Economic theory in retrospect This is a history of economic thought from Adam Smith to John Maynard Keynes – well, actually from David Hume to Milton Friedman – but it is a history with a difference Firstly, it is history of economic theory, not of economic doctrines, that is, it is consistently focused on theoretical analysis, undiluted by entertaining historical digressions or biographical colouring Secondly, it includes detailed Reader’s Guides to nine of the major texts of economics, namely the works of Smith, Ricardo, Mill, Marx, Marshall, Wicksteed, Wicksell, Walras and Keynes, in the effort to encourage students to become acquainted at first hand with the writings of all the great economists How should this book be read? ‘From the beginning to the end’ is the answer Nevertheless, this answer never satisfies readers who love to dip into books, sampling a page here and a page there To those readers, it must be emphasised that the argument builds up cumulatively and that later chapters take for granted knowledge conveyed in earlier ones: numerous summaries are provided of what has gone before but, nevertheless, no chapter is totally self-contained In short, this is a book for learning economics, the economics of yesterday but also the economics of today, and the incorrigible browser pays a heavy price This fifth edition adds new Reader’s Guides to Walras’s Elements of Pure Economics and Keynes’s General Theory of Employment, Interest and Money to the previous seven Reader’s Guides of other great books in economics There are significant but minor additions to the chapters on Smith, Ricardo and Marx but major additions to the chapters on marginal productivity theory, general equilibrium theory and welfare economics The treatment of modern macroeconomics has been extensively revised and the Notes on Further Readings have been both pruned and up-dated Economic theory in retrospect Fifth edition Mark Blaug Visiting Professor of Economics University of Exeter CAMBRIDGE UNIVERSTIY PRESS Cambridge, NewYork, Melbourne, Madrid, CapeTown, Singapore, São Paulo, Delhi, Mexico City CambridgeUniversityPress The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521571531 First edition © Richard D Irwin, Inc 1962 Second edition © Richard D Irwin, Inc 1968 Third edition © Mark Blaug 1978 Fourth edition © Mark Blaug 1985 Fifth edition © Mark Blaug 1996 This publication is in copyright Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press First published by Richard D Irwin, Inc 1962 Second edition 1968 Third edition published by the Cambridge University Press 1978 Fourth edition published by the Cambridge University Press 1985 Reprinted 1986, 1987, 1988, 1990, 1992 Fifth edition 1997 9th printing 2012 Printed and bound in the United Kingdom by the MPG Books Group A catalogue record for this publication is available from the British Library Library of Congress Cataloguing in Publication data Blaug, Mark Economic theory in retrospect Includes bibliographical references and indexes Economics – History I Title HB75.B664 1977 330.1′09 ISBN 978-0-521-57701-4 paperback Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate Information regarding prices, travel timetables and other factual information given in this work are correct at the time of first printing but Cambridge University Press does not guarantee the accuracy of such information thereafter To my son, David Ricardo CONTENTS Preface to fifth edition Acknowledgements Glossary of mathematical symbols Abbreviations INTRODUCTION HAS ECONOMIC THEORY PROGRESSED? NOTES ON FURTHER READING PRE-ADAMITE ECONOMICS MERCANTILISM The balance-of-trade doctrine The specie-flow mechanism The defence of mercantilism Precursors of Keynes? Realistic elements in mercantilist theory THE EIGHTEENTH-CENTURY PREDECESSORS The mercantilist dilemma and the quantity theory of money The theory of creeping inflation Cantillon’s essay Money analysis 10 The real rate of interest PHYSIOCRACY 11 The meaning of physiocracy 12 The Tableau Economique 13 The single tax 14 Say’s Law 15 Scholastic influences: an afterthought NOTES ON FURTHER READING ADAM SMITH Adam Smith and the Industrial Revolution READER’S GUIDE TO THE WEALTH OF NATIONS Division of labour The measure and cause