CONTENTS

Preface to the second edition v

Preface to the first edition vii

Introduction 1

PART I FROM THE ORIGINS TO KEYNES

1. The Birth of Political Economy 19

1.1. OpeningoftheModern World 19

1.1.1.

1.1.2. Communes, humanism and the Renaissance 22

1.1.3. The expansion of‘Mercantile’capitalism 27

1.1.4. The Scientific Revolution and the birth of political

economy 29

1.2. Mercantilism 32

1.2.1. Bullionism 32

1.2.2. Mercantilist commercial theories and policies 34

1.2.3. Demographictheoriesandpolicies 36

1.2.4. Monetary theories and policies 38

1.2.5. Hume’s criticism 40

1.2.6. Theories of value 41

1.3. Some Forerunners of Classical Political Economy 43

1.3.1. The premisses of a theoretical revolution 43

1.3.2. William Petty and‘political arithmetick’ 45

1.3.3. Locke, North, and Mandeville 47

1.3.4. Boisguillebert and Cantillon 49

Relevant Works 51

Bibliography 52

2. The Laissez-Faire Revolution and Smithian Economics 54

2.1. The Laissez-Faire Revolution 54

2.1.1. The preconditions of the Industrial Revolution 54

2.1.2. Quesnayandthephysiocrats 55

2.1.3. Galiani and the Italians 58

2.1.4. Hume and Steuart 63

2.2. Adam Smith 65

2.2.1. The‘mechanical clock’and the‘invisible hand’ 65

2.2.2. Accumulation and the distribution of income 68

2.2.3. Value 69

2.2.4. Market and competition 72

2.2.5. Smith’s three souls 73

2.2.6. Smith as an institutionalist 77

2.3. The Smithian Orthodoxy 82

2.3.1. Aneraofoptimism 82

2.3.2. Bentham and utilitarianism 83

2.3.3. The Smithian economists and Say 85

Relevant Works 87

Bibliography 88

3. From Ricardo to Mill 90

3.1. Ricardo and Malthus 90

3.1.1. Thirtyyearsofcrisis 90

3.1.2. TheCornLaws 91

3.1.3. The theory of rent 92

3.1.4. Profitsandwages 95

3.1.5.

3.1.6. Discussionsonvalue 97

3.2. The Disintegration of Classical Political Economy in

the Age of Ricardo 100

3.2.1. The Ricardians, Ricardianism, and the classical tradition 100

3.2.2. The anti-Ricardian reaction 102

3.2.3. Cournot and Dupuit 104

3.2.4. Gossen and von Thfinen 107

3.2.5. The Romantics and the German Historical School 109

3.3. The Theories of Economic Harmony and Mill's Synthesis 111

3.3.1. The ‘Age of Capital’ and the theories of economic harmony 111

3.3.2. JohnStuartMill 113

3.3.3. Wages and the wages fund 115

3.3.4. Capital and the wages fund 118

3.4. English Monetary Theories and Debates in the Age of

Classical Economics 121

3.4.1. TheRestrictionAct 121

3.4.2. The Bank Charter Act 124

3.4.3. Henry Thornton 127

Relevant Works 130

Bibliography 131

4. Socialist Economic Thought and Marx 133

4.1. From Utopia to Socialism 133

4.1.1. The birth of the workers’movement 133

4.1.2. The two faces of Utopia 134

4.1.3. Saint-SimonandFourier 135

4.2. Socialist Economic Theories 138

4.2.1. Sismondi, Proudhon, Rodbertus 138

4.2.2. Godwin and Owen 139

4.2.3. The Ricardian socialists and related theorists 140

4.3. Marx's Economic Theory 142

4.3.1. Marxandtheclassicaleconomists 142

4.3.2. Exploitation in the production process 146

4.3.3. Exploitation and value 148

4.3.4. The transformation of values into prices 151

4.3.5. Equilibrium, Say’s Law, and crises 154

4.3.6. Wages, the trade cycle, and the ‘laws of movement’ of

the capitalist economy 155

4.3.7. Monetary aspects of the cycle and the crisis 159

Relevant Works 161

Bibliography 162

5. The Triumph of Utilitarianism and the Marginalist Revolution 163

5.1. The Marginalist Revolution 163

5.1.1. The ‘climax’ of the 1870s and 1880s 163

5.1.2. Theneoclassicaltheoreticalsystem 165

5.1.3. Wasitarealrevolution? 167

5.1.4. The reasons for success 170

5.2.

