Metaphors in the History of Economic Thought: Crises, Business Cycles and Equilibrium 2022014084, 2022014085, 9780367701062, 9780367701079, 9781003144601

Table of contents :
Cover
Half Title
Series Page
Title Page
Copyright Page
Table of Contents
List of contributors
Introduction
PART I: Crises
1 Economic crises in 19th-century Italy: a cultural analysis
2 Clément Juglar’s epistemic use of metaphors
3 Riders on the storm: W. Stanley Jevons, meteorology and the analysis of ‘Commercial Fluctuations’
PART II: Business cycles
4 Stitching things together. Marshall on the economy as an ‘organic whole’
5 Differentiation, integration, and the great variety of organisms: biological origins of Werner Sombart’s business cycle theory
6 Biological, medical and physical metaphors in Germán Bernácer’s theory of business cycles (1916–1936)
7 The nature of monetary disturbances in Austrian and Swedish business cycle theories
8 How economics failed to understand crises. Constitutive metaphors in business cycle analysis, from Frisch to Real Business Cycles
PART III: Equilibrium
9 The pendulum and equilibrium: a survey
10 Statistical equilibrium in early 20th-century Italian economics
Name Index

Citation preview

Metaphors in the History of Economic Thought

Metaphors in the History of Economic Thought: Crises, Business Cycles and Equilibrium explores the evolution of economic theorizing through the lens of metaphors. The edited volume sheds light on metaphors which have been used by a range of key thinkers and schools of thought to describe economic crises, business cycles and economic equilibrium. Structured in three parts, the book examines an array of metaphors ranging from mechanics, waves, storms, medicine and beyond. The international panel of contributors focuses primarily on economic literature up to the Second World War, knowing again that the use of metaphors in economic work has seen a resurgence since the 1980s. This work will be of interest to advanced students and researchers in the history of economic thought, and economics and language. Roberto Baranzini is a professor in economics and in the history and philosophy of economics at the Centre Walras-Pareto, University of Lausanne, Switzerland. His research covers the second half of the 19th century and the beginning of the 20th century, focusing on the work of Léon Walras and on the Ecole de Lausanne until the 1960s. Daniele Besomi is senior research fellow at the Centre Walras-Pareto, University of Lausanne, Switzerland. His research centres on the history of business cycles and crises theories, and his writings include some on the key metaphors used frequently by writers on the subjects.

Routledge Studies in the History of Economics

Titles include: Competition, Value and Distribution in Classical Economics Studies in Long-Period Analysis Heinz D. Kurz and Neri Salvadori David Ricardo. An Intellectual Biography Sergio Cremaschi Humanity and Nature in Economic Thought Searching for the Organic Origins of the Economy Edited by Gábor Bíró European and Chinese Histories of Economic Thought Theories and Images of Good Governance Edited by Iwo Amelung and Bertram Schefold Adam Smith and The Wealth of Nations in Spain A History of Reception, Dissemination, Adaptation and Application, 1777–1840 Edited by Jesús Astigarraga and Juan Zabalza Immanuel Kant and Utilitarian Ethics Samuel Hollander Neo-Marxism and Post-Keynesian Economics From Kalecki to Sraffa and Joan Robinson Ludo Cuyvers Metaphors in the History of Economic Thought Crises, Business Cycles and Equilibrium Edited by Roberto Baranzini and Daniele Besomi For more information about this series, please visit: www.routledge.com/ series/SE0341

Metaphors in the History of Economic Thought Crises, Business Cycles and Equilibrium

Edited by Roberto Baranzini and Daniele Besomi

First published 2023 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2023 selection and editorial matter, Roberto Baranzini and Daniele Besomi; individual chapters, the contributors The right of Roberto Baranzini and Daniele Besomi to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Baranzini, Roberto, editor. | Besomi, Daniele, 1960- editor. Title: Metaphors in the history of economic thought: crises, business cycles and equilibrium / edited by Roberto Baranzini and Daniele Besomi. Description: Abingdon, Oxon; New York, NY: Routledge, 2023. | Series: Routledge studies in the history of economics | Includes bibliographical references and index. Identifiers: LCCN 2022014084 (print) | LCCN 2022014085 (ebook) | Subjects: LCSH: Economics—History. | Metaphor. Classification: LCC HB75.M46 2023 (print) | LCC HB75 (ebook) | DDC 330.09—dc23/eng/20220323 LC record available at https://lccn.loc.gov/2022014084 LC ebook record available at https://lccn.loc.gov/2022014085 ISBN: 978-0-367-70106-2 (hbk) ISBN: 978-0-367-70107-9 (pbk) ISBN: 978-1-003-14460-1 (ebk) DOI: 10.4324/9781003144601 Typeset in Bembo by codeMantra

Contents

List of contributors Introduction

vii 1

RO B E RTO BARANZI NI AND DANI E LE B E SO MI

PART I

Crises 1 Economic crises in 19th-century Italy: a cultural analysis

19

21

M O N I K A P O E T TI NGE R

2 Clément Juglar’s epistemic use of metaphors

51

RO B E RTO BARANZI NI AND DANI E LE B E SO MI

3 Riders on the storm: W. Stanley Jevons, meteorology and the analysis of ‘Commercial Fluctuations’

80

M I C H AE L V. W HI TE

PART II

Business cycles 4 Stitching things together. Marshall on the economy as an ‘organic whole’

121

123

H ARRO M A AS

5 Diferentiation, integration, and the great variety of organisms: biological origins of Werner Sombart’s business cycle theory M ARI U S K U STE R

145

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Contents

6 Biological, medical and physical metaphors in Germán Bernácer’s theory of business cycles (1916–1936)

172

J UA N A. Z ABALZA

7 The nature of monetary disturbances in Austrian and Swedish business cycle theories

187

B E RT T I E B E N

8 How economics failed to understand crises. Constitutive metaphors in business cycle analysis, from Frisch to Real Business Cycles

210

F R AN C I S C O LO UÇÃ

PART III

Equilibrium 9 The pendulum and equilibrium: a survey

227 229

DAN I E L E B E SO MI AND SO NYA MARI E SCOTT

10 Statistical equilibrium in early 20th-century Italian economics

265

G I A N F R AN C O TUSSE T

Name Index

285

Contributors

Roberto Baranzini is a professor in economics and in the history and philosophy of economics at the Centre Walras-Pareto for the history of economic and political thought at the University of Lausanne. His research covers the second half of the 19th century and the beginning of the 20th century and focuses on the work of Léon Walras and on the Ecole de Lausanne until the 1960s. Daniele Besomi is senior research fellow at the Centre Walras-Pareto (University of Lausanne). He has dedicated his studious life to the history of business cycles and crises theories. His writings include some discussing specific metaphors frequently used by writers on the subject. Marius Kuster studied history and economics at the University of Zurich. He is currently finishing his PhD at the Centre Walras-Pareto (University of Lausanne) in the history of economic thought. In his thesis, Kuster examines how biological metaphors have been invoked and applied by German economists in the late 19th and early 20th century. Francisco Louçã is a full professor of economics at Lisbon University. He recently published Shadow Networks—Financial disorder and the system that Caused Crisis (with Michael Ash, 2018, Oxford University Press) and had previously published The Years of High Econometrics—A Short history of the Generation that Reinvented Economics (2007, Routledge) and As Time Goes By—From the Industrial Revolutions to the Information Revolution (with Chris Freeman, 2001, Oxford University Press). Harro Maas is a professor in the history of economics at the Centre Walras-Pareto for the history of economic and political thought at the University of Lausanne. He published widely on political economy in the Victorian period and on the history of economic methods. He is currently working on the project “Moral Accounting Matters” funded by the Swiss National Science Foundation (SNSF) that aims to historicize current theories and practices of behavioural governance.

