Different Employment of Capitals in Vertically Integrated Sectors: Smith after the Austrians

The Austrian notion of stages of production and the related principle of the greater productivity of roundabout methods plus the neo-Austrian notions of vertical integration and vertical division of labour are utilized in this paper in an attempt to reconstruct Smith’s convoluted arguments on the different employment of capitals in Chapter V, Book II, of the Wealth of Nations. Smith’s arguments are first clarified in the light of the two concepts of capital (money capital and productive capital), of the two aspects of productive labour (living labour and dead labour) and of the two viewpoints (of an individual and of society) on which Smith’s theory is based. The results of this clarification are then used to prove that, independently of Smith’s own words but in consistency with his theory, the notions of ‘quantity’ and ‘productivity’ of productive labour have a ‘vertical’ as well as an ‘horizontal’ dimension so that they fit both the input-output scheme and the Austrian framework of time-consuming methods of production.Classical and Austrian capital theory, stages, sectors, vertical integration

On Working and Circulating Capital

The purpose of this paper is to investigate whether the terms “working” and “circulating” capital are two different terms for the same concept; or whether they should be considered two different terms for two different concepts. This purpose will be carried out in two steps. The first is devoted to an investigation of the use of the term “working” by the German economist Lowe (The Path of Economic Growth) and by some Austrian economists (Menger, Böhm-Bawerk, Hayek). The second is devoted to Keynes (A Treatise on Money). At the end of each step an assessment is made of the use of this term by these economists with an extension to the relationship between Lowe’s and Keynes’s treatment of their notion of working capital and two preceding streams of thought. These relationships run between Lowe and the Austrians, in the first case; and between Keynes and the classics (in Marx's sense), in the second. These assessments will eventually converge towards the conclusion that the terms “circulating” and “working” capital are not two different terms for the same notion; and that these two notions are different because they belong to two different theories and require two different methods. The paper argues that the two theories are the classical theory of reproduction and the modern theory of fluctuations as a special branch of the modern theory of production; while the two methods are the method of vertical integration and the method of horizontal integration. The identification of these theories and methods will be pursued more keenly than the differentiation of the two notions of “working” and “circulating” capital in that the aim of this paper is not to resort to the “bestiary” of our subject as if it were a “taxonomy”, let alone to the “taxonomy” as if it were a “machine” (see Shackle: The Years of High Theory, 1967, p.293).Circulating and working capital, reproduction and production, Lowe, Keynes, Austrians

Wealth

This paper is focused on the notion of wealth as used by different authors in different periods of time. The paper deals with the contrast between the notion of wealth shared by all major classical economists, particularly by Adam Smith, and the notion previously held by the Mercantilists (by which one nation’s gain is intended as another nation’s loss) or subsequently held by Irving Fisher and other Neoclassical economists(whereby the wealth of an individual is brought to centre stage in lieu of the wealth of society). After distinguishing, in Say’s footsteps, between “richesses naturelles” (the use values given by nature) and “richesses sociales” (the use values produced and reproduced by labour), the paper focuses on the classical notion of wealth as “richesses sociales” (the wealth of nations) and, more particularly, as the flow of final goods available in a period (and made possible by using up the intermediate goods inherited from a previous period) rather than the stock, however formed, of instrumental goods (let alone the value of this stock) owned by individuals at an instant of time (assets).wealth, final goods, instrumental goods, flows, stocks

Machinery Question

The “machinery question” was developed by the economist David Ricardo (1772–1823) in the chapter “On Machinery” added to the third edition of his Principles of Political Economy and Taxation (1821). This question related, in his words, to the “influence of machinery on the interests of the different classes of society” and particularly to the “opinion entertained by the labouring class, that the employment of machinery is frequently detrimental to their interests”. Ricardo’s argument was presented as a recantation of his “previous opinion” on this question and marks the beginning of a debate that is still going on. The purpose of this entry is to simplify this debate by highlighting some weaknesses and strengths of Ricardo’s argument and in subsequent interpretations.Ricardo, machinery, capital, technological unemployment

“Italian Economists of the 20th Century”, edited by Ferdinando Meacci, Cheltenham: Edward Elgar, 1998

This book contains twelve essays on some important Italian economists whose works were mostly published in the 20th century. The essays are written mostlty by non-Italian authors and deal with Vilfredo Pareto (by A. Kirman), Maffeo Pantaleoni (Peter Groenewegen), Enrico Barone (P. C. Dooley), Antonio De Viti de Marco (O. Kayaalp), Marco Fanno (R. Arena), Costantino Bresciani-Turroni (H. D. Kurz), Luigi Einaudi (F. Meacci), Piero Sraffa (B. Schefold), Franco Modigliani (C. Dangel), Paolo Sylos Labini (J. Halevi), Pierangelo Garegnani (G. Mongiovi), and L. Luigi Pasinetti (J. R. Teixeira). A short introduction by Ferdinando Meacci opens the volume and advances a suggestive hypothesis for a comprehensive interpretation of the evolution of Italian economic thought during the last century. This introduction is an attempt to treat the thoughts of the twelve economists as a sample from which to infer a brief outline of Italian economics in the 20th century and of its links with economics in general. This outline is sketched in two glimpses. One looks at the economists one after the other according to the period in which they lived (and is accordingly called ‘vertical’). The other looks at them one next to the other according to the methods they have in common (and is accordingly called ‘horizontal’).Italian economists, history of economics, vertical and horizontal