of value Cost-of-production theory Supply-determined prices Wages Profits Relative wages Rent 10 A social unit of accounting 11 The trend of prices 12 Capital and income 13 Banking 14 Productive and unproductive labour 15 An optimum investment pattern 16 Synoptic history 17 The invisible hand 18 Taxation and the public debt 19 Adam Smith as an economist NOTES ON FURTHER READING POPULATION, DIMINISHING RETURNS AND RENT THE THEORY OF POPULATION The population explosion Malthus’s analytical schema The empirical content of the theory Automatic checks The optimum theory of population and subsistence wages Malthusianism today DIMINISHING RETURNS AND THE THEORY OF RENT The law of diminishing returns Differential rent The alternative cost of land 10 Land as a factor of production 11 Site value taxation NOTES ON FURTHER READING RICARDO’S SYSTEM The theory of wheat profits or the corn model The labour theory of value Capital costs and labour values The Ricardo Effect The invariable measure of value The fundamental theorem of distribution The effect of capital accumulation The trend of relative shares Technical change READER’S GUIDE TO THE PRINCIPLES OF POLITICAL ECONOMY 10 Value 11 Relative wages 12 The invariable measure of value 13 Demand and supply 14 Social accounting 15 Did Ricardo hold a labour theory? 16 Rent 17 Agricultural improvements 18 Wages 19 Profits 20 Foreign trade 21 Law of comparative cost 22 The natural distribution of specie 23 The purchasing power parity theory 24 Say’s Law 25 Pessimism? 26 Monetary theory 27 The Bullionist Controversy 28 The machinery question 29 Taxation 30 The lasting influence of Ricardo 31 Sraffa: Ricardo in modern dress 32 Ricardo in still more modern dress NOTES ON FURTHER READING SAY’S LAW AND CLASSICAL MONETARY THEORY SAY’S LAW OF MARKETS Say’s Identity Dichotomisation of the pricing process Say’s Identity and the quantity theory of money Say’s Equality Say’s Equality in classical writings Keynes and Say’s Law The direct mechanism The indirect mechanism Saving, investment and hoarding 10 The real interest rate 11 Forced saving 12 Conclusion MALTHUS’S THEORY OF GLUTS 13 Malthus’s case 14 The doctrine of underconsumption 15 Exponential growth 16 What Malthus actually said 17 Ricardo and Malthus NOTES ON FURTHER READING JOHN STUART MILL READER’S GUIDE TO THE PRINCIPLES OF POLITICAL ECONOMY Laws of production and distribution The doctrine of productive labour Theory of capital The wages fund doctrine Advance economics and synchronisation economics The machinery question The rate of growth of the factors of production Socialism Custom and the laws of distribution 10 The distributive shares 11 The abstinence theory of interest 12 The theory of value 13 The quantity theory of money 14 Inflation 15 The loanable funds theory 16 Say’s Law 17 The currency–banking controversy 18 The real bills doctrine 19 Mill’s position on monetary management 20 Theory of international values 21 International wage and price levels 22 Hume’s Law 23 Transfer payments 24 The vent-for-surplus doctrine 25 The basis of a theory of international trade 26 Statics and dynamics 27 The falling rate of profit 28 The stationary state 29 Taxation 30 The incidence of taxes 31 The public debt 32 The scope of government 33 Education in classical economics 34 The classical economists and the Factory Acts 35 John Stuart Mill as an economist NOTES ON FURTHER READING MARXIAN ECONOMICS Terminology Value and surplus value The great contradiction The transformation problem Solutions of the transformation problem Historical transformation What price value? The Marxist case for the labour theory Profit as unearned income 10 Marx and Böhm-Bawerk 11 Surplus value and economic surplus 12 The laws of motion of capitalism 13 The law of the falling rate of profit 14 A glance at the data 15 Capitalsaving innovations 16 The reproduction schema 17 Business cycles 18 The investment function 19 The myth of a laboursaving bias 20 Impoverishment of the working class 21 Economic imperialism 22 The role of institutional assumptions READER’S GUIDE TO CAPITAL 23 Value 24 Socially necessary labour 25 Commodity fetishism 26 Theory of money 27 Surplus value 28 The Factory Acts 29 Marx’s use of historical material 30 