The Core of Economic Policy and Its Two Pillars: The ‘Logic’ and the ‘Theory’ of Economic Policy
This chapter provides an overview of the process through which the discipline of economic policy, to some extent autonomous from economic analysis, emerged in Scandinavian countries and the Netherlands.
Such a discipline had, first, to justify (on democratic grounds) the action of a public institution after Adam Smith's statement about the virtues of competitive markets. In other words, there should have been a part of it to justify policy activity, what Federico Caffe called the ‘logic' of economic policy (Caffe 1966a: 86). In addition, it should have prescribed a set of rules for consistent and effective public action. In other words, it should also have contained a ‘theory' of economic policy (Tinbergen 1952: 3, again in the words of Caffe 1966a). These two branches would constitute the two ‘pillars' of the discipline, to be applied to real situations of specific countries or regions according to their historical and institutional backgrounds.This chapter briefly deals also with some factors that brought the discipline to a decline - in particular, as an effect of the destructive critique of a part of its ‘core' (by moving to what we will call ‘vital' objections, in addition to minor ones) - and with some recent theoretical advances that could or should contribute to its resurgence. Finally, this chapter devotes some space to how the discipline developed in Italy, as some such advances have recently appeared there.1
Section 1.2 offers an overview of how the discipline developed. Section 1.3 defines the exact contents of positions to resist in order to provide contents to the core, such as those of the ‘invisible hand' and the ‘night-watchman’ state. Section 1.4 takes account of the long accumulation of elements for the definition of the logic of economic policy, beginning in the last quarter of the nineteenth century through the interwar period and after World War II.
Section 1.5 deals instead with the shorter (though decades long) gestation of the theory of economic policy. Section 1.6 tries to explain why this discipline flourished in some countries of Continental Europe mainly and in Australia. Section 1.7 deals with developments of the discipline which occurred in Italy in the 1960s. Box 1.1 underlines the role of Federico Caffe in anticipating economic policy as a discipline. Section 1.8 concludes and hints at the critiques moved to its core as a possible explanation of both the limited extension and impact of the discipline outside Europe and its demise after the 1970s in most countries where it had first developed.Subsequent chapters will continue to analyse the possible explanations, first, for the limited impact of the discipline and its setback in the 1970s and the following decades and then not only for rehabilitating the two pillars of the discipline in more recent years but also for keeping them together in a unitary discipline, the link being provided by a theory of institutions.
1.2
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