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Contributors

Monika Poettinger teaches economics and economic history at Polimoda, Florence, and history of economic thought at the University of Florence. Her main research interests are entrepreneurial migrations, merchant ethic in the industrialization process and liberal economic thought. Sonya Marie Scott  is an assistant professor in the Department of Social Science at York University, Canada. Her research focuses on economic subjectivity, epistemology, language and economic crises and the history of economic thought. She is author of Architectures of Economic Subjectivity: The Philosophical Foundations of the Subject in the History of Economic Thought (2013) and editor of Languages of Economic Crises (2021). Bert Tieben is an expert in regulatory economics and economic methodology at SEO Amsterdam Economics. He teaches history of economic thought at Amsterdam University College. His research focuses on the scientific strife between competing schools of thought in economics. He has published books on the Austrian school (Austrian Economics in Debate, Routledge) and the equilibrium theory (The Concept of Equilibrium in Different Economic Traditions, Edward Elgar). Gianfranco Tusset is professor of history of economic thought at the University of Padua. His research areas are mainly focused on monetary theory in a historical perspective and on text as data. Michael V. White is an independent scholar who divides his time between London and Melbourne, Australia. He has published extensively on the history of economics, with particular attention to 19th-century British political economy and the work of W. Stanley Jevons. Juan A. Zabalza  holds a PhD in economics and is associate professor in the Department of Applied Economic Analysis at the University of Alicante (Spain). His research has focused on economic doctrines, the institutional development of economics, intellectual history and the relationship between economic theory and economic policy.

Introduction Roberto Baranzini and Daniele Besomi

In the midst of the business depression of 1882–1885 and a few months after the panic of May 1884 in the U.S., an article in the Omaha Daily Bee felicitated on ‘getting along splendidly with our failures, our curtailments of production, our reductions of wages, and other economies’ as this would eventually prepare the country ‘to start anew with a good foundation to work on.’ It thus wished ‘that the process of natural selection through bankruptcy shall go on till the weak concerns are all weeded out. The feeble and unpromising kitten of the litter should be decently drowned and the strong ones left to thrive’ (Omaha Daily Bee 1884). The article gives no reason why bankruptcies should prepare a solid ground for business. Resorting to the image of natural selection, forcefully reinforced with an example of man-made selection, the author refers the reader (but possibly also himself ) to a process, the operation of which is better understood than that of bankruptcies (the abstract concept of ‘natural selection’ is even further exemplified by the reference to the weeding out and the kitten). The metaphor is meant to transfer to bankruptcies a property of natural selection, namely, the elimination of weak individuals and the survival of the strongest. In current terminology, ‘natural selection’ is the source of this metaphor, ‘bankruptcies’ are the target, while the properties to be transferred are the tertium comparationis. This example comes from a newspaper. The usage of images from outside the disciplinary source, however, is not limited to popular writings. We find it almost universally in the economic literature (and also in most other disciplines, hard sciences included1): in journal articles, textbooks and treatises; in the work of the pioneers as well as in the most recent literature; in all languages; in different uses, in particular as metaphors, analogies, similes or metonymies. They are applied with different purposes: to take up Hoffman’s conveniently concise list, scientific metaphors have been shown to serve a remarkable variety of functions: 1 To suggest new hypotheses, hypothetical concepts, entities, relations, events, or observation terms, 2 To predict and describe new phenomena or cause-effect relations,

DOI: 10.4324/9781003144601-1

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3 To give meaning to new theoretical concepts for unobservable or unobserved events, 4 To suggest new laws or principles, 5 To suggest new models [or] refinements of old ones, 6 To suggest new research methods or ideas for experiments or hypothesis tests, 7 To suggest choices between alternative hypotheses or theories, often a choice between more and less fruitful metaphors, 8 To suggest new methods for analyzing data, 9 To contrast theories or theoretical approaches, 10 To provide scientific explanations in the form of metaphoric redescriptions, 11 To suggest alterations or refinements in a theory, 12 To suggest new theories, theoretical systems, or world views. In a sense, metaphors, images, and models are embryonic theories in that they can lead to the generation of mathematical or other formalisms which other theorists then can use, perhaps without explicit reference to the initial images or models (Hoffman 1985, 332–333). Metaphors are thus frequently powerful ingredients in the thought process, be it in its phase of creation or of transmission. This book is based on the idea, forcefully stressed by metaphor scholars in various fields (from philosophy of science to linguistics), that metaphors enter at a very deep level in the understanding of problems and in their subsequent conceptualization. For this reason, the analysis of metaphors enables researchers to disclose the most fundamental principles of scientific theories. The metaphor is not only conducive to the formation of concepts, but also provides the guiding thread to the interpretation of the world (Blumenberg 1996, 88). As historians of economic thought, we consider the metaphors used by writers on economic subjects both as a problem and as an opportunity, due to their peculiar working (similar to that of other related figures of speech such as analogies and similes) in the construction of an argument. Let us specify from the outset that since we are interested in this peculiarity common to these tropes rather than in what distinguishes them, in what follows we will not make an effort to establish specific definitions (on which the literature on the subject scarcely finds an agreement) but will consider them as a general category, for indicating which we shall (metonymically) use the term ‘metaphor.’2 As its etymology indicates, a metaphor is a transfer: its usage involves the transferring of some features or properties from one object or discipline to another. This means that a metaphor implies three terms in the comparison: a source; a target; and, crucially, a comparison term (tertium comparationis) that may, or may not, be explicit or precisely inferable from the context.