Division of labour and machinery 31 Surplus value and labour productivity 32 The accumulation of capital 33 Absolute and relative impoverishment 34 Primitive accumulation 35 The costs of distribution 36 The turnover of capital 37 The reproduction schema 38 The great contradiction again 39 The transformation problem 40 The law of the falling rate of profit 41 Capitalsaving innovations 42 Foreign trade 43 Business cycles 44 Money and interest 45 Theory of rent 46 Marx as an economist NOTES ON FURTHER READING THE MARGINAL REVOLUTION THE EMERGENCE OF MARGINAL UTILITY: AN ABSOLUTIST OR RELATIVIST INTERPRETATION? The new departure The maximisation principle Value and distribution The genesis of marginal utility theory A multiple discovery? When is a revolution a Revolution? The slow uphill struggle JEVONS The theory of exchange Bilateral and competitive exchange 10 The catena 11 Disutility of labour 12 Negatively or positively sloped labour supply curves 13 Capital theory OTHER FORERUNNERS 14 Cournot on profit maximization 15 Duopoly theory 16 Dupuit and the French engineering tradition 17 Thünen’s marginal productivity theory 18 Gossen’s second law NOTES ON FURTHER READING MARSHALLIAN ECONOMICS: UTILITY AND DEMAND UTILITY THEORY The measurability of utility Operational measurement of utility The Bernoulli hypothesis Gambling and insurance The Bernoulli hypothesis and progressive taxation Derivation of demand curves The constancy of the marginal utility of money Restatement The indifference-curve approach 10 The revealed preference approach 11 Marshallian demand curves 12 The status of the subjective theory of value WELFARE ECONOMICS 13 Consumer’s surplus 14 Restatement 15 The four consumer’s surpluses 16 Tax-bounty analysis NOTES ON FURTHER READING MARSHALLIAN ECONOMICS: COST AND SUPPLY The short run Quasi-rents The long run External economies What are external economies? Producers’ surplus The asymmetrical welfare effect The representative firm Monopolistic competition READER’S GUIDE TO THE PRINCIPLES OF ECONOMICS 10 Introduction 11 Scope, substance and method 12 Wants and activities 13 Marginal utility 14 Consumer’s demand 15 Consumer’s surplus in quantity theory of money, 626 in Smith, 45–6 zero, 501–2, 519, 525, 658 est, theories of; see also Abstinence and Time preference abstinence, 186–8, 230, 261, 485 Böhm-Bawerk on, 91, 231–2, 480–9 Fisher on, 509–17, 656 Keynes on, 626, 641, 657–9, 667 liquidity preference versus loanable funds, 157, 193, 520–1, 622–3 marginal productivity, 448, 450, 488, 499 Mill on, 184, 185, 187, 205, 212 monetary, 22–3, 159–60, 193, 520–1, 646, 657, 667 productivity, 448, 486, 659 real, 22–4, 126, 157–8, 520–1, 658 Scholastics on, 30–1 Schumpeter on, 446 waiting, 520, 529 Walras on, 563–5 Wicksell on, 126, 529, 536–7, 618–20 Wicksteed on, 473 national trade, theory of; see also Comparative costs and Foreign exchange and Free trade and Transfer payments in classical economics, 118–23, 196–204 gains of, 120, 122, 126–7 Heckscher–Ohlin, 203–4 versus intranational trade, 120, 201–4 personal comparisons, of utility, 311, 321, 380, 529, 571–4, 576, 583, 587, 590, 699 personal comparisons, of utility, 570–1 ntories, optimal, 438, 622 stment; see also Saving autonomous, 165, 460 in classical economics, 87–8, 157 function, 164 in Keynes, 621, 646, 649, 650, 654, 656–7, 669 in Marx, 235, 244–5, 262, 271 in neo-classical economics, 520, 621–2, 657–8 in preclassical economics, 24 planned and realised, 515–17, 621–2 sible Hand, 67 sible Hand Theorem, 60, 577–9, 580, 582, 585, 594, 695 LM curves, 570, 667, 668–9, 672, 673, 674 apanes, 607, 608 uants, 426, 427, 428, 429 costs, 191, 212, 225, 394, 599 joint demand, 393–4 joint products, 137, 529, 553 price, concept of, 30 ce, commutative and distributive, 408–9, 569 nes Effect, 661, 669–70 nesian Revolution, 4, 641–51, 687 nesian system; see also Propensity, to consume, to save and Marginal efficiency of capital and Multiplier aggregate demand and supply in, 653–4, 664–5 677, 679 interpretations of the, 667–74 liquidity preference in, 657–8 liquidity trap in, 658, 671 and prices, 670–1 unemployment equilibrium in, 659–60, 669, 670, 675 wage cutting in, 660–1, 671 our disutility of, 46, 47 49, 50, 51, 283, 297–8, 309, 340, 399 