism. It considers the contributions of Marshall, Pareto, Wicksteed, Schmoller, Bohm-Bawerk, Schumpeter, Wicksell, Fisher, Veblen and other major thinkers, as well as the universities of Cambridge, Lausanne, Vienna, Berlin, and some others in US, before concluding with a look at the impact that the great war had on the discipline.

This work provides a significant and original contribution to the history of economic thought and gives insight to the thinking of some of the major international figures in economics as shown in major works published across the last 130 years. It will appeal to students, scholars and the more informed reader wishing to further their understanding of the history of the discipline.

© The Author(s) 2020

R. MarchionattiEconomic Theory in the Twentieth Century, An Intellectual History - Volume Ihttps://doi.org/10.1007/978-3-030-40297-6_1

Begin Abstract

1. General Introduction: Why Should We Study the History of Economic Theory?

Roberto Marchionatti¹

(1)

Department of Economics and Statistics, University of Turin, Turin, Italy

Roberto Marchionatti

Email: [email protected]

Keywords

History of economic theoryJoseph A. SchumpeterRational reconstructionHistorical reconstructionIntellectual history

End Abstract

1.1 Mainstream Economics and the History of Economic Theory

“No history of ideas, please, we’re economists”. In these words, Mark Blaug (2001) describes the current status of the history of economic thought among mainstream economists, viz. those whose ideas are dominant in the leading academic institutions and journals in a particular age. The term mainstream is often used as if it were synonymous with orthodoxy, but we prefer to consider mainstream as a broader term, and we apply orthodoxy to what is considered the dominant school of thought in a specific period, as opposed to divergent approaches called heterodoxy.

Modern economics is often characterized as neoclassical economics,¹ but as Colander (2000) points out, this classification is hardly appropriate today, if we consider that, strictly speaking, neoclassical economics is the theory that focuses on the optimizing behavior of fully rational and well-informed individuals in a static context and the equilibria that result from this optimization. In fact, economists today are far more eclectic than neoclassical economists. Economics in its present state appears to be a changing system of ideas. Individuals in the profession often have no perception of this change. Only when we look back, and adopt a longer, historical perspective, does the change become clearly apparent. However, the history of economic thought is of little interest to mainstream, and more or less orthodox, economists today. This negative attitude is the result of the a-historical conception of economics that was dominant after the Second World War (and has only recently been challenged), which maintained that economics must be based on deductive models, be consistent with standard economic principles, incorporate heavy doses of mathematics, and be econometrically tested and applied to reality in order to yield general results which hold true for all times and institutional contexts. This conception of economics has given rise to a distinctive kind of historiography of which George Stigler and Paul Samuelson were the most important theoreticians (see, in particular, Stigler [1969] and Samuelson [1978, 1988]).² Stigler introduced the idea that theories are subject to the selection forces of the ‘efficient market of ideas’, thus maintaining that the current state of economic theory is the benchmark, as it contains the best of previous contributions, which may at most be a primitive version of contemporary mainstream theories.³ Paul Samuelson argued for a ‘Whig history of science’ (Freeman et al. 2014)⁴—a term introduced by the British historian and philosopher Herbert Butterfield in a 1931 book—which is more sensitive to the historical context of theories than the efficient market of ideas approach, as it recognizes that different schools of thought exist. Nonetheless, as this conception maintains that the historical trend is toward the eventual success of superior theories, we can speak of a Stigler-Samuelson perspective. In this perspective, the history of economics is a ‘rational reconstruction’, in the sense that:

• It treats the great thinkers of the past as if they are contemporaries with whom it is possible to exchange views;
• It analyzes their ideas in contemporary terms in order to locate their mistakes and to verify the belief that there has been progress in the course of intellectual history;
• It represents the point of view of those who regard earlier economic doctrine as simply ‘the wrong opinions of dead men’.

Dominant today, this conception in mainstream economics is responsible for the increasing loss of interest in the history of economics and its dwindling importance in the post-war era (especially since the late 1960s⁵), when it was marginalized in departments of economics and reduced to a sort of antiquarianism. This conception was a break in the discussion of the role of the History of Economic Thought (HET) in the understanding of economic theory, as it abandoned Schumpeter’s more nuanced view.⁶

1.2 Schumpeter’s Legacy: A Different Perspective on the Role of the History of Economic Theory

At the beginning of the 1950s, Joseph A. Schumpeter, one of the giants of the economics of the first part of the twentieth century, had offered a perspective that was more sophisticated than the contemporary mainstream view of the role of the history of economic thought in the research agenda of economics. Asking why we should study the history of economics—that is, “the history of the intellectual effort that men have made in order to understand economic phenomena”—he answers that:

We stand to profit from visits to the lumber room⁷…. The gains with which we can hope to emerge from it can be displayed under three heads: pedagogical advantages, new ideas, and insights into the ways of the human mind. (Schumpeter 1954, p. 3)

First, he emphasized that:

the problems and methods that are in use at any given time embody the achievements and carry the scars of work that has been done in the past under entirely different conditions. The significance and validity of both problems and method cannot be fully grasped without a knowledge of the previous problems and methods to which they are the (tentative) response…. [In fact] scientific analysis is not simply a logically consistent process that starts with some primitive notions and then adds to the stock in a straight-line fashion. It is not simply progressive discovery of an objective reality. (ibid., p. 4)

Rather, as he goes on to say:

[scientific analysis] is an incessant struggle with creations of our own and predecessors’ minds and it ‘progresses’, if at all, in a criss-cross fashion, not as logic, but as the impact of new ideas or observations or needs, and also as the bents and temperaments of new men, dictate. (ibid.)

According to Schumpeter, methods, problems, and results are “historically conditioned and are meaningful only with reference to the historical background from which they spring” (ibid.). In short, “the state of any science at any given time implies its past history” (ibid.).

Second, Schumpeter stresses the fact that:

our minds are apt to derive new inspiration from the study of the history of science…. Beside inspiration…we learn to understand why we are as far as we actually are and also why we are not further. And we learn what succeeds and how and why. (ibid., pp. 4–5)

Third, Schumpeter notes that the study of the history “teaches us much about the ways of the human mind” (p. 6). Lastly, he recognizes that “to a large extent, the economics of different epochs deal with different sets of facts and problems” (ibid.).

Schumpeter’s position is partly vitiated by his dichotomy between vision (pre-scientific vision) and analysis,⁸ which implies the progressive outlook that a theory could be stripped of its philosophical and historical wrappings and examined from the modern theoretical perspective. Over and above his warnings against the risk of pseudo-explanations and excursions into the past, however, in his work as a historian of economics, there can be no doubt that history, political theory and the philosophical climate of opinion—which cannot be reduced to simple pre-scientific vision—are relevant to economic theor...

Table of contents

• Cover
• Front Matter
• 1. General Introduction: Why Should We Study the History of Economic Theory?
• Part I. Economic Theory in the Golden Age of Capitalism: From the Last Decades of the Nineteenth Century to the First World War
• Back Matter