Classical Economics Today: Essays in Honor of Alessandro Roncaglia

Classical Economics Today: Essays in Honor of Alessandro Roncaglia

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Classical Economics Today: Essays in Honor of Alessandro Roncaglia is a collection of essays that pays tribute to Alessandro Roncaglia whose research is based on Schumpeter’s dictum that good economics must encompass history, economic theory and statistics, and therefore does not generally take the form of elegant formal models that are applicable to all and everything. In this direction, Roncaglia is inspired by the Classical economists of the past and becomes a model for present-day Classical economists. A perceptible family air imbues the essays: all the contributors are friends of Roncaglia and see his personality and his interests as a common point of reference.

Product Details

ISBN-13: 9781783087525
Publisher: Anthem Press
Publication date: 01/22/2018
Series: Anthem Other Canon Economics
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 274
File size: 4 MB

About the Author

Marcella Corsi is professor of economics at Sapienza University of Rome, Italy, and editor of the International Review of Sociology.

Jan Kregel is director of research at the Levy Economics Institute of Bard College, USA, and professor of development finance at Tallinn University of Technology, Estonia. He is coeditor of the Journal of Post-Keynesian Economics.

Carlo D’Ippoliti is associate professor of economics at Sapienza University of Rome, Italy, and editor of PSL Quarterly Review

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Salvatore Biasco

1. Introduction

Alessandro Roncaglia has given us fundamental reflections on the methodological and conceptual canons that should be the cornerstones of a realistic (and at the same time, stylized) vision of how the capitalist economy behaves. Roncaglia has taught us that reconstructing the political economy on alternative methodological assumptions — in a direction opposite to the dominant neoclassical vision — involves an interpretation of history, and also of the present as history. Of course, not all of its branches or issues can be treated as a part of a comprehensive "model," as Roncaglia frequently states. Optics that do well in one field may not be as good in another; each branch also has its technical specificity The reconstruction can take place even in separate pieces, and can involve retrieving and updating what, of precious developed writings, one finds scattered in the critical literature on economic and social sciences. But what is important is that the methodological and epistemological apparatus maintains a uniform inspiration as well as should remain the points of reference of the analytical approach.

In what follows I devote my attention to some basic points of setting an alternative vision, knowing that on so much Roncaglia and I agree in full, but that there are minor distinctions between us.

2. Complexity

In a nutshell, at the base of a nonmainstream way of looking at the economy, from a descriptive and normative perspective, cannot but be social complexity, uncertainty and innovative dynamics. Through these lenses, the aggregate behavior of the economy is studied as determined by constantly evolving endogenous events, which are fed by a number of driving forces: unstable and potentially explosive relationships; nondeterministic developments; a financial system closely interconnected to the real economy but also able to acquire an autonomous dimension; and a social dynamic that changes in parallel to the whole process and that at the same time affects it.

In complex systems, the whole is more than the sum of its parts. Although the representation of a society and an economy's aggregate behavior cannot ignore their components (not only individual actors but also collective and institutional ones), the interaction of these components results in an outcome that is not predictable from the parts themselves and not necessarily inferable from them. This is the opposite of the mainstream idea that the system can be observed from the standpoint of the representative agent.

Despite this complexity, it is always possible to establish macroeconomic relationships of cause and effect in a rigorous academic framework or to draw a theoretical framework for state action. It would be a mistake to leave to mainstream economics the power of generalized abstraction. As economists deal with the inborn dynamism of the production and social system, the most appropriate abstraction for them is extracting — in the specific process under analysis — the causal chains relating to the dominant forces at work and conjecturing about the strength of forces and counterforces (and contingent circumstances) that determines which would prevail. This then entails the necessity of putting in a logical sequence (short) chains of cause-effect relationships that can capture the points of tension (or friction or imbalance) and reduce the analysis to a core of simplified propositions, which are compact and logically solid. Following general interdependencies (and seeking their equilibrium) only obfuscates the hierarchy of processes. Pretending to move relations mechanically (even to the ultimate consequences) leads to losing sight of the fact that the material that economists deal with is not constant, homogeneous, or stable, and cannot be reduced to parametric determinations.