homogeneity of, 108, 134, 255–6, 495 indeterminacy in market for, 45, 217, 257–8, 261 measurement of, 450 paid and unpaid, in Marx, 258 peculiarities of, in Marshall, 282, 388, 400–2 process, in Marx, 258 productive and unproductive, 53–4, 56, 61, 110, 167, 169, 174–5, 260, 263–4, 381 share of income, 467–9; see Wages, share of socially necessary, in Marx, 255–6 supply of; see Supply curve of labour our market imperfections in, 282, 400–2, 409–10, 473–4, 477 oursaving bias; see Innovations, labour-saving our theory of value; see Value, labour-theory of sez-faire, 56–8, 208, 212, 642 d as factor of production, 81–2, 111 d reform, 83–4, 476 and economics, 585 of eponymy, 523 of markets; see Say’s Law of market areas, 606 of reflux; see Banking s of production and distribution, in Mill, 173–4, 576 ted Liabilities Act of 1855, 208 ar programming, 412–17, 604 idity preference; see Keynesian system and Money balances idity trap; see Keynesian system nable funds; see Interest, theories of ation theory, 395, 596–612 applied to agriculture, 597–603 applied to industry, 603–8 g run, in Marshall, 359–67 p-of-labour fallacy, 403 p-sum taxes, 585, 586, 587–67 hinery question; see also Unemployment, technological Marx on, 260 Mill on, 181–2 Ricardo on, 129–30 Wicksell on, 533 roeconomics, 280, 616, 646, 647, 651; see also Keynesian system husian theory of population; see Population agement, 439–8, 439 gin of cultivation, 79, 80, 81, 273 ginal analysis, 280–1, 290 ginal conditions of optimal allocation, 577–9 ginal costs; see Costs, total, average, and marginal ginal cost pricing, 355, 419, 433, 557, 587–91, 595 ginal efficiency of capital, in Keynes, 510–12, 538, 656–7 ginal efficiency of investment, 520 ginal (physical) product; see also Marginal productivity actual versus expected, 445 average and, 76–7, 308, 324–5, 406–7, 418, 422–3, 431, 441, 458 of capital, 300–1, 448 net and gross, 394, 399, 417–18, 520 private versus social, 582, 584 value versus revenue, 410 ginal productivity, see also Distribution, theories of functional, marginal productivity discounted, 541, 543, 544 law of diminishing, 76, 85, 280, 532 of lengthening the period of production, 488 theory, 78–9, 133–4, 288, 301, 406–12, 419–20, 449, 450, 466, 467, 513, 533–4, 552, 566–8 ginal rate of substitution, 324–5, 328–9, 332, 338, 342–6, 428–30, 431, 436, 514, 525, 578–9 ginal revenue, 302 ginal revolution, 4, 173, 277–92, 558 ginal utility; see also Utility, and Utility functions and Value, theories of utility cardinal and ordinal, 290, 312–16, 335, 529, 560 emergence of, 277, 283–9, 290 of expenditure, 323–4, 340 of income, 206, 317–22, 483–4, 487, 502, 512, 591 of money, 297, 316, 334, 529, 555 ginal utility, law of diminishing, 111, 280, 293–4, 304, 309, 311, 313, 323, 329, 331–2, 381–3, 469, 560 and Bernoulli’s hypothesis, 329, 331–2, 381–3, 469, 560 and consumer behaviour, 316–22, 380, 382, 404 and demand curves, 297, 304, 309, 311–12, 322–37, 382–3 egalitarian implications of, 286, 477, 530–1 in Jevons, 293–4 and progressive income taxation, 320–2, 570 ket adjustments, 391–2 ket area analysis, 608–9 ket failure, 209, 580, 584–5 xian economics, and orthodox economics, 286, 292 hematics Marshall on use of, 379 role of, in neo-classical economics, 279, 292, 306 Walras on, 550, 559, 561, 568 imising behaviour, theories of, 280–1, 302, 306 imum satisfaction, doctrine of, 397–8, 570; see also Harmony doctrine surability, of utility; see Utility, measurability of sure of value Malthuson, 167 Mill on, 190–1 Ricardo on, 94–6, 108–10, 116, 117, 134–9, 223–4 Smith on, 49–50 Sraffa on, 134–9 cantilism and balance of trade, 11–13, 202 definition of, 10–11 interpretations of, 14–15, 17–18 Keynes on, 14–16, 666 liberal elements in, 31 Mill on, 173 Smith on, 56 allism; see Monetary theory hodology, 665, 689–702 huen treaty, 58 roeconomics, 280–1, 646 etarism, 624–5, 628, 638, 651 etary analysis, 22–3, 160, 646 etary policy, 201, 622–5, 626, 632–3, 644, 657 etary theory; see also Hoarding and Inflation and Interest, rate of, theories of, monetary and Keynesian system, liquidity preference in, and Money, balances and Quantity theory of money in classical economics, 125, 127, 272, 631 direct mechanism in, 152–5, 614, 618–19, 626–31 indirect