Last updated 10th July 2024: Online ordering is currently unavailable due to technical issues. We apologise for any delays responding to customers while we resolve this. For further updates please visit our website https://www.cambridge.org/news-and-insights/technical-incident
We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.
Published online by Cambridge University Press: 07 November 2014
I have interpreted the rather facetious title given me by the programme committee as permission to speak rather light-heartedly, even irresponsibly, about a few of the changes in the formal methods of analysis in the field of economic theory; to speak of fashions in tools, fashions in gadgets, fashions, if you will forgive me, in models.
In the 1920's Professor J. M. Clark supported the thesis that economic theory has developed by replacing worn and outgrown half-truths by new half-truths, that correspond more closely with increased knowledge, changing points of view, and different circumstances. Sir Dennis Robertson reviewed the first volume of the Survey of Contemporary Economics, called his review “A Revolutionist's Handbook,” and enumerated seven revolutions; but his phrasing is ironical. In his posthumous work on the History of Economic Analysis Professor Schumpeter has contended, with some success I think, that advances in economic analysis have been more consistent and less fluctuating than changes in the field of economic doctrine, economic systems, or economic thought. Fashions change, then, even in the methods of economic theory, but there is a good deal of continuity too. Many of the most widely useful tools of economic theory have changed very little in the last generation, or even in the last century; some have been in use for many centuries. Nevertheless, there have been many important changes too. Periodically, as attention comes to be focussed on a particular sort of problem, old tools are repaired, polished up, and put in the shop window; or new ones are invented.
This paper was presented at the annual meeting of the Canadian Political Science Association in Winnipeg, June 4, 1954.
1 Clark, J. M., “The Socializing of Theoretical Economics,” in Tugwell, R. G., ed., The Trend of Economics (New York, 1924), 86.Google Scholar
2 Robertson, D. H., “A Revolutionist's Handbook,” Quarterly Journal of Economics, 02, 1950.CrossRefGoogle Scholar Reprinted in Robertson, D. H., Utility and All That, and Other Essays (London, 1952), 69–70.Google Scholar
3 Schumpeter, J. S., History of Economic Analysis (New York, 1954), 3, 6, and elsewhere.Google Scholar
4 Ellis, H. S., ed., A Survey of Contemporary Economics (Philadelphia, Toronto, 1948), Preface, p. viii.Google Scholar
5 Veblen, Thorstein, The Instinct of Workmanship (New York, 1914), 25–37.Google Scholar
6 “Symposium on Monetary Policy,” Bulletin of the Oxford University Institpte of Statistics, 1952.Google Scholar
7 E.g. Burns, Arthur F., The Instability of Consumer Demand (New York, 1952).Google Scholar
8 See Duesenberry, J. S., Income, Savings and the Theory of Consumer Behavior (Cambridge, Mass., 1949)Google Scholar; see also, e.g., Hagen, E. E., “The Reconversion Period: Reflections of a Forecaster,” Review of Economic Statistics, 05, 1947 Google Scholar, which includes a useful bibliography.
9 See e.g. Liebenstein, H., “Bandwagon, Snob and Veblen Effects in the Theory of Consumer Demand,” Quarterly Journal of Economics, LXIV, 1950, 183–207 CrossRefGoogle Scholar; Johnson, H. G., “A Note on the Effect of Income-Redistribution on Aggregate Consumption with Interdependence of Consumers' Preferences,” Economica, 1952, 131–47Google Scholar; James, S. F. and Beckerman, W., “Interdependence of Consumer Preferences in the Theory of Income Redistribution,” Economic Journal, LXIII, 1953, 70–83.CrossRefGoogle Scholar
10 Machlup, F., International Trade and the National Income Multiplier (Philadelphia, 1945)Google Scholar; Metzler, L., “The Transfer Problem Reconsidered,” Journal of Political Economy, 1942, 397–414.CrossRefGoogle Scholar
11 For a comparison of full-employment and other models see Harberger, A. C., “Currency Depreciation and Foreign Trade,” Journal of Political Economy, 02, 1950.CrossRefGoogle Scholar
12 See e.g. Orcutt, G. H., “Measurement of Price Elasticities in International Trade,” Review of Economics and Statistics, 05, 1950 Google Scholar; and Viner, J., International Trade and Economic Development (Oxford, 1952), 37–41.Google Scholar
13 E.g. Graham, F. D., The Theory of International Values (Princeton, N.J., 1948).Google Scholar
14 Haberler, G., “Some Problems in the Pure Theory of International Trade,” Economic Journal, 03, 1951 Google Scholar; Balogh, T., “Welfare and Freer Trade,” Economic Journal, 03, 1951 CrossRefGoogle Scholar; and Haberler, , “Welfare and Freer Trade: A Rejoinder,” Economic Journal, 12, 1951.CrossRefGoogle Scholar
