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History of Economics Princeton Suggested Reading

Princeton. Introductory lecture notes for history of economics. Baumol, 1979

With this post Economics in the Rear-view Mirror proudly adds the 1900th artifact to its collection of curated transcriptions of archival material.

I have chosen to post William J. Baumol’s lecture notes for his introductory lecture in his Princeton course on the history of economic thought because Economics in the Rear-view Mirror is, after all, in the same business of examining the evolution of economics. Baumol’s notes were typed using ALL UPPER-CASE letters which I have taken the liberty to tone down to a conventional mixture of upper- and lower-case letters for ease of reading. Also I have added boldface and italics, and paragraph formats have been tweaked for the same purpose. Links to the literature cited add a little jazz to the presentation of today’s artifact. Square brackets indicate material I have inserted.

Executive summary: Baumol began his course with warnings of five dangers to be avoided by prospective historians of economics.

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Previously posted course material
on the history of economics
taught by Wm. J. Baumol

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Revised February 1979

INTRODUCTION

      1. One Question Exam
      2. Choice of Papers
      3. When Due
      4. Will Concentrate on Smith, Ricardo, Marx

General References: J. Schumpeter, History of Economic Analysis, (Oxford, 1954); Mark Blaug, Economic Theory in Retrospect (Irwin, Homewood, 2nd ed., 1968).

Dangers in Doctrinal History

Favoritism: Schumpeter: Walras Sí, Ricardo No!

Reading into predecessors’ minds:

Example — Isnard 1781 (vs. Canard, 1801)

[Achille Nicolas Isnard. Traité des richesses. Tome I; Tome II; Tome III. London and Lausanne:  François Grasset, 1781]

[Nicolas François Canard. Principes d’économie politique. Paris: F. Buisson, 1801]

“Canard’s performance… is sometimes listed among early contributions to mathematical economics (on the strength of a few algebraic formulae that mean nothing) but would otherwise partake of the blessings of deserved oblivion, had not a misfortune befallen it. This misfortune consisted in its being ‘crowned’ by the same French Academy that later failed to extend any recognition to Cournot and Walras. And those Olympians who felt their neglect the more bitterly on account of the honour done to Canard visited him with a scathing contempt that bestowed upon him an unenviable immortality…”

([Precursors in Mathematical Economics, eds. William J. Baumol and Stephen M. Goldfeld, 1968], 155, quoted from Schumpeter, p. 499 [also cf. Schumpeter, p. 217])

“..we cannot help feeling that Schumpeter and Theocharis are somewhat over-enthusiastic. Schumpeter describes the following passages as ‘the crowning achievement of the epoch in this line [supply-demand] of analysis… in his not otherwise remarkable book…’ (p. 307); and Theocharis calls it ‘… one of the most important contributions in the history of the development of mathematical economics…. [He] conceived the idea of a general equilibrium and its determination.’” ([Reghinos D. Theocharis, Early Developments in Mathematical Economics, 1961] pp. 66-68)

Excerpts from Traité des Richesses
by A.N. Isnard
First Section
On the relationship of commodities in general
[Original]

“Here we will consider the direct exchange of commodities in general against other commodities at the same location, in order to investigate their values in terms of one another in the absence of any intermediary monies….

It is easy to see what will transpire in an exchange between two isolated proprietors of two commodities, for which the desire for the exchangeable surplus (superflue) of the one is equivalent to the desire for the surplus of the other. If one supposes, for example, that the surplus of the first is a quantity, a, of some commodity measured in (value) units, M, and that that of the second is a quantity b of some other item measured in units M’, if these are the only available goods, they cannot be exchanged for one another unless the quantity a of units M is equivalent to the quantity b of units M’—  thus we have the equation aM = bM’, and, consequently, M:M’,::(1/a):(1/b). The value of each unit is thus in inverse ratio to the quantity of the item which is offered for exchange.

If, instead of two items, one assumes that three or more commodities are traded, the same situation holds for the general value of the commodities. Each unit of a particular item will be equal in value to the sum of the supplies of units [of the item being evaluated], or, what amounts to the same thing, the values of the commodities are in direct proportion to the sum of the quantities [of other items] supplied and in inverse proportion to the number of [their] units. But since the quantities supplied consist of many heterogeneous commodities, it is not possible to deduce the exchange ratio of any two particular items from the equation which has just been discussed. To obtain the exchange rates of commodities taken two by two, it is necessary to formulate as many equations as there are commodities.”

Blowing small passages out of proportion —  authors probably would not have understood today’s interpretation.

Robertson: periodic requests by Pigou to explain “Pigou effect”.

Inconsistencies in predecessors: which passage in an author’s text should one interpret as “his view”?