mechanism in, 614–15, 618–19, 628, 631–2, 634 in Keynes, 618, 619, 626–7 metallism in, 127, 631, 633, 634 in neo-classical economics, 558, 562 in preclassical economics, 22–3 Walras on, 566 Wicksell on, 618–21, 628–9 ey demand for, 55, 144, 147, 626, 627, 637–8, 650–8; see also Excess demand, for money and Money balances exogeneity of supply of, 633–7 as medium of exchange, 29, 36, 55, 148, 561, 617 ey balances and needs of trade, 152, 154, 191, 194 neutral, 615–16, 621, 624, 625, 638–9, 648, 683, 686, 687 outside and inside, 635, 636, 670 as store of value, 144, 148, 173, 257, 627 supply of, 154, 637 and transmission mechanism, 152–6; see also Monetary theory, direct mechanism as unit of account, 144, 561 velocity of circulation of, 196, 616, 628–9, 638 motion versus rest theory of velocity, 147, 191, 613–14, 617, 630 active, 153 inactive, 153 precautionary demand for, 147, 626, 629, 638, 657, 670 real demand for, 153–4, 530, 566 speculative, demand for, 147, 153, 626, 638, 657, 648 transactions, demand for, 147, 148, 153, 191, 626, 629, 638, 657, 658, 661, 670 and utility theory, 566, 627 working, 152 ey illusion, 158, 652, 669, 681 ey market equilibrium, 623, 625 opolistic competition, 375–9, 531, 593 opoly; see also Oligopoly bilateral, 295–6 in classical economics, 106, 182–3, 209 natural, 585, 589, 590 in neo-classical economics, 301–2, 398–9, 531, 568 opsony, 409–10, 464 al hazard, in capital markets, 55 al restraint; see Checks to population iplier, 165, 244, 647, 648–9, 651, 655–6, 659; see also Balanced budget multiplier iple discoveries in intellectual history, 277, 287–9, 606 iple equilibria; see Equilibrium, multiple onal Bureau of Economic Research, 702 onal income accounting; see Income, concept of ral rate of unemployment; see Unemployment, natural rate of igation Laws, 57 ds-of-trade doctrine; see Banking -Keynesian economics, 687 -Malthusianism; see Birth control national product, see Income, concepts of product; see Physiocratic system classical macroeconomics; see Rational expectations competing groups, 185, 203, 212 mative economics; see Economics, normative and positive eraire, 144, 551, 560 upations choice of, 47, 255–6, 298–9, 473–4 net advantages of, 47–8, 255–6, 474 r curves, 197–8, 200, 201 opoly Chamberlin on, 378–9 Marshall on, 394 n market operations, 272 ortunity costs, 212, 273–4, 395 mum theory of population; see Population anisation as a factor of production, rpopulation; see Population rproduction; see Gluts, general rsaving; see Underconsumption theories alleltheorie; see Wages, and price of food to optimality; see Welfare economics, in neoclassical economics, Partial equilibrium analysis; see Equilibrium, partial cular expenses curve, in Marshall, 367–8, 396–7 ant proprietorship, 183, 184, 206 od analysis, 646–7 od of production, concepts, 94, 181, 264–5, 480–2, 489–500, 527, 534–6, 541, 565, 647 ips curve, 639, 651, 676–83, 686 ps curve, absolute and average, 494–5 ics, influence of, 284–5 iocratic system, 284–5 concept of net product in, 27 and Say’s Law, 29 single tax in, 28–9, 59 Smith on, 56, 59 Tableau Economique in, 56–7 u Effect, 661, 669–70, 671 ned economy, 184 Laws, 48, 114, 126 ulation causes of growth in, 99, 114 checks to growth of, 66–7, 69 compound growth of, 67 explosion, 66 Malthusian theory of, 65, 74, 183, 213, 229, 278–9, 385, 476, 567, 691, 696 optimum theory of, 72–4, 184, 388 and poverty, 66 ictions, economic, 235, 648–51, 689, 694–5 ent-value rule for investment, 512, 538 folio balances, 627 e; see also Value absolute and relative, 222, 528, 631 discrimination, 306, 531, 586–7 market and natural, 30, 38–9, 99, 110, 189, 229 of production, in Marx, 219, 266, 268 short and long period, 189, 354–67, 392–3 theory of, 65, 74 es demand determined, 189 international, 123–5, 127–8, 131, 149 of silver, 52 stabilisation of, 622–4, 632–3 structure of, 52, 149, 204 supply-determined, 37–42, 189 trend of, 52, 189 of wheat, 52, 204–5 mitive accumulation, in Marx, 226, 262–3 ucers’ surplus, in Marshall, 304, 352, 357, 367–73, 396–7, 591; see also Rent, as intramarginal surplus and Welfare economics, in neo-classical economics, Marshall on uct differentiation, 377–9, 583–4 uct exhaustion; see Euler’s Theorem uction function; see also