The cause-effect sequences placed at the center of a representation of any single macroeconomic process can be nothing but abstractions drawn from the wide empirical knowledge of a reality that demands to be known and studied in detail (and that is the background of all single conjectures), without necessarily being a bare transposition of that reality. That empirical world, however, burst back onto the scene since the plausibility of a theory (and its lifeblood) rests on how many microeconomic phenomena that theory crosses, or manages to encompass within it or gives an account of, once confronted with a complex and differentiated society. This is the only test of a theory. "The master-economist," writes Keynes, "must possess a rare combination of gift. He must contemplate the particular in terms of the general and touch abstract and concrete in the same flight of thought." Therefore, a sensible alternative economic theory can only be based on the study of actual social interactions, markets, specific situations, and institutions and also rely on studies in the field, case studies, and even on significant anecdotal evidence. It cannot but be, in essence, inductive and empirically oriented (much like the dominant thought is axiomatic and deductive), even in the awareness that a work of synthesis and abstraction must follow from it. Such a work must be aimed at reconstructing the order of phenomena or their internal engine, taking into account that many microrelationships change in perspective at the aggregate level. It is unlikely that a deterministic configuration is the right frame for this synthesis. Among the underlying forces considered in any specific theorizing, those relating to social structure and collective action, to institutions and distribution of income, to wealth and power are of key importance in the economic dynamics. Social identities forge economic choices. This means that the economy should be a tributary to sociology, political science, history, and law as well as the behavioral sciences (which do not support the hypothesis of full rationality and exclusive utilitarianism).

3. Instability

Let us now put aside issues of methodology. Concerning matters of merit, however, a context dominated by instability requires a paradigm for instability, that is, the way in which it is generated endogenously. At its center there is the logic of capital accumulation and of finance. Within a methodological approach aimed at studying (as it should be done) processes under conditions of permanent disequilibrium and the irreversibility of real decisions, it would be easier to grasp that such processes, once begun, do not necessarily imply a point of arrival. This means that there is no attraction toward an indefinable equilibrium. Indeed, an initial imbalance more likely leads to further imbalances, even if of a different nature or size, and, in doing so, it induces institutional and behavioral changes along the path that the economy is following. Instability is an endogenous feature of the economic system stemming from many factors: the internal chains of phenomena, the difficulties faced by operators in assessing the situation, uncertainty about the future, the variability of responses, and the internal logic of markets. When left to themselves, internal causal relationships can potentially lead to spiraling developments, and this is especially evident if one takes into account the strict links between macroeconomic facts and the financial structure, and vice versa (finance and the real economy do not live in two separate worlds). Accordingly, expectations cannot be firmly anchored to some point of convergence, and nothing can be inferred about the characteristics of the "long period."

4. State

Sometimes spirals either remain in the background as a potential outcome or end by themselves (with lasting consequences), but more often it is public action that manages them, either leaving them in a latent state (which erroneously may let the economy appear stable) or intervening to block them once they are already in action. If an anchor of the economy exists, it can only be found in a cooperative framework of rules of the game, organization of markets, and state monitoring.

In this context, the role of public decisions shares in the overall complexity. Public actions are not, differently from what is assumed by orthodox economics, either juxtaposed to a stable economy or destined by their own nature to create exogenous shocks. They are, instead, always reactions to the endogenous instability of the system. Such reactions are not always deterministically undertaken in obvious directions and size because they encounter inner conflicts: between public objectives, in divergent effectiveness in different areas of a heterogeneous society, because of side drawbacks closely connected to problems they tackle and because, after all, governments have to deal with the consensus and cohesion required in democratic societies as well as with the complication of the decision-making processes. Moreover, only after certain thresholds have been reached is it sometimes perceived that a process has progressed and can get out of hand.