“Early writers — Ricardo is a notorious case — say things and their opposites. Thus Galileo wrote that a freely falling object has (A) a velocity proportional to its distance fallen, and (B) a squared velocity proportional to its distance fallen. (A) is a mistake, (B) is right. After many years, Galileo went from (A) to (B). You would be just to criticize me if I kept attributing to Galileo (A): you could properly write to me ‘surely…” If Ricardo’s procedure were like Galileo’s, I’d concede all. But it isn’t. He went back and forth saying ‘Swans are white,’ ‘Swans are black.’ There is no progression in his view on the relation of short-run wage to long-run subsistence. It is bootless for us to vie in matching Ricardo’s quotation on swans’ color, the winner to be the one with the most passages on his side. I refuse to play that game, and I doubt that you care for such procedures. Perhaps we can both agree (?) on Stigler’s summary (JPE, 1952, 60, around footnote 37): ‘…The indefinitely prolonged excess [noted by Ricardo] of the market over the natural [“subsistence”] wage…must simply be recorded as correct views which Ricardo did not know how to incorporate in his theoretical system.’”

(Letter to Baumol from Paul Samuelson, June 17, 1977).

Carelessness: failure to read what author said.

Example: Marx interpreted to mean value = price.

Example: utility of money (Patinkin, “Relative Prices, Say’s Law, and the Demand for Money,” Econometrica 16 [April 1948], p. 140). Surely Patinkin is not justified in citing Walras as one of those to whom money has no utility. His only reference (indeed his only “damning” reference to Walras) is to the statement, “Soit (U) la monnaie que nous considérerons d’abord comme un objet sans utilité propre...” (Éléments, p. 303) This is hardly conclusive and it may well be meant to indicate no more than the author’s intention at that point to deal only with monies like paper rather than, for example, gold. In any case, it includes the phrase “d’abord” (to begin with). Indeed it would be most strange for one who has been hailed as a mighty protagonist of the cash balance approach, to find Walras denying utility to cash. But we have better evidence that this. In his Théorie de la Monnaie he makes it abundantly clear that he is most pleased that the theory of money provides such a fine and important application of the theory of marginal utility and more than once he speaks of the rareté of money after having pointed out that this is the term he had appropriated from his father to designate marginal utility.

Pareto is another of the five “classics” (Walras, Pareto, Wicksell, Cassel and Divisia) whose work is specifically cited by Patinkin as an example of the mishandling of monetary theory. As with Walras, Patinkin provides us with only one specific reference to prove that in the Paretian system money has no utility. But the choice of passage is here even more strange. The only reference to money on the page cited is the following: “la monnaie étant une marchandise doit avoir pour quelques individus une ophélimité propre; mais elle peut ne pas en avoir pout d’autres”. (Manuel, p. 593) Surely this is the contradictory of Patinkin’s allegation! Indeed, Pareto goes further — in effect reprimanding those others (?) who maintain that money has no utility: “La monnaie remplit deux rôles principaux: 1° elle facilite l’échange des marchandises; 2° elle garantit cet échange…C’est parce qu’on n’a pris parfois en considération que son premier rôle qu’n n’a vu dans la monnaie qu’un simple signe sans valeur intrinsèque.” (Manuel, p. 451)

Overall comments

  • Many but not all of predecessors wise men.
  • Understood surprisingly much of what we understand today.
  • But also missed a great deal.
  • Would be sad indeed if it were all contained in earlier work!
  • Do we have much to learn from them? — That you will have to judge for yourselves.
Author Year of Birth First Important Work
on the Theory of Value		 Year of Publication Age
Smith 1723 Wealth of Nations [Vol. I; Vol. II] 1776 53
Malthus 1766 Essay on the Principle of Population 1798 32
Ricardo 1772 Principles of Political Economy, and Taxation 1817 45
Cournot 1801 Recherches sur les Principes mathématiques de la Théorie des Richesses 1838 37
Dupuit 1804 De la mesure de l’utilité des travaux publics 1844 40
Mill, J. S. 1806 Principles of Political Economy [Vol. I; Vol. II] 1848 42
Von Thünen 1783 Der Isolierte Staat, Vol. II 1850 67
Gossen 1810 Entwickelung der Gesetze des menschlichen Verkehrs 1854 44
Marx 1818 Das Kapital 1867 49
Jevons 1835 Theory of Political Economy 1871 36
Menger 1840 Grundsätze der Volkswirthschaftslehre 1871 31
Walras 1834 Éleménts d’Économie Politique Pure 1874 40
Böhm-Bawerk 1851 Grundzüge der Theorie des Wirtschaftlichen Güterverkehrs [Part I; Part II] 1886 35
Von Wieser 1851 Der Natürliche Wert 1889 38
Marshall 1842 Principles of Economics 1890 48
Fisher 1867 Mathematical Investigations in the Theory of Value and Prices 1892 25
Wicksell 1851 Über Wert, Kapital und Rente 1893 42
Wicksteed 1844 The Co-ordination of the Laws of Distribution 1894 50
Pareto 1848 Cours d’Économie Politique, [Volume I; Volume II] 1896/97 58
Barone 1859 Studi Sulla Distribuzione
[Part I; Part II]		 1896 37
Clark 1847 The Distribution of Wealth 1899 52
Keynes 1883 General Theory 1936 53

Source: Duke University. David M. Rubenstein Rare Book & Manuscript Library. Economists’ Papers Archive. William J. Baumol Papers, Box 20, Folder “History of Economic Thought (1979-1988) One of Two”.

Image Source:  Cropped from portrait of William J. Baumol in 1981 published in his obituary published in The New York Times, May 10, 2017.