Euler’s Theorem aggregate, 447–54 Cobb–Douglas, 421–5, 430–2, 447, 451–2, 693 constant-elasticity, 432 defined, 448, 696–7 elasticity of, 102, 104, 431 micro-, 448–51 properties of linearly homogeneous, 421–33, 476, 478, 602 production-transformation curve, 513, 515 productivity coefficient, 64–5 quadratic, 104, 118 it, rate of declining 45–6, 86–8, 99, 115–18, 205–6, 535–40, 243, 268–9, 463 and profit margin, 244 and rate of interest, 45, 91, 126, 185, 187, 192, 271, 442, 443, 446, 564 of wheat, 86–7, 99, 138, 211 its; see also Maximising behaviour, theories of, profit maximisation of, 355–7, 362, 398, 531 share of, 115, 445 as unearned income, 291–31, 440 its, theories of; see also Entrepreneur, and profits and Uncertainty classical and modern, 91, 252–3, 441–2, 443, 475 in Kirzner, 447 in Knight, 444–6 in Marshall, 374, 387, 402–3, 439–40 in Marx, 217, 224–35, 252–3, 267, 282, 442 in Mill, 184, 185–6, 211, 260 in neo-classical economics, 439–40, 441 in Ricardo, 91, 99, 103, 115–18, 282 share of, 239, 462, 467 in Schumpeter, 445–7 in Smith, 45–6, 91, 441 Walras, 552, 564 it-sharing schemes, 206, 308 ensity to consume, 163, 244, 280, 647, 648–9, 650, 655–6 to save, 163, 647, 650–1 to truck, barter and exchange, 36 ectionism, 208 estantism, influence of, 284 hoanalysis, 705 ic choice theory, 576 ic debt, 59, 132, 207 ic finance, Smith on, 58–9, 61–2 ic goods, 211, 580–2 ic utilities, pricing of, 306, 588–9, 590–1, 595; see also Marginal cost pricing ic works, 16, 57–8, 59, 169, 644, 645, 6478, 662–3, 664; see also Treasury View hasing power parity; see Foreign exchange, purchasing power parity theory of ntity theory of money; see also Demand curve, for money cash-balance approach to, 613, 617–18 in classical economics, 52, 127, 131, 148, 191–2, 257, 633 in preclassical economics, 52, 633 contra-, 195, 272, 626, 631 direct mechanism in, 152–6 and equation of exchange, 18–19, 147, 155, 257 income approach to, 613, 617–18 Keynes on indirect mechanism in, 155–6, 157–8 in neo-classical economics, 476, 566, 613, 614–16, 627–8, 629, 633–40 and proportionality theorem, 148, 152–5, 614, 615, 616, 629–30, 638–9 and rate of interest, 155–6, 638 transactions approach to, 613, 617 Wicksell on, 625–6 si-rent, in Marshall, 81, 234, 357–9, 368, 395, 403 way pricing, 306, 586, 589, 600, 604, 610 of return, internal, 510–12, 537, 538, 564, 620 onal expectations, 651, 656, 683–5, 686 analysis, 22, 160 Balance Effect, 149, 150, 620, 625, 629–30, 631, 638–9, 654, 661, 669–70, 671; see also Quantity theory of money -bills doctrine; see Banking ism, of assumptions, 694–5 procal demand; see Comparative costs, theory of, and reciprocal demand onstructions, rational and historical 16, 17–18, 89, 141, 278, 285, 668 ontracting, 556 stribution, of income, 646, 650, 660, 666, 667 onal economies, 611 tive shares, 205, 247, 419, 420, 424–5, 427–9, 431, 433, 447, 458, 467–8 constancy of, 237, 248, 432, 453, 467, 493 Ricardo on, 100–6, 134 tivism, 2–8, 18, 25, 284, 285 absolute and differential in Marx, 273–4, 532 bid functions, 601–2, 610 generalisation of, 190, 212, 282, 406, 469, 476, 532–3 as intramarginal surplus, 48, 56, 78–81, 234, 395, 406, 476, 532 pure, 80, 112 and quasi-rent, 81 , theories of in classical economics, 48, 78–84, 85–6, 186 differential and scarcity, 48, 78–9, 80, 82, 85, 368–70, 395, 389 location rents, 599 Marshall on, 82, 357–9, 395, 403 Mill on, 186, 190 in neo-classical economics, 532, 545, 567–8 price-determined and price-determining, 48, 80, 395 Ricardo on, 48, 51, 80–2, 85, 100–6, 112, 113, 532 Smith on, 48, 80–1 Thünen on, 598–9 -seeking, 54 al share, 48, 100–3, 104–6, 115 values, unearned increment of, 29 resentative firm, in Marshall, 375–5, 393, 396 roducible goods, 106, 282 roduction schema, in Marx, 240–2, 265 rns to scale; see also Costs, increasing and decreasing and Diminishing returns, to a variable factor, and to scale and Economies of scale, internal constant, 112, 135, 138, 146, 239, 349, 361, 392, 411, 413, 421, 426, 427, 429, 431, 435, 436–7, 458, 553 decreasing, 52, 349–51, 359–62, 387, 422, 430, 431, 433, 435 increasing, 37, 52, 182, 207, 350–1, 359–61, 387–8, 395–6, 422, 430, 431, 433, 434, 435, 438, 475, 476, 589 ealed preference, in Samuelson, 332–4 rdian socialists, 