Introduction 3

We begin by considering four examples to illustrate some of the various cases of such triads one could meet. These will serve as a basis of our discussion and provide the rationale for the project culminating in the present volume. They are all drawn from the economic domains on which the volume focuses, namely, crises, business cycles and equilibrium (on this, see more below). Let us begin with a pair of expressions that most would consider as proper metaphors. John G. Kinnear noted in 1847 that the public was accustomed to seeing monetary storm[s] passing away after a few months, and all things restored to their wonted order and regularity—that the public seem almost to have come to the conclusion that these periodical tradequakes are phenomena inherent in our commercial system—the storm by which an overcharged atmosphere is restored to its proper equilibrium and purity. (Kinnear 1847, i–ii) One comparison is between earthquakes and crises (while the target is not explicit in this passage, it is unequivocally inferable from the context: the book is titled Crisis and the currency, and the chapter from which the quotation is extracted is devoted to the ‘Features of the crisis’). While the contraction ‘tradequake’ is evocative and highly original, the author does not specify what features are transferred from quakes to trade; it is surely something bad: he probably refers to the damage that both quakes and crises cause, and perhaps also their sudden and unpredictable character, but this is left to the interpretation of the reader. In this case, the connotation that can be given is only limited by the properties that the reader attributes to earthquakes—that is, by his or her culture (from knowledge to presumptions) about quakes. It can refer, for example, to the death and destruction they create, but also to some areas being hit harder than others, or to shockwaves propagated far away, or to tremors warning in advance of their occurrence. Indeed, all these properties have been taken up in the literature at some point with reference to crises. Whatever the author had in mind, readers are free to read in the metaphor whatever they find suitable to their understanding of both quakes and crises. Since Kinnear wanted to convey the idea that crises are recurring, and recurrence is not among the recognized properties of quakes, he had to add the explicit specification that tradequakes are periodical,3 which would not have been necessary if he had referred to some other trope like, for instance, the cycle of seasons or the tides. When using the ‘storm’ metaphor, Kinnear specifies instead at least one of the features he intends to transfer from the meteorological source to the economic target: storms clear the atmosphere from the excesses of impurities it contains—thereby implying that the crisis is caused by such an excess of extraneous corruption. This does not seem to be a scientific reference: meteorologists at the time were debating storm theory in terms of differences

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of pressure and speed and direction of the wind (see, e.g., the anonymous review of several papers on the theory of storms, The North American Review 1844), while the idea that storms clear the air (without specifying what would be eliminated) was already almost idiomatic at the beginning of the 19th century, and indeed frequently appears in association with crises (see Besomi 2014). Far less common is the addition that storms, by eliminating the impurities, restore equilibrium. Equilibrium is thus implicitly defined as the absence of impurities, even if it remains unclear from this passage what the impurities are. Storms naturally possess several properties and features. The author has decided to focus on one only, the atmosphere clearing. This is explicit, and the reader cannot disregard the author’s intention. Yet, again, even if the interpretation of the passage is unequivocal, the reader can choose to make further use of the metaphor by adding possible transfers to crises from the storms affecting the weather. The metaphor is thus suggestive of further meaning, due to the richness of the original source—and indeed the storm trope is recurrent in the literature (see Besomi 2014). As a second example, let us consider an oft-quoted equilibrium metaphor (or simile to be precise) by Léon Walras: market equilibrium as the level of a lake (probably Lake Geneva, on the shores of which Walras lived). The quote appears in Part VII, Conditions and consequences of economic progress, which in the final architecture (since 1900) of the Elements of Pure Economics or the Theory of Social Wealth is located outside the construction of general economic equilibrium (Parts II–VI). In Walras’s view, general equilibrium is in fact an ideal and timeless construct. In lecture 35 on ‘The continuous market,’ Walras at first drops ‘the assumption of an indefinite period and imagine[s], instead, a determinate period’ of a year ([1926] 1954, ¶319),4 and ‘in order to come still more closely to reality’ finally adopts the hypothesis that exchanges take place in a continuum ([1926] 1954, ¶322). Thus, outside the framework of general economic equilibrium, the adjustment process in the (continuous) market is no longer abstract and timeless, but (more) ‘realistic’ by taking into account the fact that adjustments are not immediate but need time. The famous simile is found in the paragraph that closes this lecture: In this respect, the [continuous] market is like a lake agitated by the wind, where the water is always seeking its equilibrium without ever reaching it. There are days, however, when the surface of the lake is almost horizontal; but there are no days when the effective supply of services and products is equal to their effective demand, and the selling price of products is equal to their cost price in terms of producing services. (Walras 1988, 580; our translation)5 The continuous market is perpetually tending towards equilibrium without ever actually attaining it, because the market has no other way of approaching equilibrium

Introduction 5

except by groping [tâtonnement], and, before the goal is reached, it has to renew its efforts and start over again, all the basic data of the problem […] having changed in the meantime. ([1926] 1954, 380) The continuous market tends towards equilibrium, but because of incessant (exogenous) perturbations it is unattainable. If one were to limit oneself to the first sentence of the quotation, one might get the impression that the property that is transferred from the lake to the economic sphere is the natural and inevitable convergence towards an equilibrium level. Indeed, Walras is not referring to the sea, whose tides are a periodic phenomenon that might suggest an idea of an economic cycle around which the waves f luctuate, but to the horizontal level of the lake. On the one hand, with his simile Walras stresses that the lake admits a level of equilibrium; on the other hand, he denies that the simile strictly applies to actual markets. He is thus interested in the effect of the wind, insofar as it prevents the water from levelling out. The second sentence of the quotation is explicit: in the actual economic world, equilibrium is never achieved, nor does it come close to the calm of a windless day, because there is always some perturbation and sometimes even a storm. Thus, Walras concludes his lecture by spinning the metaphor: just as a lake is, at times, stirred to its very dephts by a storm, so also the market is sometimes thrown into violent confusion by crises, which are sudden and general disturbances of equilibrium. The more we know of the ideal conditions of equilibrium, the better we shall be able to control or prevent these crises.6 (Walras [1926] 1954, 381) As a third example, consider this passage by Irving Fisher detailing an analogy (most would consider it as such) between the mechanism of the oscillations of prices and of a pendulum: We have considered the rise, culmination, fall, and recovery of prices. These changes are abnormal oscillations, due to some initial disturbance. The upward and downward movements taken together constitute a complete credit cycle, which resembles the forward and backward movements of a pendulum.7 In most cases the time occupied by the swing of the commercial pendulum to and fro is about ten years. While the pendulum is continually seeking a stable position, practically there is almost always some occurrence to prevent perfect equilibrium. Oscillations are set up which, though tending to be self-corrective, are continually perpetuated by fresh disturbances. Any cause which disturbs equilibrium will suffice to set up oscillations. One of the most common of such causes is an increase in the quantity of money. Another is a shock

