Facts, the historian E.H. Carr argued, are like fish in a vast ocean: what one catches to a large extent depends on where one chooses to fish and on the kind of tackle one uses. Professor Paul Samuelson has offered (HES Bulletin, Fall 1987) a prescription for stimulating demand for history of economics. He proposes “that history of economics more purposefully reorient itself toward studying the past from the standpoint of the present state of economic science. To use a pejorative term unpejoratively, I am suggesting Whig Economic History of Economic Analysis.” (Samuelson 1987: 52) Samuelson promises that fishing with the tackle of present-day theory will catch commercially attractive historical fish and illustrates this approach with his own work in history of economics.

Controversies about capital, its role in the economy, and its claims for reward are still very much with us. Though the exchanges are often heated, all the contestants' are descended from either of two monumental works of about a century ago: Eugen von Bohm-Bawerk's Positive Theory of Capital (1889) and Irving Fisher's The Rate of Interest (1907). This essay inquires: in what respects are these two theories the same? In what respects do they differ? And why?

The papers prepared for this symposium cover a great deal of ground. It is a pleasure to be able to respond to them, as this provides an opportunity to try to clarify some of the aims of my book (Woodford 2003) that may have been insufficiently clear in the original work. But I shall have to restrict my attention to only a few of the most important issues raised in the various papers. I shall consider three classes of issues in particular: the methodology adopted in the book, the role of “cashless” models, and the connection between my work and the Wicksellian tradition.

Jean-Baptiste Say’s notion of débouchés has not been correctly understood, due to the lack of proper context within the framework of his broader political economy. We revisit Say’s writings on this topic, retrace the concept’s evolution, and lay out a framework that better illustrates the essence of Say’s thinking. We argue that Say’s theories on money and economic crises are much richer and more sophisticated than the traditional interpretation of Say’s Law would suggest. Say himself acknowledged that his monetary theory contradicted his initial articulations of the law, a point often missed by contemporary observers. This essay paints a more complete picture of Say’s work, showing how monetary changes could, under his framework, affect real variables. In so doing, it cuts against the many simplistic interpretations that pervade the existing literature on the subject.

This paper explores John Commons’s views toward Jews in order to assess whether his published writings contain assertions that today would be stigmatized as anti-Semitic. The evidence we provide shows that Commons’s racial characterization of Jews was framed within a broad and indiscriminate xenophobic framework. With other leading Progressive Era social scientists, in fact, Commons shared the idea that the new immigration from eastern and southern Europe would increase competition in the labor market, drive down wages, and lead Anglo-Saxon men and women to have fewer children, since they would not want them to compete with those who survive on less. Within this general xenophobic context, Commons developed assertions regarding immigrant Jews that show traces of explicit anti-Semitic accusations.

It is often claimed that Adam Smith and Edmund Burke held similar views on matters relating to political economy. One area of tension in their thought, however, was the institutional credibility of Britain’s East India Company. They both argued that the Company corrupted market order in India, but while Smith supported the termination of the firm’s charter, Burke aspired to preserve it. This article examines why they arrived at such divergent conclusions. It argues that the source of Burke and Smith’s friction arose from the dissimilar frames of reference through which they assessed the credibility of the Company. Burke examined the corporation’s legitimacy through the lens of British prescriptive, imperial, and constitutional history, yet Smith evaluated it as part of his larger attack on the mercantile system. These different frames of reference were responsible for the further incongruities in their thought on the Company relating to the role of prescription and imperial honor in political communities, the qualifications of traders to rule, and the appropriate tempo of policy reform. This article concludes that, even with such differences, the two thinkers’ respective criticisms of the Company illustrate the threat that monopolies pose to the liberal order.

This article reconsiders, in the light of the current financial turmoil, Irving Fisher’s 1911 theory of financial crises and his 1933 debt-deflation theory of Great Depressions. Particular attention is given to the role of high debt ratios, high leverage ratios, and changes in the purchasing power of money in Fisher’s analysis, and to Fisher’s compensated dollar plan to stabilize the purchasing power of money. It is argued that indexing the unit of account would accomplish Fisher’s goal of stabilization without the practical difficulties of Fisher’s compensated dollar plan.

In the past three decades economics has entered a new phase in its development. The new stage did not involve a revolutionary change of basic tools as occurred with the triumph of neoclassical economics at the turn of the twentieth century and Keynesian economics in the post World War II era. Rather the recent mutation involves the introduction of economic tools of analysis into areas which have traditionally been part of contiguous disciplines. The invasion of economics came to be referred to, even by its enthusiasts (e.g., Stigler 1984; Radnitzky and Bernholz 1986), as “economics imperialism.”

Smith explicitly spells out the term “invisible hand” in only three texts, each in a different work. What is embarrassing to neoclassical welfare theory is that these explicit references have little to do with what came to be understood by the metaphor. In particular, the explicit reference to the invisible hand in The Wealth of Nations (WN) is not about the efficiency of the market in allocating resources. Rather, it is about, ironically, how impediments in the international capital market generate great benefits.