228 rdo Effect, 94, 109, 111, 521–8, 536, 547 rdo equivalence theorem, 132 , 45, 47, 87, 193, 394, 442, 444, 534, 656 ndaboutness, degree of; see Period of production etersburg paradox, 316–18 s area, 36–7, 604–6 ant Effect, 386, 501 ng; see also Forced saving, doctrine of and Savings, supply of and Supply curve, of saving and Time preference in classical economics, 156–7; see also Saving-is-spending theorem in Keynes, 641, 646, 650–1, 654 in Malthus, 160, 166, 168 in Marshall, 380 in Marx, 235 in Mill, 157, 176, 183 in neo-classical economics, 486, 641, 657–8 planned and realised, 515–16, 622–3 in preclassical economics, 24 in Smith, 53–5 in Walras, 563, 563 in Wicksell, 621 in Wicksteed, 473 ngs–income ratio, 163, 650–1 ng-defeats-itself fallacy, 167 ng-is-spending theorem, 55, 161, 176, 261 ngs business, 188, 386, 526–7, 655 personal, 186, 386, 655 supply of, 55, 186–8, 623 s Law of Markets, 143–7; see also Business cycles and Gluts, general and Secular stagnation Keynes on, 652, 653–4, 675 Malthus’s attack on, 160–1, 167–9, 170 Marshall on, 403 Marx on, 271 Mill on, 150–1, 176, 188, 193 Ricardo on, 125–6, 134, 170 as Say’s Equality, 148–52, 156, 160 as Say’s Identity, 144–8, 150, 151, 152, 156, 160, 170, 176, 257, 271, 614 Smith on, 52, 54–5 Wicksell on, 531, 631, 632 ond-best, theory of, 585–6, 588, 590, 594 ular stagnation, 151, 160–1, 162, 163, 166, 169–70, 462, 646, 650, 654, 655; see also Gluts, general norage, 58 -interest, pursuit of, 60, 62 ng cost; see Distribution, costs of ement Acts, 48, 58 t and long run, 639, 682 le tax, 24, 82–4 value taxation; see Taxation of site values ery, 184 mpflation, 681 al Darwinism, 386 alism Lange on, 557 Marshall on, 381, 404 Marx on, 230–1, 232, 235 Mill on, 183–4, 206, 212–13 alist calculation debate, 557, 595 al welfare function, 576, 577, 579, 677–8 ial economics; see Location theory cie-flow mechanism, 12–14, 19, 58, 94, 123, 131, 201 culation, 205 flation, 681 nation thesis; see Secular Stagnation c analysis; see Comparative static analysis and Dynamic analysis contrasted with static onary state in classical economics, 87, 181, 354, 392 Marx on, 261 Mill on, 206 in neo-classical economics, 544 in preclassical economics, 26 Ricardo on, 87–8, 126 stical revolution, 647 k market speculation, 657 ks, and flows, 216 istence theory of wages; see Wages, theories of subsistence titutability, gross, 553, 555, 569 titutes, 327, 426–7 titution in consumption, 99, 106, 146, 273, 327, 383, 459, 508 effect, 300, 323, 324–31, 517, 530 in production, 108, 130, 246, 411, 412, 415, 425–7, 429, 430, 436, 508, 523, 525; see also Marginal rate of substitution erneutrality of money, 639, 687 ply area; see Sales area ply curve backward sloping, 45, 365, 391, 469, 529–30, 554, 562 of credit, 525 of a firm, 429 forward falling, 365 of labour, long-run, 360, 363, 365, 390–1, 399, 429, 554 in short run, 45, 298–300, 399, 408, 653 as reserve demand curve, 469, 471–3 of saving, 386, 400, 484, 516–17 lus in economic theory, 234 lus value, uniform rate, in Marx, 20, 224–8, 267, 274, 532 ching theorem, 503–9, 543, 693 hronisation economics, 181, 500–2 eau Economique; see Physiocratic system gency solution, in Chamberlin, 377–9, 403, 425, 583, 693 es, constant, 338–9, 381, 469, 690 nnement, in Walras, 551, 554–7, 561, 562; see Equilibrium, stability of ologies, role of, 696–8 ation; see also Marginal utility, law of diminishing, and progressive income taxation ability to pay theory of, 59, 206 benefit theory of, 206, 587 canons of, 59, 206 direct versus indirect, 207, 588 of imports and exports, 207 income taxation, 206 lump-sum, 386–8 Marshall on, 693 optimal, 590 of rents, 29, 80–1, 82–3, 206 Ricardo on, 130–2 of site values, 92–3 Smith on, 50 onomy, role of, 7, 696–7 hnical progress, 87, 99, 103–6, 113–14, 129–30, 183, 201, 205, 238–9, 245–7, 422, 430, 432, 451, 454–68, 461, 466, 503, 567; see also Innovations ms of trade; see Foreign exchange ing of economic hypothesis, 6–7, 689, 695–8 ft, paradox of, 646, 655 e periods, concepts of, 354–5 e preference, 187, 261, 282, 383, 469, 481, 482–8, 512–15, 534, 655 es, 207 e unions, 180, 208, 248, 403 e-off, betweeen inflation and unemployment; see Phillips curve ning, Marshall on, 400, 401 saction costs, 584 sfer