5.2.1. Logical calculus in economics 173

5.2.2. Wages and labour, interest and capital 176

5.2.3. English historical economics 179

5.3. Leon Walras 180

5.3.1. Walras’s vision of the working of the economic system 180

5.3.2. General economic equilibrium 183

5.3.3. Walras and the articulation of economic science 187

5.4. Carl Menger 189

5.4.1. ThebirthoftheAustrianSchoolandthe Methodenstreit 189

5.4.2. The centrality of the theory of marginal utility

in Menger 192

Relevant Works 193

Bibliography 194

6. The Construction of Neoclassical Orthodoxy 196

6.1. The Belle Iipoque 196

6.2. Marshall and the English Neoclassical Economists 198

6.2.1. AlfredMarshall 198

6.2.2. Competition and equilibrium in Marshall 200

6.2.3. Marshall’s social philosophy 202

6.2.4. Pigou and welfare economics 203

6.2.5. Wicksteed and ‘the exhaustion of the product’ 205

6.2.6. Edgeworth and bargaining negotiation 207

6.3. Neoclassical Theory in America 209

6.3.1. Clark and the marginal-productivity theory 209

6.3.2. Fisher: inter-temporal choice and the quantity

theory of money 212

6.4. Neoclassical Theory in Austria and Sweden 215

6.4.1. TheAustrianSchoolandsubjectivism 215

6.4.2. TheAustrianSchooljoinsthemainstream 217

6.4.3. Wicksell and the origins of the Swedish School 218

6.5. Pareto and the Italian Neoclassical Economists 223

6.5.1. From cardinal utility to ordinalism 223

6.5.2. Pareto’s criterion and the new welfare economics 226

6.5.3. Barone, Pantaleoni, and the ‘Paretaio’ 227

Relevant Works 229

Bibliography 230

7. The Years of High Theory: I 232

7.1. Problems of Economic Dynamics 232

7.1.1. Economichardtimes... 232

7.1.2. Money in disequilibrium 234

7.1.3. The Stockholm School 236

7.1.4. Production and expenditure 238

7.1.5. Themultiplierandtheaccelerator 241

7.1.6. TheHarrod-Domarmodel 243

7.2. John Maynard Keynes 245

7.2.1.

7.2.2. How Keynes became Keynesian 249

7.2.3. The General Theory: effective demand and employment 251

7.2.4. The General Theory: liquidity preference 254

7.3. Michal Kalecki 258

7.3.1. Thelevelofincomeanditsdistribution 258

7.3.2. The trade cycle 260

7.4. Joseph Alois Schumpeter 262

7.4.1. Equilibriumanddevelopment 262

7.4.2. The trade cycle and money 265

Relevant Works 266

Bibliography 268

8. The Years of High Theory: II 270

8.1. The Theory of Market Forms 270

8.1.1. Thefirstsignsofdissent 270

8.1.2. Sraffa’s criticism of the Marshallian theoretical system 271

8.1.3. Chamberlin’s theory of monopolistic competition 273

8.1.4. Joan Robinson’s theory of imperfect competition 275

8.1.5. Thedeclineofthetheoryofmarketforms 278

8.2. The Theory of General Economic Equilibrium 280

8.2.1. The first existence theorems and von Neumann’s model 280

8.2.2. The English reception of the Walrasian approach 284

8.2.3. Value and demand in Hicks 286

8.2.4. General economic equilibrium in Hicks 287

8.2.5. The IS-LMmodel 289

8.3. The New Welfare Economics 291

8.3.1. Robbins’s epistemological setting 291

8.3.2. The Pareto criterion and compensation tests 292

8.4. The Debate on Economic Calculation under Socialism 295

8.4.1. The dance begins 295

8.4.2. The neoclassical socialism of Lange and Lerner 296

8.4.3. Von Hayek’s criticism 298

8.5. Alternative Approaches 299

8.5.1. AllynYoungandincreasingreturns 299

8.5.2. ThorsteinVeblen 301

8.5.3. Institutional thought in the inter-war years 304

8.5.4. From Dmitriev to Leontief 308

8.5.5. The reawakening of Marxist economic theory 313

RelevantWorks 316

Bibliography 318

PART II CONTEMPORARY DEVELOPMENTS OF ECONOMIC THEORY

9. Contemporary Macroeconomic Theories 323

9.1. From the Golden Age to Stagflation 323

9.2. The Neoclassical Synthesis 325

9.2.1. Generalizations: the IS-LM model again 325

9.2.2.