15 Meade, J. E., The Balance of Payments (New York, 1951)Google Scholar; and its Mathematical Supplement.
16 The phrase is used by Baumol, W. J., Economic Dynamics (New York, 1951).Google Scholar
17 Harrod, R. F., Towards a Dynamic Economics (London, 1948)Google Scholar; Domar, E. D., “The problem of Capital Accumulation,” American Economic Review, 12, 1948 Google Scholar, and “Depreciation, Replacement and Growth,” Economic Journal, 03, 1953.Google Scholar
18 Johnson, H. G., “Equilibrium Growth in an International Economy,” Canadian Journal of Economics and Political Science, XIX, no. 4, 11, 1953, 478–500.CrossRefGoogle Scholar
19 Young, Allyn A., “Increasing Returns and Economie Progress,” Economic Journal, 1928, 270–83Google Scholar; for emphasis, on Young's ideas, see Williams, J. H., Economic Stability in a Changing World (Oxford, 1953)Google Scholar, and elsewhere.
20 Ellis, H. S. and Fellner, W., “External Economies and Diseconomies,” American Economic Review, 1941, 317–26.Google Scholar
21 See e.g. Stigler, G., “Production and Distribution in the Short Run,” Journal of Political Economy, 1939.CrossRefGoogle Scholar
22 Kalecki, M., Essays in the Theory of Economic Fluctuations (London, 1939).Google Scholar
23 Cf. e.g. Robinson, Joan, Imperfect Competition (London, 1933), chap. VIII.Google Scholar
24 Keirstead, B. S., An Essay in the Theory of Profits and Income Distribution (Oxford, 1953).Google Scholar
25 Slutsky, E., “Sulla teoria del Bilancio del consumatore,” Giornale degli economisti, LI, 1915, 11–26.Google Scholar Translated and republished in American Economic Association, Readings in Price Theory, ed. Stigler, G. J. and Boulding, K. E. (Chicago, 1952).Google Scholar
26 Hicks, J. R. and Allen, R. G. D., “A Reconsideration of the Theory of Value,” Economica, 02 and May, 1934 Google Scholar; and Hicks, J. R., Value and Capital (Oxford, 1939).Google Scholar
27 Schultz, Henry, “Interrelations of Demand, Price, and Income,” Journal of Political Economy, 08, 1935, 433.CrossRefGoogle Scholar For an example of earlier articles which made use of the general theory of equilibrium see Schultz, Henry, “Marginal Productivity and the General Pricing Process,” Journal of Political Economy, 10, 1929 CrossRefGoogle Scholar, which Schumpeter calls the clearest exposition of Pareto's theory in English—though not without errors.
28 See e.g. Vehlen, Thorstein, “Why is Economics not an Evolutionary Science?” in The Place of Science in Modern Civilization and Other Essays (New York, 1919), 67, 89, 193, 232.Google Scholar
29 Fisher, Irving, Mathematical Investigations in the Theory of Value and Prices [1892] (New Haven, Conn., 1926), Part IIGoogle Scholar; and “A Statistical Method for Measuring Marginal Utility,” in Economic Essays Contributed in Honor of John Bates Clark (New York, 1927).Google Scholar
30 Frisch, R., “New Methods of Measuring Marginal Utility,” in Verlag von J. C. B. Mohr (Tübingen, 1932).Google Scholar
31 Viner, J., “The Utility Concept in Value Theory and its Critics,” Journal of Political Economy, 1925, 369–87, 638–59.CrossRefGoogle Scholar
32 Walras, L., “Geometrical Theory of the Determination of Prices” (translated under the supervision of Professor Fisher), Annals of the American Academy of Political Science (Philadelphia, 1892), III, 45–64.Google Scholar
33 E.g. Leontief, W., The Structure of the American Economy, 1919–1929 (Cambridge, Mass., 1941).Google Scholar
34 Marshall, Alfred, Principles of Economics (2nd ed., London, 1891 Google Scholar, and subsequent eds.), Mathematical Appendix, Note XII, bis.