5. Trust

A theoretical framework of public action must start from the general context dominated by uncertainty and from the state of operators' confidence. Economic decisions are not taken on strong anchors by operators, and those concerning demand are different from those concerning supply. Rationality in decisions is limited, and the knowledge of reality that individuals have is imperfect. In few areas can expectations about the future be traced to probabilistic schemes (if not subjective ones) or calculable risk; the majority are dominated by uncertainty (see Roncaglia, 2012). Depending on the case, exploratory, irrational, and imitative behaviors as well as routines and (partly) social and behavioral conventions have a role in the analysis. It is not just the type of behavior that is indefinable. The perception of a situation as a basis for decisions is weak (only the reductive idea about information and rationality that mainstream economics maintains can avoid these problems).

If the above is true, the system is somewhat dominated by collective confidence, which influences the attitude and behavior of operators. Such confidence may depend on many exogenous factors. Today, for example, new elements of the economy have a negative effect on confidence [as, for example, globalization itself, the complexity of new technologies, the shortness of required reaction time, the weight of finance (involving more risk), the speed of technical progress, the rapidity of changes in the labor market, the fall in the quality of international governance, and more]. However, it is public action and the institutional structure that — by socializing many variables and providing the necessary anchoring — are decisive. They ultimately allow operators to deal with these aspects with more or less optimism and to make operators' confidence higher or lower and their way of looking at the future more open and less uncertain or, on the contrary, more dense with insecurity and more labile. Since the degree of confidence is the frame in which the whole economic process evolves, it follows that the task of the normative and operative aspects of public action is to turn economic policy in the direction of strengthening trust itself, dominating the complexity and reducing uncertainty. This is the key factor that governs growth and stabilization.

6. Remarks

Two considerations at the end. The alternative analytical framework can only be aimed at a cultural fallout. This basically entails the collective awareness that a society led by private profit produces social and economic uncertainty, a deep social economic divide, conflicting interests that find solution in the law of the stronger, market failures, and economic instability (and transformation) — all features that can be brought under control and governed in the collective interest only with the primacy of politics over economics (almost an opposite conclusion to that of orthodox economics).

This leads me to a second consideration that may appear unusual in an academic setting. Although it is true that reconstructing an alternative way of thinking is a disciplinary task, nevertheless, it aborts or changes meaning if it is a purely intellectual effort and does not occur with the participation of culturally committed political forces that feel this reconstruction is an integral part of their process of definition of their cultural identity.



Jan Kregel

1. Introduction

The theoretical foundations of what has come to be called "market fundamentalism" suffer from an internal contradiction that renders it useless as a basis for economic policy. This is not a problem of abstraction or reliance on simplified models. It is the ubiquitous presence of the simultaneous assumption of uniformity and diversity. A simple example will illustrate the contradiction. Consider an airline ticket. Initially, it represented the provision by an airline to transport by air from point A to point B at a stipulated time and date in exchange for a posted fare. The service provided for a meal (usually rubberized chicken), transport of accompanying baggage and the right to sit in a seat. If you buy an airline ticket today, you may have to pay separately for the air transport, for the baggage transport, for the meal if you want one and even for the seat!

What is the "market" for airline tickets in which supply and demand is presumed to determine price? To answer that question it is necessary first to define the "commodity" that is being purchased in the market. As the example makes clear, the market is undefined until the commodity traded in the market is specified. Is there any economic basis for considering the separate services that now accompany air transport as separate commodities? And, more importantly, is there any economic basis for considering that the prices determined in separate markets are determined by a competitive process? Or are they, as Piero Sraffa has suggested in one of the most overlooked parts of his famous book, "joint products," which may be identified but for which there may be no separate production and thus no separate supply curve and no possibility of market or market price?

2. Prices and Markets: Theory and History from Smith to Schumpeter via Petty

This real-world example has a detailed theoretical history that is often ignored. Proponents of the superiority of market mechanisms consider a major benefit in what may be summarized as diversity. The market brings together diverse individual preferences to determine

the quantities and prices of a wide range of commodities. These preferences and individual endowments are the given data that form the basis for the supply and demand functions, which in turn determine equilibrium prices that provide all the information required to permit maximum economic utility. Yet, closer inspection of this facade of diversity suggests that its general application requires a presumption of uniformity or homogeneity. Thus, just as the diversity of individual preferences is taken as the data of the economic landscape, the very definition of a commodity that elicits those preferences requires the presumption of uniformity.