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to business confidence (affecting enterprise, loans, and deposits). A third is short crops, affecting the Q’s [the total quantity exchanged]. A fourth is invention. (Fisher 1911, 70) Here the pendulum provides a mechanism explaining how the f luctuations of prices are generated and kept alive. The features of the pendulum transferred to prices are: a tendency to return to equilibrium (its stable position) after a disturbance; the oscillatory movement; and a time period during which the pendulum completes a full cycle. Fisher does not specify how the pendulum is constructed (supposedly because the knowledge of the pendulum could be assumed to be fairly universal), or that the pendulum is subject to friction. The latter unstated assumption is rather selective, as one can imagine either the frictionless oscillations of an ideal pendulum in a void or some mechanism exactly compensating the loss of energy due to the friction of air (for instance, the escapement mechanism of the pendulum of a clock), or even a mechanism overcompensating for friction thereby making the pendulum unstable.8 The analogy works by imagining that the pendulum is subject to repeated disturbances that keep it in motion by offsetting its tendency to seek its position of rest. It omitted, however, to explain how shocks of different nature and intensity, hitting the pendulum at various stages of its oscillating path, could keep alive a semi-regular cycle. For this, we would have to wait for Ragnar Frisch’s contribution, proving that erratic impulses hitting a stable pendulum would give rise precisely to such a cycle. Fisher’s analogy thus relied on an intuition rather than on a fully developed analysis. In spite of the wide diffusion of Fisher’s book, his analogy did not eventually prove to be fruitful, as it lacked the specification that later put Frisch on the right track, that is, Wicksell’s analogy with a rocking horse hit by a club, with the specific hint that the movement of the horse is rather different than the movement of the club (for a discussion see Section 8.4). The fourth instance concerns another transfer from physics to the economics of crises: If the experience of the past year, instead of stupifying us with sterile wonder, shall excite us to discover from latent causes, the law of the financial phenomena which have recently terrified the commercial world scarcely less than the appearance of an unpredicted comet would have done, the crisis of 1857 may yet be hailed in the future, as the dawn of an auspicious era in the history of suffering humanity. Adopting the method of scientific observers, in ascertaining the laws of motion for the purpose of calculating and fixing the periodical recurrence of celestial phenomena, let us endeavor to trace financial, industrial and social facts to their antecedents, and having solved their law of similitude and succession, apply it for our safe conduct and guidance in the future. Now, while the facts are conceded, and but too universally felt in their

Introduction 7

consequences, let us investigate causes; discover laws, and apply remedies which may relieve us from future evil, and from the fear of them. (New York (State) Legislature. Senate, 1858, 5) What is explicitly transferred here is not a set of properties from an object to another, but the method of inquiry from celestial physics to the economics of the financial crisis, with the purpose of ascertaining their periodicity—a topic that, at the time, was very much discussed in the literature. The comment on the comet refers to the two usages of this trope to describe the outbreak of crises: on the one hand, unannounced comets were seen as omens of calamity and their appearance accordingly caused panics, but, on the other hand, the discovery of periodical comets permitted to reverse the interpretation, from panics as unexplained and unexpected (therefore abnormal) phenomena to crises recurring with some regularity, therefore subject to some law making them part and parcel of the normal course of affairs. These examples serve to show how versatile metaphors are. Besides their purely aesthetic function, the transfer of properties can be applied to different stages of economic reasoning: from the properties of the object to the mechanisms in action, from the method of inquiry to the epistemological approach to the general interpretation of phenomena (that is, the worldview). The tertium comparationis may be explicit or only implicit, but since the transferred properties are selective (if the target were completely isomorphic to the source, it would be identical to it), the reader can perceive that other properties of the source can be applied to the target, besides those explicitly listed; this may induce error by opening the possibility of transferring some features of the source that are not pertinent to the target, but can also play a heuristic function by enabling to discover features of the target that were not perceived before. Our emphasis will be in particular on the tertium comparationis, that is, on the properties or features that are transferred from the source to the target of the metaphor. A writer’s purpose of using a metaphor is not that of generally comparing source and target, but that of conveying some meaning by means of the comparison. Likening, for instance, crises to storms is far from univocal. Writers in the early 1800s focused on the destructive power of storms and on their bursting out of the blue sky; this ref lects their understanding of crises as purely negative events, extraneous to the normal working of the economic system, caused by anomalous (and probably evil) events. In the middle of the 19th century, writers emphasized instead that storms as well as crises can be seen gathering and purify the atmosphere, eliminating the excesses of which the air is loaded; the emphasis on these features depicts crises as the inevitable and predictable result of the speculative frenzy taking place in the late phase of the prosperity. Stressing instead that, as stormy rain fertilizes the soil, crises actively create the premises for a recovery ref lects an understanding of crises as a phase of a cycle of events (see Besomi 2014). The same source can thus transfer completely different meanings; conversely, the same implication

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can be transferred by referring to different sources. For instance, surprise and suddenness have been conveyed by referring to storms, earthquakes, non-periodical comets; the chain-spreading of failures and bankruptcies has been described by means of epidemics, viruses, wildfires, dominoes, maelstroms; the destructiveness of crises has been represented again by storms, earthquakes, but also tides; the tides also served to characterize the periodicity of crises, together with the pendulum, recurrent fevers, periodical comets, the return of seasons, old faithful geysers, steam engines; the instability of prosperity has been evoked by means of explosions, sand castles, rotten structures, houses of cards, full glasses and loaded camel backs, while the stability of equilibrium has been referred to water surfaces, pendulums with friction, balls rolling in bowls. The same trope can thus be used to support widely different interpretations of crises, while the same characterization can be obtained by using different sources. It is therefore quite unhelpful to identify and catalogue the association between source and target without specifying what precisely is selectively transferred from the former to the latter. Our approach will therefore be radically different from the blooming literature produced by linguists on the metaphors for the recent crises9: while their classified lists of tropes to which this or that crisis is compared (often with reference to the daily or the financial press) are surely entertaining, one cannot assume without further exploration that sources belonging to the same domain always carry the same implications. As indicated above, the topic of this book is the usage of metaphors in the description of crises, cycles and equilibrium. ‘Equilibrium’ is a central concept in most theoretical approaches to economics, although different traditions of thought understand it in different ways: classical economists interpreted it either as the natural order of things, or as a gravitational concept indicating the state towards which the economic system tends, or in dynamic terms (Tieben 2012), or again in terms of the conditions at which the system can preserve and reproduce its own state (Lunghini 1988); since the 1870s, ‘marginalist’ economists understood it as a mathematical condition or as the solution of a system of equations, or as a position of rest (Dore 1984), as a balance of forces or as a state where there are no tendencies to change. Notwithstanding the differences in interpretation, most economic theories are constructed precisely around the equilibrium concept. Its attributes may be (again, depending on the traditions of thought to which the theories belong) a general well-being, the clearing of markets, the smooth running of business, the absence of non-frictional unemployment, optimality in some sense: all features very suitable for an ideological interpretation of the working of the economic system. Most economists believe that the economic system tends towards a state of equilibrium; a few consider instead such a condition to be unstable, provided that it can be reached at all. Yet the economy is fairly frequently (and almost regularly) subject to crises of various degrees of seriousness, or at least to remarkable f luctuations in time.