The new Italian graduation system and the new institutions for raising university funds in Italy

The Italian university system has undergone two reforms in recent years. One has been introduced by the Ministerial Decrees 3 November 1999, n. 509 and 22 October 2004 n. 207. The other has been introduced by the law 23 December 2000 n. 388 art. 59, c.3. and by the Presidential Decree 24 May 2001, n. 254. The former compels Italian universities, whether public (the majority) or private (a tiny minority) to change their graduation system and courses. The latter enables State universities to establish university foundations (fondazioni universitarie) with the purpose to support their teaching and research activities and, in particular, to extend the sources of their financing to subjects other than the State. The aim of this paper is to present the main features of these reforms. It will show that while the new graduation system conforms to the guidelines of the overarching Bologna Process, which encompasses 45 countries to date, the new university foundations were devised outside of this Process and in view of the obstacles faced by Italian State universities in running their activities and in raising additional funds for their further development especially in the direction of research and technology transfer.Italian university system; university funding; university foundations

Uncertainty and Expectations in Shackle's Theory of Capital and Interest

This paper is focused on the macroeconomic aspects of Shackle’s theory of decisions under uncertainty and, more particularly, of his theory of capital and interest. The paper starts by arguing that Shackle’s general approach stems from the identification of, and conflict between, two Paradigms: the Economics of Uncertainty and Expectations (EUE), which was developed in the “years of high theory”, and General Equilibrium Theory (GET). The paper brings out some flaws in Shackle’s view of this conflict and highlights the insights and advances by which Shackle identifies and strengthens the major features of the EUE Paradigm. Amongst these features is the focus on historical time, on expectations and their failures, on money as a store of value, on ex ante and ex post magnitudes, on macroeconomic equilibrium and disequilibrium, on economic fluctuations. The paper argues that, while clarifying or criticizing in his brilliant manner many or some parts of the Keynesian theory of interest or of the Austrian theory of capital, Shackle fails to highlight the difference between the theory of interest as such (the old Austrian theory) and the theory of the money rate of interest (the Keynesian theory) as well as the difference between the theory of capital in the context of logical time (the old Austrian approach) and the theory of capital in the context of historical time (Hayek’s and Shackle’s own approach)Shackle, uncertainty, expectations, capital, interest

Fictitious Capital and Crises

This paper is concerned with chapters 25-35 of Part V, The Division of Profit into Interest and Profit of Enterprise, of Volume 3 of Capital. These chapters may be properly grouped in an ideal Part to be possibly titled "Credit and Crises, or Money Capital and Fictitious Capital" and is referred to in this paper as 'the unidentified Part'. This Part should be strictly considered as a follow-up of Part IV, The Transformation of Commodity Capital and Money Capital into Commodity-Dealing Capital and Money-Dealing Capital (Merchant's Capital) in the sense that while the former deals with the role played by merchant's capital, and particularly by money-dealing capital, the latter deals with the obstruction or perversion inflicted on this role by money capital being turned into fictitious capital by an improper use of credit. The paper is structured in three ideal sections. The aim of the first section is to clear the debris of 'the unidentified Part' and to reconstruct Marx's own thinking about the nature and role of credit and of fictitious capital in relation to the concept of merchant's capital and to the phenomenon of crises. On the contrary, the second section, which is mostly focused on different forms versus different sets of crises, highlights some contradictions in Marx's unsystematic treatment of the relations between financial and real crises. The third section is derived from the arguments set out in the previous two sections. Its aim is to assess Marx's similarity with Keynes on the matter of 'money as money' and of financial crises. Its conclusion (which is also the conclusion of the paper) is that this similarity, however strong with regard to the role of money as a store of value, is bound to collapse if Marx's law of the falling rate of profit is believed to be true. For in this case the fictitious-capital theory of crises developed in 'the unidentified Part' acquires a secondary importance while financial crises come to be viewed as a typical effect, rather than as the cause, of real crises.Marx, fictitious capital, money capital, financial crises

On Smith's ambiguities on value and wealth

Ricardo’s criticisms of Adam Smith on value and wealth have been sometimes rejected and sometimes accepted in the period following the publication of his Principles. By contrast, they have been mostly ignored in the recent revivals of Ricardian economics both in the branch concerned with value and distribution and in the branch devoted to wealth and equilibrium growth. This paper intends to fill the gap between these two branches by revisiting Smith’s link between value and wealth in the light of Ricardo’s criticisms. This is done in two steps. The first step is provided in Part I and deals with Ricardo’s criticisms i) of Say’s and Lauderdale’s criticisms of Smith on this issue, and ii) of Smith’s and Malthus’ arguments on the related issues of rent and of the “annual produce of the land and labour of a country”. The second step is provided in Part II. The aim of this Part is to dissolve Smith’s terminological inaccuracies or contradictions by disentangling them from the analytical foundations of his system of thought. This is done by re-examining Smith’s arguments on value and wealth in the light of two distinctions. One runs between the two points of view –of an individual and of society– which underlie the whole of his system of thought. The other is put forward by Smith himself in a neglected passage of the Wealth and runs between the notions of “work done” and “work to be done”. Both distinctions are then utilized to revisit the principle of exchangeable value as command of labour in the economy as a whole and in the sense of work to be done. The paper is closed by arguing that this principle is needed for supporting the idea of a permanent increase in the natural price of labour (in Smith’s rather than in Ricardo’s sense) in economies exposed to a continuous process of accumulation.Smith, Ricardo, value, wealth, labour