Start with the question of how choice is exercised through free market exchange. Adam Smith provided the classic response to this question. In his Theory of Moral Sentiments, he noted that, our senses being limited, "they never can carry us beyond our own person, and it is by imagination only that we can form any conception of what are [others'] sensations" (1976, 9). "How selfish so every man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it" (ibid.). This might be called the "Existential Diversity of Individuals." We might all have similar preferences, but no one would know it. The result, which Smith put forward in The Wealth of Nations, is that exchange takes place by means of each individual trying to please the imagined needs of others: altruistic hedonism. When Smith argues that "it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest," he is simply stating what he considered to be an incontrovertible fact that no individual can possibly act benevolently, given the impossibility of knowing the tastes and preferences of others. It is thus in one's own interest to imagine and try to discover the preferences of others. He then goes on to note that "though it may be true, therefore, that every individual even in his own breast, naturally prefers himself to all mankind, yet he dares not look mankind in the face, and avow that he acts according to this principle"; rather, "he must [...] humble the arrogance of his self- love, and bring it down to something which other men can go along with" (1976, 83). This Existential Diversity thus implies Existential Uncertainty about how one can best satisfy one's own needs since it relies on satisfying the unknowable needs of others. Thus, Smith argues that these needs can only be discovered through diversity and exchange. The market mechanism is thus a series of multiple bilateral exchanges between diverse individuals with diverse preferences, each seeking to serve their own needs by imagining and seeking to discover and satisfy the needs of others.


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Table of Contents

List of Illustrations; Preface; Acknowledgments; Chapter One The Reconstruction of an Alternative EconomicThought: Some Premises, Salvatore Biasco; Chapter Two Reflections on Unity and Diversity, the Market and Economic Policy, Jan Kregel; Chapter Three Ending Laissez- Faire Finance, Mario Tonveronachi; Chapter Four Democracy in Crisis: So What’s New?, Michele Salvati; Chapter Five The Democracy of Ideas: J. S. Mill, Liberalism and the Economic Debate, Marcella Corsi and Carlo D’Ippoliti; Chapter Six Turgot and the Division of Labor, Peter Groenewegen; Chapter Seven Agricultural Surplus and the Means of Production, Gianni Vaggi; Chapter Eight The Role of Sraffa Prices in Post- Keynesian Pricing Theory, Geoffrey Harcourt; Chapter Nine Classical Underconsumption Theories Reassessed, Cosimo Perrotta; Chapter Ten On the “Photograph” Interpretation of Piero Sraffa’s Production Equations: A View from the Sraffa Archive, Heinz D. Kurz and Neri Salvadori; Chapter Eleven On the Earliest Formulations of Sraffa’s Equations, Nerio Naldi; Chapter Twelve Normal and Degenerate Solutions of the Walras- Morishima Model, Bertram Schefold; Chapter Thirteen Trading in the “Devil’s Metal”: Keynes’s Speculation and Investment in Tin (1921– 46) 167, Maria Cristina Marcuzzo and Annalisa Rosselli; Chapter Fourteen The Oil Question, the Prices of Production and a Metaphor, Sergio Parrinello; Chapter Fifteen Europe and Italy: Expansionary Austerity and Expansionary Precariousness, Davide Antonioli and Paolo Pini; Chapter Sixteen Adam Smith and the Neophysiocrats: War of Ideas in Spain (1800– 4), Alfonso Sánchez Hormigo; Bibliography; List of Contributors; Index.

What People are Saying About This

From the Publisher

“This is a very welcome volume of stimulating essays from renowned scholars in the Classical tradition. They provide a fitting tribute to the full range of the contributions made by Alessandro Roncaglia, including on Sraffa theory of prices, and on financial and oil markets.”

—Malcolm Sawyer, Emeritus Professor of Economics, University of Leeds, UK

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