Introduction 9

Such events are characterized by the interruption of credit, trade and production, unemployment of labour and capital, loss of income, gluts of markets— in short, the opposite of what is supposed to take place in equilibrium. Crises (and cycles) and equilibrium are antinomic, yet complementary, concepts: the crisis can only be understood by comparison to equilibrium. The crisis is a condition of disequilibrium,10 and the economists who believe that the economy tends towards equilibrium have to introduce within their theoretical system the possibility that equilibrium is temporarily broken (due, e.g., to friction or temporary maladjustments, or to external or political disturbances) in order to account for crises; on the contrary, economists who believe that the economic system’s equilibrium is unstable must explain why the economy fails to break down but continues to function, even if not in an optimal way. Arguably, it is precisely in the relationship of crises and equilibrium that lies one of the most fundamental dichotomies in economic thought. As Keynes loosely11 but elegantly put it: On the one side are those who believe that the existing economic system is, in the long-run, a self-adjusting system, though with creaks and groans and jerks, and interrupted by time lags, outside interference and mistakes. […] These authorities do not, of course, believe that the system is automatically or immediately self-adjusting. But they do believe that it has an inherent tendency towards self-adjustment, if it is not interfered with and if the action of change is not too rapid. On the other side of the gulf are those who reject the idea that the existing economic system is, in any significant sense, self-adjusting. They believe that the failure of effective demand to reach the full potentialities of supply, in spite of human psychological demand being immensely far from satisfied for the vast majority of individuals, is due to much more fundamental causes. (Keynes 1934, 486–487) It goes without saying that Keynes placed himself among the ‘heretics’ of the second group. The dichotomy originally depicted by Löwe (1926), however, was explicitly accepted as fundamental also by ‘orthodox’ writers such as Hayek (1929) or by business cycle theorists such as Mitchell (1927, 3–4), Bouniatian (1922, 3–4), Harrod (1934, 469) and especially Kuznets (1930).12 While the writers in the 1920s could have a comprehensive enough view of the development of the discipline to discuss it openly, the relationship of crises and equilibrium was at the forefront even for the first writers on the subject, although the conceptual apparatus was not always well defined—in particular, ‘equilibrium’ was a concept that in some way provided a reference point but was hard to pinpoint with precision, so much as the economic sense of the term does not seem to have found a way to a dedicated entry in dictionaries before 1870 (Loulergue 2021), while the first entry on crises in economic dictionaries was published in 1835 and many followed in the subsequent years (Besomi 2011b).

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Claims that economic crises (or commercial distress, panics, revulsions, convulsions, depression, as they were denoted at different times: Besomi 2011a) periodically disrupt the regular course of business date back at least to the end of the 18th century (Sinclair 1796, 23), as do the first attempts to characterize their features. Early writers revealed the common traits of these phenomena in the early decades of the century, and by the middle of the century, it was fairly largely agreed that crises tended to recur with a decennial rhythm, that they were a consequence of what happens during the prosperous phase (often characterized as ‘excesses’) and that in their aftermath more viable conditions of trade were re-established. The rapid acceleration of the literature on crises (often of a topical character) throughout the 19th century witnesses of the importance generally attributed to the subject. Nevertheless, specific explanations of the phenomenon differed, as did the suggested remedies and the very notions of crises. A survey of the definitions of the term ‘crisis,’ however, boils down to two major families: those defining crises in terms of one or another of their features (e.g., disruption of credit, stoppage of exchanges, fall of prices) and those defining them as disturbances (or the result of disturbances). Among the latter, some writers explicitly defined crises as a disturbance to the equilibrium of production and demand (most of the writers in this group were German-speaking), and others defined them as disturbances to an ill-defined ‘normal’ or ‘healthy’ state of affairs (see Besomi 2011a, 80–84). Sometimes, one can easily recognize ‘equilibrium’ in this generic ‘normal’ state, in particular as ‘normal’ was understood as a theoretical norm (not to be confused with today’s statistical sense of the term); in other cases, the conceptual relationship between ‘normal’ and ‘equilibrium’ is fuzzier, although the features of the ‘normal’ often have common traits with the features associated with equilibrium. Be it as it is, more often than not the idea of ‘crisis’ has something to do with the notion of ‘equilibrium’ or at least of a ‘normal state’ of the economic system. This relationship between crises, equilibrium and the ‘normal’ at the end of the 19th century is not well defined, in part because there were not many explicit and precise definitions of terms, and in part because all these notions were undergoing conceptual changes, in particular in the second half of the 19th century and in the early decades of the 20th. Moreover, the relationship is not even symmetric: while crisis theorists often referred to equilibrium in order to identify the cause of disruption, equilibrium theorists carefully avoid referring to crises, except for blaming them on causes exogenous to the ‘proper’ working of the system. At the turn of the 20th century, crises were more and more frequently interpreted as part of a cyclical evolution, with each phase of the cycle causing (rather than simply preceding) the next. A few decades later, moreover, the subject was increasingly discussed in mathematical terms by means of functional equations, often with reference to physical analogues—the pendulum, in particular. For the writers who saw equilibrium as stable, the problem was that of the persistence of the cycle, to be maintained by means

Introduction 11

of external impulses contrasting the tendency of movement to peter out. The writers who saw equilibrium as unstable resorted instead to amplifying mechanisms either constrained by limiting factors (such as full employment ceilings) or regulated by some sort of escapement mechanism. Finally, from the 1970s, equilibrium and real business cycles interpreted cycles as equilibrium responses to exogenous changes, either monetary or real, thus returning to the early 19th-century approach that saw commercial f luctuations as oscillatory responses to the changes regularly occurring either on the demand or on the supply side. This book originates from a conference on ‘The usage of metaphors in the theorization of crises, cycles and equilibrium’ held in October 2019 at the Centre Walras Pareto at the University of Lausanne, Switzerland. The participants were invited to explore some episodes of this history, focusing on the metaphors that were called to discuss crises, cycles or equilibrium, sometimes separately but often jointly. Each of the resulting chapters focuses on one or more transfers to the subject of economic equilibrium and/or crises from another domain—mostly physics, biology, meteorology or medicine— the users of the metaphors sometimes having the technical competence to do so but at other times referring to a common sense interpretation of the subject. Some of the transfers concern the properties of the object of analysis, and others concern the method of inquiry, the epistemological approach, the general interpretation of the subject or sometimes simply its exposition. Some are extremely precise, others more generic and allow for a margin of interpretation. It would naturally be impossible to cover the entire spectrum of different metaphors and their applications to our subjects, but we think that the sample we are offering includes significant case studies. Let us offer a quick summary of the properties that are transferred from other domains to our subjects as discussed in the various chapters. In the first part we grouped, in approximately chronological order, the papers concerned with the debates on crises in the 19th century. Monika Poettinger shows that when using the term ‘crisis’ in economic writings in the 19th century, Italian authors relied either on the Hippocratic or to the Galenian notion of the terms as was lively debated in the medical literature at the time, respectively emphasizing that the crisis is the moment of purification of the sick organism or that it can signify its demise and eventual death. The transfer therefore concerned the definition of the terms, but with it came the very understanding of the concept and its political interpretation, with Liberal economists referring to the Hippocratic tradition while Socialists and Catholics transferred the Galenian meaning. Roberto Baranzini and Daniele Besomi inquire on Clément Juglar’s rich and variegate use of metaphors at various stages of his theorizing. The medical notion of ‘predisposition’ to a disease was elaborated into a causation principle, leading Juglar to reject the multicausal explanations of crises blaming them on extraneous events to uphold instead a theory seeing the primary cause of crises