The notion of interdependent preferences has a long history in economic thought. In its general form, it can be found in the works of authors such as Hume, Rae, Genovesi, Smith, Marx, and Mill, among others. In the twentieth century, the idea became more widespread mainly through the works of Veblen and Duesenberry. Recently, an increasing number of theorists are interested in issues such as reference income, relative consumption, and positional goods, which are all based on the concept of interdependent preferences. However, such preferences were never part of the corpus of orthodox theory. For instance, although Pareto and Marshall were aware of their existence, they did not advocate their incorporation into orthodox economic theory. This paper argues that the structure of mainstream economic methodology and the challenging theoretical implications of adopting interdependent preferences were two possible reasons for the mainstream rejection. The discussion includes the more recent orthodox attitudes towards such preferences.

The individual's labor supply model, usually called leisure-income, is very well known in labor economics. It determines the time a person spends on the labor market by studying it as the outcome of a trade-off between leisure and income. The model is developed in almost every book on microeconomics. But strangely enough, although all economists know the model, no one seems to know precisely its origins.

Research within the history of economic thought has focused only little on the development of economics under dictatorship. This paper attempts to show how a country with a relatively large and internationally established community of social scientists in the 1920s, the Soviet Union, was subjected to repression. We tell this story through the case of Isaak Il’ich Rubin, a prominent Russian economist and historian of economic thought, who in the late 1920s was denounced by rival scholars and repressed by the political system. By focusing not only on his life and work, but also on that of his opponents and institutional clashes, we show how the decline of a social science tradition in Russia and the USSR as well as the Stalinization of Soviet social sciences emerged as a process over time. We analyze the complex interplay of ideas, scholars, and their institutional context, and conclude that subsequent repression was arbitrary, suggesting that no clear survival or career strategy existed in the Stalinist system, due to a situation of fundamental uncertainty.

In a recent paper, R. Ekelund and D. Walker (1996) argue that, “[i]ncentives, utilitarian principles, and the diffusion of property rights are the key to understanding Mill on the statics and dynamics of ‘equity and justice’”(p. 576). Their paper, which deals with John Stuart Mill's views on taxation, reads very much like a modern defense of popular capitalism. From the static point of view, it is imperative not to interfere with the internal relationship between economic variables and thus, distort incentives (proportional income tax). From the dynamic point of view, “inheritance taxes [are] the essential mechanism of an evolutionary change towards an efficiently functioning capitalism” (p. 578, italics added).

Nicholas Kaldor (1908-86) and Joan Robinson (1903-83) were almost exact contemporaries and enjoyed very similar careers. Both began as innovative but fundamentally orthodox microeconomists, soon turning (very early, in the case of Robinson) to the defense and development of Keynesian macroeconomics. They were both lifelong socialists and, during the Second World War, energetic propagandists for the fledgling British welfare state. In the 1950s each published a series of penetrating critiques of neoclassical distribution and growth theory, subsequently extending the attack to mainstream analyses of value, international trade, development, and the very foundations of equilibrium methodology. By 1975 Kaldor and Robinson were generally recognized as the founding parents of Post Keynesian economics in Britain, or what its U.S. progenitor Sidney Weintraub described as the “Kaldor-Kalecki-Robinson revolution in distribution theory” (Eichner and Kregel, 1975; Weintraub, 1972, p. 45). For some years they were close personal friends. They spent decades–indeed, Robinson spent her entire working life–in Cambridge, where they were belatedly appointed to chairs in 1966.

Positive Theory of Capital (1889) is a classic which contains Eugen von Böhm-Bawerk's 1889 correct vision of how the interest rate might be determined by the interplay of systematic time preference (“impatience”) and time-phased technology's productivity. But he was not quite able to formulate his intuitive vision in terms that would satisfy today's persnickety jury of theorists. And indeed the classic Rate of Interest (1907) by his younger contemporary, Irving Fisher, seemed to be disagreeing with Böhm-Bawerk's treatment of time's net productivity; but, as Fisher was unable to make clear until 1930, he was objecting only to Böhm-Bawerk's formulation of the role of productivity in interest determination. In point of fact, Fisher, who was so long identified (wrongly, but understandably) as an “impatience theorist,” considered his own main contribution to interest theory to be his clarification of how the technological superiority of time-consuming processes cooperated in the determination of the equilibrium interest rate.

It has always been a puzzle why nineteenth century political economists were quite so gloomy. Why did they picture economic actors as motivated so single-mindedly by self-interest? Why did they see ahead the negative effects of diminishing returns, especially falling profit rates and rising rent shares, while all around them the evidence was pointing in the other direction? Why did they go on about the stationary state at a time when technical change was everywhere the norm? This gloom was hardly foreshadowed by the eighteenth century founders of political economy—Hume, Smith, and the Physiocrats (although for a contrary view see Robert Heilbroner 1973). It seems to have begun with Malthus and Ricardo, but it remained strong in the marginalist economists as well. Alfred Marshall and his followers rested their case for the necessity of careful marginal allocation of resources, and the intolerability of the costs imposed by trade unions and other rent seekers, on the ground that there were just not enough goods and services to go around. The notion of scarcity legitimized gloom.

This paper exhaustively examines all Adam Smith’s references to “machines,” including machine metaphors or analogies, with a view to a comprehensive interpretation of the significance of the machine in his thought as a whole. By bringing together all Smith’s references to machines (and variants of that term), as well as his references to related phenomena, mechanics and engines (and variants), the totality of the various different kinds of uses of these terms assists in clarifying the meaning of each of them. However, this exercise is undertaken particularly with a view to the significance of machines in Smith’s political economy.