earnings, 81 sfer payments, theories of, 291–2; see also Balance of payment sformation problem, in Marx, 219–26, 266–8 sitivity, concept of, 333, 338–9, 469, 695 sport costs, 197, 200, 597, 598, 599–600, 602, 604–8, 610–11 sury view, 59, 169, 644–5, 648, 662–3 ertainty in Keynes, 673–4 in Knight, 394 and risk, 47, 394 in Smith, 46, 47 erconsumption, theories of, 161–3, 168, 243, 250, 265, 666 arned income; see Income, concepts of mployment; see also Employment, full and Keynesian system, unemployment equilibrium Keynesian and Marxian, 15–16, 166, 229, 262 natural rate of, 678–83, 693–4 structural, 239 technological, 260; see also Machinery question voluntary and involuntary, 652–3 y Laws, 55, 126, 156, 208 tarianism; see Hedonism ty, measurability of concept of, 337–8, 380, 472 measurability of, 39, 106, 114, 254, see also Interpersonal comparisons and Marginal utility and Value, theories of utility ty functions, additive and general, 311, 314–16, 323–4, 332, 335, 339, 384, 469, 529, 571 e invariable measure of, 49–50 standard of; see Measure of value surplus, theory of, in Marx, 217–18, 224–6, 228–9 rate of surplus value, in Marx, 217–19, 220, 224–7, 237, 257–9, 260, 266 relative and absolute, 260 use and exchange, 39, 106 e, theories of; see also Marginal utility and Utility, measurability of classical, 37–42, 280–1 cost-of-production, 37–9 esteem, 49, 50 labour-commanded and labour-embodied, 37, 49, 50, 51–2 labour-cost, 30, 38, 51–2, 90–3, 107–12, 120, 122, 190, 191, 223, 235, 227–9, 233–4, 252, 658 measure and cause of, 37–8, 106 in Mill, 188–91 paradox of, 39 in preclassical economics, 30 in Ricardo, 89–99, 93–6, 106–7, 529 Smith on, 37–9 subjective, 337–9, 545 utility, 30, 39, 311–16, 337–9 e-free economics; see Value judgements e judgement, 698–700, 703–4 ables, endogenous and exogenous, 692–3, 694 enesque Effect, 335, 348, 469, 583–4 city of circulation; see Money, velocity of circulation of -for-surplus doctrine, 202, 205 cutting, 644, 645, 660–1, 663–4 unit, 654, 655, 658 es absolute versus relative, 652, 682 compensating, 47–8 of managment, 45 money and real, 44, 114–15, 117, 262 natural and market, 43–4, 139 piece and time, 233, 261 and price of food, 44–5, 50, 114–15, 132, 185 and profits, in Ricardo, 96–7, 99, 103, 114–15, 139–40 product versus real, 528, 664 share of, 101, 115, 117, 247, 262 structure of, 46–8, 185 es, theories of bargaining, 43, 45 marginal productivity, 43, 399, 400, 407, 408–9, 652 Marshall on, 400 Marx on, 255–6 residual-claimant, 43 in Ricardo, 109–10 in Smith, 43–5, 50 Ricardo on, 107 Smith on, 43–5, 49–50 stickiness of money, 659, 669 subsistence, 43–5, 59, 72–3, 114, 131, 136, 180, 408 wages fund, 43, 59, 86, 90, 129–30, 131, 174, 177–81, 184–5, 188, 204, 261, 282, 286, 400, 419, 482, 488–9, 532, 536, 541, 544, 568 es fund doctrine; see Wages, theories of, wages fund es–population mechanism, 43, 72–3, 114, 140, 262 ting, as factor of production, 91, 174, 187–8, 386, 485, 500–1 ras’ Law, 145, 147, 193, 551 spending, 176 lth; see Income, concepts of er–Fechner Law, 294–5, 318 fare economics; see also Maximum satisfaction, doctrine of in classical economics, 53, 58 in Jevons, 296 Marshall on, 279 in neo-classical economics, 279, 286, 296, 315–16, 337–8, 340–52, 370–2, 375, 379, 380, 397–9, 470, 545, 560, 562, 569, 570, 575–80, 585–92, 594, 690, 692–3, 698, 700, 701 new, 127 Pareto on, 531, 571, 573–4, 577, 587 Pigou on, 580, 582–5 in Ricardo, 51, 53, 110–12, 127 in Smith, 48–52, 53, 58, 60, 110–12 Wicksell on, 530–1 el of wealth, 562 ksell Effect, 534, 540, 541–3, 546, 593 ingness to pay, as welfare measure, 340 e, optimum storage period of, 537–9 ... singularly untenable version of the relativist interpretation is to be found in L Rogin’s study The Meaning and Validity of Economic Theory (1956) In appraising the validity of an economic theory, ... approach, although in later editions the author goes no further than claiming that changes in economic institutions are ‘major influences’ – a question begging phrase! – on economic thinking Relativism... FURTHER READING SPATIAL ECONOMICS AND THE CLASSICAL THEORY OF LOCATION The isolated state Rent theory The Thünen problem again The theory of rings Industrial plant location theory The three-points problem