12 Roberto Baranzini and Daniele Besomi

in the building up of speculation on credit during the prosperity; along the same line, he explained the role of accidental causes by means of other metaphors stressing the instability of the prosperous phase, namely, the glass of water already filled to the top and the mine prepared to explode, both of which only require a marginal shock in order to produce a complete turn of the events. Other metaphors played a lesser role in his construction but are nonetheless interesting as revealing the lack of specific analytical mechanisms explaining some phenomena, such as the use of the medical metaphor to indicate the return to equilibrium after a crisis. Michael White recounts how, from the very beginning of his investigation on the f luctuations of prices, Jevons transferred the method of scientific investigation from meteorology (a discipline in which he was well versed, having published a number of articles on weather and climate when he was an assayer in Australia) to the analysis of crises—in particular, by means of the construction of graphics representing numerical laws. The five chapters in Part 2 deal with business cycles, a notion that took over from ‘crises’ at the turn of the century. Harro Maas is also concerned with graphical elaborations: he is interested not as much in accounting for the properties of biological systems that Marshall maintained are shared between biological and economic systems, namely, the entanglement and interrelatedness of their components, but rather in Marshall’s search for a method that would allow him to account for such an irreducible complexity in the analysis of crises and f luctuations—noticeably, without transferring the method of biology. There follows the case of Werner Sombart. Marius Kuster finds an analogical transfer at the foundation of his theory of the business cycle. The theory is based on the disproportionalities between the relative productions of different kinds of industries through the different phases of the cycle. Sombart saw the origin of these discrepancies in the industries’ different degrees of economic organization, which he understood by analogy with Haeckel’s biological principle of differentiation and integration. While it was originally applied to the colonies of polyps constituting the siphonophore, where individual polyps or medusae zooids differentiate by specializing into specific tasks and integrate by cooperating, Sombart interpreted the development of increasingly complex organization of individual firms or entire industries as resulting from the analogous process of division of labour and cooperation. He thus transferred from biology the idea that the differentiation of tasks requires accrued coordination in order to increase the performance of the firm or the industry, in a growingly complex (and increasingly productive) business organization. After summarizing the various (but rarely occurring) metaphors applied to crises in the scarce Spanish literature, Juan Zabalza focuses on the contribution of Germán Bernácer. In his first writings during and immediately following WWI, Bernácer explicitly drew a parallel between some economic and physical laws; concerning crises, he compared the spreading of their effects to the waves caused by a stone thrown into a pond, and more originally

Introduction 13

he drew an analogy between the amplifying of small causes of a crisis into disproportionately large effects to the exothermic decomposition of matter; he also compared the role of the f luctuations of disposable funds in his cycle mechanism to that of the regulation of energy in metabolism. In his later writings, Bernácer switched to a more generic usage of tropes, mostly medical ones, for illustrative rather than analytical or exegetic purposes. Bert Tieben compares the use of mechanical metaphors in the writings of the Swedish and Austrian economists in the interwar years. Their common starting point is Wicksell’s discussion of prices and interest rates: he represented the degree of stability of equilibrium using the images of a spring and of a cylinder resting (but being capable of moving if pushed) on a f lat surface, depending on the organization of the monetary system. Both the Swedes and the Austrians accepted that price f luctuations are a disequilibrium processes, and abandoned equilibrium theory. The Swedes focused on the sequence of adjustment in time, the new metaphor being that of mechanical processes from which the procedure was adopted. The Austrian still referred to mechanical equilibrium in order to emphasize, by contrast with the features of a state of rest, the paradoxical and inconsistent consequences of a static approach if applied to a monetary economy. Finally, after reviewing the pervasiveness and significance of some major metaphors in the history of science and of economics, Francisco Louçã traces the main lines of development of business cycle theory following the founding metaphor of the rocking horse (and its mathematical equivalent, a forced pendulum) propounded by Wicksell and elaborated by Frisch. He shows how the emphasis shifted from the propagation part on which Frisch focused to the impulse component when the problem was taken up by equilibrium and then real business cycle theory—all, however, neglecting the problem of the nature of the impulses, taken to be exogenous, and ignoring Schumpeter’s plea to discuss their origin as a product of the system dynamics itself. In the first chapter of Part 3 devoted to equilibrium, Daniele Besomi and Sonya Marie Scott examine a completely different use of the pendulum trope, focusing on its movement towards, rather than around, its position of rest. They thus survey its usage in the shaping of the notion of equilibrium and in its criticism. Depending on the feature of the pendulum being transferred, equilibrium was defined in different ways: as the midpoint of oscillations, or as the state towards which the economic system tends—more often than not, omitting all considerations as to the way in which the value of variables moves towards that position, and sometimes using the stability of the pendulum as a substitute of a proper explanation of why equilibrium is an attractor for the economic system. The pendulum itself was set up in different configurations (e.g., being enabled to move along curtain railings of various shapes) in order to produce different stability results, which were used not only to characterize equilibrium in different ways, but also to discuss the distinction between statics and dynamics with respect to equilibrium, and to refute neoclassical equilibrium economics for its timelessness.

14

Roberto Baranzini and Daniele Besomi

A more sophisticated branch of physical transfer is examined by Gianfranco Tusset, who discusses the case of the Italian writers who anticipated some themes of econophysics when they took up Pareto’s hint that within certain groups (though not for society as a whole) individuals can be considered independent molecules subject to general rules, and that the social equilibrium results from the interaction of all these groups. These writers of different backgrounds (economists, mathematicians, statisticians) elaborated on Pareto’s income distribution analysis interpreting society, or its subgroups, as if its members were particles of gas inside a container, and applied the tools and models used in statistical physics. Almost all the examples discussed in this book illustrate ‘good’ metaphors, that is, transfers that helped their authors to understand their problems under a different light. A few instances, however, also show how inappropriate transfers can lack pertinence or attribute to their targets some features which alter their very nature, thereby conducing to misleading conclusions. Metaphors can be extremely deceptive, but can also have a heuristic value precisely because they assist in the process of thought, not much by unveiling something that was already there, but by creating a similitude that did not exist before. As historians of economic thought, we are interested in both these aspects—the process of discovery and communication and, conversely, the nature of the criticisms based on the rejection of inappropriate metaphors. Close examination of the metaphorical transfer helps in revealing the intents of their users, even when they are hidden behind the technical language in which economics is often couched. This, partial as it is, is what we hope to have contributed with this volume.