35 Marshall, Alfred, The Pure Theory of Foreign Trade; the Pure Theory of Domestic Values (printed for private circulation, 1897; London School of Economics reprint, 1930).Google Scholar
36 Marshall, Alfred, Money, Credit and Commerce (London, 1923), 351–60.Google Scholar The modernity of some of Marshall's insights in this field is exemplified by his contention that silver had been a good currency for India since it had been depreciating while India was lagging in technological development. “Evidence before the Indian Currency Committee (1899),” in Official Papers by Alfred Marshall (London, 1926), 288–9.Google Scholar
37 See Schumpeter, , History of Economic Analysis, 836.Google Scholar
38 See, e.g., Edgeworth, F. Y., Mathematical Psychics (London, 1881).Google Scholar
39 His criticisms in Nature and his presidential address to the British Association were answered, but not in English; see review by Bortkévitch, Ladislas, “Walras L., Eléments d'économie politique pure,” Revue d'économie politique, IV, 1890, 80.Google Scholar See also reply, Edgeworth, F. Y., Revue d'économie politique, V, 1891, 929.Google Scholar
40 Schumpeter, , History of Economic Analysis, 831.Google Scholar
41 He omitted several of his more biting reviews and controversial replies from his Papers Pielating to Political Economy (London, 1925).Google Scholar
42 Clapham, J. H., “Empty Economic Boxes,” Economic Journal, 1922, 305–14.CrossRefGoogle Scholar
43 Bowley, A. L., Mathematical Groundwork of Economics (London, 1924).Google Scholar See also Johnson, W. E., “The Pure Theory of Utility Curves,” Economic Journal, 1913, 483–513.CrossRefGoogle Scholar
44 Hicks, J. R., Value and Capital (Oxford, 1939).Google Scholar
45 This test had already been suggested; see Viner, J., Studies in the Theory of International Trade (New York, 1937), 533–4.Google Scholar
46 Recent books in the subject of economic welfare include: Scitovsky, T., Welfare and Competition (Chicago, 1951)Google Scholar; Little, I. M. D., A Critique of Welfare Economics (Oxford, 1950)Google Scholar; Baumol, W. J., Welfare Economics and the Theory of the State (Cambridge, 1952)Google Scholar; Dehem, Roger, L'Efficacité sociale du système économique (Louvain, 1952).Google Scholar For a critical review of certain parts of this development see Timlin, M. F., “Theories of Welfare Economics,” Canadian Journal of Economics and Political Science, XV, no. 4, 11, 1949, 551–9.CrossRefGoogle Scholar
47 See e.g. Knight, F. H., “Realism and Relevance in the Theory of Demand,” Journal of Political Economy, 12, 1944 CrossRefGoogle Scholar; Clark, J. M., “Realism and Relevance in the Theory of Demand,” Journal of Political Economy, 08, 1946 CrossRefGoogle Scholar; Bishop, R. L., “Professor Knight and the Theory of Demand,” Journal of Political Economy, 04, 1946, 141–69CrossRefGoogle Scholar; Boulding, K. E., “The Concept of Economic Surplus,” American Economic Review, 12, 1945, 851–69.Google Scholar
48 Burk, A. (Bergson), “A Reformulation of Certain Aspects of Economic Welfare,” Quarterly Journal of Economics, 02, 1938 Google Scholar; Samuelson, P. A., Foundations of Economic Analysis (Cambridge, 1947), chap. VIII.Google Scholar
49 Arrow, K. J., Social Choice and Individual Values (New York, 1951)Google Scholar; Black, Duncan, “On the Rationale of Group Decision-Making,” Journal of Political Economy, 02, 1948 CrossRefGoogle Scholar, and “The Theory of Elections in Single-Member Constituencies,” Canadian Journal of Economics and Political Science, XV, no. 2, 05, 1949, 158–75Google Scholar; also Weldon, J. C., “On the Problem of Social Welfare Functions,” Canadian Journal of Economics and Political Science, XVIII, no. 4, 11, 1952, 452–63CrossRefGoogle Scholar; and Bergson, A., “On the Concept of Social Welfare,” Quarterly Journal of Economics, 06, 1954.CrossRefGoogle Scholar
50 Haley, B. F., “Value and Distribution,” in A Survey of Contemporary Economics, 1.Google Scholar
51 Robertson, D. H., “A Revolutionist's Handbook,” in Utility and All That, and Other Essays.Google Scholar
52 Mackintosh, W. A., “Government Economic Policy: Scope and Principles,” Canadian Journal of Economics and Political Science, XVI, no. 3, 08, 1950, 314–26.CrossRefGoogle Scholar