9.2.3. Corrections: money and inflation 330

9.2.4. Simplifications: growth and distribution 333

9.3. The Monetarist Counter-Revolution 335

9.3.1. Act I: money matters 335

9.3.2. Act II: ‘you can’t fool all the people all the time’ 337

9.3.3. Act III: the students go beyond the master 340

9.3.4. Was it real glory? 343

9.4. From Disequilibrium to Non-Walrasian Equilibrium 346

9.4.1. Disequilibrium and the microfoundations of

macroeconomics 346

9.4.2. The non-Walrasian equilibrium models 347

9.5. The Post-Keynesian Approach 351

9.5.1. Anti-neoclassical reinterpretations of Keynes 351

9.5.2. Distribution and growth 353

9.5.3. Money and the instability of the capitalist economy 358

9.5.4. Heterodox microfoundations of macroeconomics 360

9.6. The New Keynesian Macroeconomics 363

9.6.1. AdistantHicksianbackground 363

9.6.2. Nominal rigidities 365

9.6.3. Real rigidities 368

9.6.4. A comparison between some contemporary schools of macroeconomics 371

Relevant Works 374

Bibliography 377

10. Neoclassical Economics from Triumph to Crisis 380

10.1. The Neo-Walrasian Approach to General Economic

Equilibrium 380

10.1.1. Theconquestoftheexistencetheorem 380

10.1.2. Defeatonthegroundsofuniquenessandstability 384

10.1.3. The end of a world? 388

10.1.4. Temporary equilibrium and money in general-equilibrium

theory 394

10.2. Developments in the New Welfare Economics and the

Economic Theories of Justice 396

10.2.1. The two fundamental theorems of welfare economics 396

10.2.2. The debate about market failures and Coase’s theorem 400

10.2.3. The theory of social choice: Arrow’s impossibility theorem 404

10.2.4. Sen and the critique of utilitarianism 406

10.2.5. Economictheoriesofjustice 409

10.3. The Controversy on Marginalism in the Theory of the

Firm and Markets 413

10.3.1. Critiques of the neoclassical theory of the firm 413

10.3.2.

10.3.3. Managerialandbehaviouraltheories 418

10.3.4. The neoclassical reaction and the new theories of the firm 420

Relevant Works 423

Bibliography 426

11. At the Margins of Orthodoxy 428

11.1. Games, Evolution and Growth 428

11.1.1. Game theory 428

11.1.2. Evolutionary games and institutions 432

11.1.3. The theory of endogenous growth 435

11.2. The Theory of Production as a Circular Process 437

11.2.1. Activity analysis and the non-substitution theorem 437

11.2.2. The debate on the theory of capital 440

11.2.3. Production of commodities by means of commodities 444

xviii CONTENTS

11.3. Marxist Economic Thought between Orthodoxy and Revision 446

11.3.1. Marxist thought before 1968 446

11.3.2. Marxistheresies 449

11.3.3. Toward a theory of value with the feet on the ground 451

Relevant Works 453

Bibliography 455

12. A Post-Smithian Revolution? 456

12.1. At the Threshold of the Millennium 456

12.1.1. Globalization 456

12.1.2. Modern and post-modern 461

12.2. Sources of Contemporary Institutionalist and

Evolutionary Theory: Four Unconventional Economists 466

12.2.1. Karl Polanyi 466

12.2.2. Nicholas Georgescu-Roegen 469

12.2.3. Albert O. Hirschman 472

12.2.4. Richard M. Goodwin 473

12.3. Approaches to Institutional Analysis 475

12.3.1. The‘new political economy’and surroundings 475

12.3.2. Contractarian neo-institutionalism 476

12.3.3. Utilitarian neo-institutionalism 479

12.3.4. The new ‘old’ institutionalism 484

12.3.5. Evolutionary neo-institutionalism 489

12.3.6. Irreversibilities, increasing returns, and complexity 491

12.3.7. Von Hayek and the neo-Austrian school 495

12.4. Radical Political Economy 500

12.4.1. Themonetarycircuitandstructuralchangetheories 500

12.4.2. Analytical Marxism 503

12.4.3. Post-Marxism 508

12.4.4. The feminist challenge 510

12.5. Beyond Homooeconomicus 512

Relevant Works 515

Bibliography 519

Index of Subjects 523

Index of Names 543