Acknowledgement We are grateful to all the participants in the conference, including the authors of papers that have not been included in the final collection, for the incisive discussions on the original formulation from which we have all benefited. This research was supported by Swiss Science Foundation (SNSF, grant no. 100018_169900).

Notes 1 See a list of disciplines in which the usage of metaphors has been documented in Hoffman 1985, 329. 2 This practice is followed routinely by the journal Metaphor and the social world, acknowledging that the borderline between metaphors and other types of figurative language is often blurred and inviting researchers to extend the domain of inquiry into different types of tropes in so far as they are relevant to the process of interaction of thought and language (Cameron and Low 2011). 3 On ‘periodicity’ in the sense of ‘recurrence,’ see Besomi 2010. 4 In the first three editions of the Elements, Walras seems clearer: ‘let’s move from the assumption of a once-and-for-all market to a periodically held market’

Introduction 15 (passons de l’hypothèse d’un marché qui se tiendrait une fois pour toutes à celle d’un marché qui se tiendrait périodiquement) (1988, 576; our translation). Inexplicably, however, in the recent translation of the third edition of the Element, ‘un marché qui se tiendrait une fois pour toutes’ (once-and-for-all market) becomes ‘a market that is held continuously’ [sic!]. (Walras [1889] 2014, 315). 5 ‘Il en est, à cet égard, du marché comme d’un lac agité par le vent et où l’eau cherche toujours son équilibre sans jamais l’atteindre. Il y a pourtant des jours où la surface du lac est presque horizontale; mais il n’y en a point où l’offre effective des services et des produits soit égale à leur demande effective et le prix de vente des produits égal à leur prix de revient en services producteurs.’ (Walras 1988, 580). Jaffé translation: Viewed in this way, the [continuous] market is like a lake agitated by the wind, where the water is incessantly seeking its level without ever reaching it. But whereas there are days when the surface of a lake is almost smooth, there never is a day when the effective demand for products and services equals their effective supply and when the selling price of products equals the cost of the productive services used in making them. (Walras [1926] 1954, §322) 6 ‘de même que le lac est parfois profondément troublé par l’orage, de même aussi le marché est parfois violemment agité par des crises, qui sont des troubles subits et généraux de l’équilibre. Et l’on pourrait d’autant mieux réprimer ou prévenir ces crises qu’on connaîtrait mieux les conditions idéales de l’équilibre.’ (Walras 1988, 580). 7 For a mathematical treatment of this analogy, see Pareto, Cours d’économie politique, Lausanne, 1897, 282–284. [Fisher’s footnote]. 8 Goodwin imagined such a pendulum as an analogue to Hick’s theory of the cycle: Goodwin 1950, 318. 9 See for instance Bickes et al. 2014, Bounegru and Forceville 2011, Charteris-Back and Ellis 2001, Puehringer and Hirte 2013, Silaški and Đurovic‘ 2010, Soddemann 2013, Urbonait and Šeškauskien 2007, Wang et al. 2013, Arrese 2015, White 2004, Charteris-Back and Ellis 2001, Kelly 2001, Bickes et al. 2014, Bounegru and Forceville 2011, Charteris-Back and Ellis 2001, Esager 2011, Kelly 2001, Puehringer and Hirte 2013, Silaški and Đurovic‘ 2011, Soddemann 2013, Zanini 2009, Horner 2011, Stronach et al. 2014, Arrese and Vara-Miguel 2016, Piromalli 2021. 10 Such a statement would hardly have been disputed until the advent of equilibrium and real business cycle theories in the late 1970s. 11 The passage is cited from a radio talk, hence the use of the intuitive term ‘selfadjustment’ in contrast with the more technical expressions ‘equilibrium’ and ‘stability.’ 12 See Besomi 2006.

References Arrese, Angel. 2015. ‘Euro crisis metaphors in the Spanish press.’ Communication & Society 28 (2): 19–38. https://doi.org/10.15581/003.28.2.19-38 Arrese, Angel, and Vara-Miguel. 2016. ‘A comparative study of metaphors in press reporting of the Euro crisis.’ Discourse & Society 27 (2): 133–155. https://doi. org/10.1177/0957926515611552 Besomi, Daniele. 2006. ‘Tendency to equilibrium, the possibility of crisis, and the history of business cycle theories.’ History of Economic Ideas 14 (2): 53–104. https:// doi.org/10.1400/57565

16 Roberto Baranzini and Daniele Besomi ———. 2010. ‘The periodicity of crises. A survey of the literature before 1850.’ Journal of the History of Economic Thought 32 (1): 85–132. https://doi.org/10.1017/ S1053837209990447 ———. 2011a. ‘Naming crises. A note on semantics and chronology.’ In Crises and cycles in economic dictionaries and encyclopedias, edited by Daniele Besomi, 54–132. London: Routledge. https://doi.org/10.4324/9780203816547 ———. 2011b. ‘Dictionary reconstructions of the history of the theories of crises and cycles. A meta-taxonomy.’ In Crises and cycles in economic dictionaries and encyclopedias, edited by Daniele Besomi, 133–164. London: Routledge. https://doi. org/10.4324/9780203816547 ———. 2014. ‘Tempests of the business world: Weather metaphors for crises in the nineteenth century.’ In Economics and other branches—In the shade of the oak tree: Essays in honour of Pascal Bridel, edited by Roberto Baranzini and François Allisson, 291–308. London: Pickering and Chatto. Bickes, Hans, Tina Otten, and Laura Chelsea Weymann. 2016. ‘The financial crisis in the German and English press: Metaphorical structures in the media coverage on Greece, Spain and Italy.’ Discourse & Society 25 (4): 424–445. https://doi. org/10.1177/0957926514536956 Blumenberg, Hans. 1996. Shipwreck with spectator: Paradigm of a metaphor for existence. Translated by Steven Rendall. Cambridge, MA: The MIT Press. Bounegru, Liliana, and Charles Forceville. 2011. ‘Metaphors in editorial cartoons representing the global financial crisis.’ Visual Communication 10 (2): 209–229. https://doi.org/10.1177/1470357211398446 Bouniatian, Mentor. 1922. Les crises économiques: Essai de morphologie et théorie des crises économiques périodiques et de théorie de la conjoncture économique. Paris: Giard. Cameron, Lynne, and Graham Low. 2011. ‘Metaphor and the Social World: Introduction to the first issue.’ Metaphor and the Social World 1 (1): 1–5. https://doi. org/10.1075/msw.1.1.01cam Charteris-Black, Jonathan, and Timothy Ennis. 2001. ‘A comparative study of metaphor in Spanish and English financial reporting.’ English for Specific Purposes 20 (3): 249–266. https://doi.org/10.1016/S0889-4906(00)00009-0 Dore, Mohammed H. I. 1984–1985. ‘On the concept of equilibrium.’ Journal of Post Keynesian Economics 7 (2): 193–206. https://doi.org/10.1080/01603477.1984.1148 9494 Fisher, Irving. 1911. The purchasing power of money. Its determination and relation to credit, interest and crisis. New York: Macmillan Company. Goodwin, Richard M. 1950. ‘A non-linear theory of the cycle.’ The Review of Economics and Statistics 32 (4): 316–320. https://doi.org/10.2307/1925580 Harrod, Roy Forbes. 1934. ‘Doctrines of imperfect competition.’ The Quarterly Journal of Economics 48 (3): 442–470. https://doi.org/10.2307/1882823 Hayek, Friedrich August. 1929. Geldtheorie und Konjunkturtheorie. Wien: HölderPichler-Tempsky AG. Hoffman, Robert R. 1985. ‘Some implications of metaphor for philosophy and psychology of science.’ In The ubiquity of metaphor: Metaphor in language and thought, edited by Wolf Paprotté and René Dirven, 327–380. Amsterdam: John Benjamins Publishing Company. https://doi.org/10.1075/cilt.29.16hof Horner, Jennifer R. 2011. ‘Clogged systems and toxic assets: News metaphors, neoliberal ideology, and the United States “Wall Street Bailout” of 2008.’ Journal of Language and Politics 10 (1): 29–49. https://doi.org/10.1075/jlp.10.1.02hor