53 Robertson, D. H., Utility and All That, and Other Essays, 30, 60.Google Scholar
54 Robbins, Lionel, The Theory of Economic Policy: English Classical Political Economy (London, 1952).Google Scholar
55 That smoke is a nuisance may be obvious but it is also important.
13 As in Part I, it is assumed, to begin with, that imports are demanded only for direct consumption.
14 This condition generalizes readily to any number of countries and is independent of the choice of units. If it is assumed, as in the previous section, that imports are a constant fraction of income, the condition reduces to R1 = R2 , since in this case the income elasticities of demand for imports would be unity. This result is used in the later discussion of equilibrium growth.
15 The significance of this is that consideration of changes in the exchange rate imposes the necessity of choosing between physical and monetary concepts of the propensity to import.
16 Supply elasticities do not enter into the analysis because they are precluded by the assumptions of the problem—each country's product is homogeneous and its quantity at any moment is fixed. It may be noted that the expression for Rp is independent of the units in which currencies and outputs are measured.
17 Actually something less, owing to the substitution effect.
18 The marginal propensity to spend on imports is equal to the marginal propensity to import multiplied by the relative price of imports as compared with home goods (here, pm 1). The condition η 1 + η 2 > pm 1 + 1 is the condition for exchange stability when country 2's output is constant but country 1's output is allowed to vary in response to changes in its balance of trade (cf. Harberger, “Currency Depreciation, Income, and the Balance of Trade”). Country 1 can therefore suffer a loss of real income in the case in which the exchange market is stable when both countries stabilize output, only if the market would be unstable if country 1 did not stabilize its output.
19 This assumes that, knowing the exchange market to be unstable, country 1 depreciates its currency (or country 2 appreciates its currency) in order to forestall the favourable balance of trade for country 1 that would otherwise emerge. Presumably, since capital movements have been excluded from consideration, continued depreciation of country 2's exchange rate would in “realistic” cases eventually bring the exchange rate into a range in which country 2's demand for country 1's product would become sufficiently elastic for trade balance to be attained. If, in such cases, country 2 followed normal market criteria and depreciated its currency in order to preserve trade balance, country 1 could not lose by growing too slowly. However, as Professor Samuelson has pointed out (“Disparity in Postwar Exchange Rates,” in Harris, S. E., ed., Foreign Economic Policy for the United Slates, 397–412, especially 409 n. 14)Google Scholar, there is no theoretical reason why, even in the absence of capital movements, depreciation in an unstable market should eventually lead to a stable exchange equilibrium. An example in which no degree of depreciation leads to a stable equilibrium is provided below, equation (57) et seq.
20 Cf. Johnson, H. G., “The Taxonomic Approach to Economie Policy,” Economie Journal, LXI, no. 244, 12, 1951, 812–32, especially 816–17.Google Scholar
21 It is changes in the sum of the two elasticities, and not in their individual magnitudes, which are relevant here.
22 Cf. p. 495, n. 19.
23 If p is greater than 1/q 1 (less than q 2), country 1's output (country 2's output) will be contracting, since the imports required for capacity production will cost more than its total output, the difference having to be made up by disinvestment. Consideration of equation (64) shows that this can only occur if the exchange market is unstable.
24 The appearance of this term implies that the import content of domestic production does not necessarily reduce the elasticity of demand for imports. Differentiation of ∊ with respect to q shows that a higher import content ratio would increase the total elasticity of demand for imports, if the elasticity of consumption demand for imports is smaller than the proportion of (net disposable) income spent on consumption imports (e.g., if η 1 is less than pm 1).