Introduction 17 Kelly, Philip F. 2001. ‘Metaphors of meltdown: Political representations of economic space in the Asian financial crisis.’ Environment and Planning D: Society and Space 19 (6). https://doi.org/10.1068/d277 Keynes, John Maynard. [1934] 1973. Poverty in plenty: Is the economic system self-adjusting? Edited by Elizabeth Johnson and Donald Moggridge. Vol. 13 of Collected Writings of John Maynard Keynes. London: Macmillan. https://doi.org/ UPO9781139524223 Kinnear, John G. 1847. The crisis and the currency: With a comparison between the English and Scottish systems of banking. 2nd ed. London: Murray. Kuznets, Simon. 1930. ‘Equilibrium economics and business cycles theory.’ Quarterly Journal of Economics 44 (3): 381–415. https://doi.org/10.2307/1885790 Loulergue, Justine. 2021. ‘Equilibrium, from Germain Garnier to the French Liberals: The shaping of a concept.’ IEP Working Paper Series (75). Löwe, Adolf. [1926] 1997. ‘How is business cycle theory possible at all?’ Structural Change and Economic Dynamics 8 (2): 245–270. Lunghini, Giorgio. 1988. ‘Equilibrio.’ In Dizionario di economia politica, edited by Giorgio Lunghini, Vol. 14, 11–103. Torino: Boringhieri. Mitchell, Wesley Clair. 1927. Business cycles. The problem and its setting. New York: National Bureau of Economic Research. New York (State) Legislature, Senate. 1858. End of the great financial crisis. From the London Times, December 29 [1857]. In Senate, March 8, 1858. Memorial of Rutger B. Miller in relation to the Regulation of the Currency. Vol. 2 of Documents of the Senate of the State of New York. Eighty-first session—1858. Albany: C. Van Benthuysen. The North American Review. 1844. ‘[Review of:] Various Papers on Meteorology, and the Laws of Storms ….’ 58 (123) April: 335–371. Omaha Daily Bee. 1884. ‘The business situation.’ December 25, 1884: 7. Piromalli, Eleonora. 2021. ‘Alienation, ideology, and power in the metaphors depicting the economic crisis in the media.’ International Journal of Communication 15 (1): 1060–1080. Silaški, Nadežda, and Tatjana Đurovic' . 2011. ‘The natural force metaphor in the conceptualisation of the global financial crisis.’ Zbornik Matice srpske za filologiju i lingvistiku 54 (1): 227–245. Sinclair, John. 1796. The statistical account of Scotland. Vol. 18. Edinburgh: William Creech. Soddemann, Kilian. 2013. Die Metaphorik im Diskurs über die Wirtschaftskrise: Eine korpuslinguistische Untersuchung aus Sicht der kognitiven Metapherntheorie über die Darstellung der jüngsten Wirtschaftskrise im Sprachgebrauch verschiedener deutscher OnlineZeitungen. Essen: LINSE. Stronach, Ian, John Clarke, and Jo Frankham. 2014. ‘Economic ‘revelations’ and the metaphors of the meltdown: An educational deconstruction.’ British Educational Research Journal 40 (2): 319–336. https://doi.org/10.1002/berj.3081 Tieben, Bert. 2012. The concept of equilibrium in different economic traditions. Cheltenham: Edward Elgar Publishing. https://doi.org/10.4337/9781781953518 Urbonait , Justina, and Inesa Šeškauskien . 2007. ‘HEALTH metaphor in political and economic discourse: A cross-linguistic analysis.’ Studies about Languages (11): 68–73. Walras, Léon. [1926] 1954. Elements of pure economics: Or the theory of social wealth. Edited and translated by William Jaffé. Homewood, IL: Richard D. Irwin.

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———. [1889] 2014. Elements of theoreticel economics: Or the theory of social wealth. Edited and translated by Donald A Walker and Jan van Daal. Cambridge: Cambridge University Press. ———. 1988. Eléments d’économie politique pure: Ou théorie de la richesse sociale. Edited by Claude Mouchot. Vol. 8 of Auguste et Léon Walras: Œuvres économiques complètes, Edited by Pierre Dockès, et alii. Paris: Economica, 1987–2005. Wang, Huili, Tamara Runtsova, and Hongjun Chen. 2013. ‘Economy is an organism: A comparative study of metaphor in English and Russian economic discourse.’ Text & Talk—An Interdisciplinary Journal of Language Discourse Communication Studies 33 (2): 259–288. https://doi.org/10.1515/text-2013-0012 White, Michael V. 2004. ‘Turbulence and turmoil in the market or the language of a financial crisis.’ Ibérica 7 (April): 71–86. Zanini, Michele. 2009. ‘‘Power curves’: What natural and economic disasters have in common.’ The McKinsey Quarterly June: 1–5.

Part I

Crises

1

Economic crises in 19th-century Italy A cultural analysis Monika Poettinger

1.1 Crisis in the 19th-century Italian language At the very beginning of the 19th century, business cycles started to attract the interest of governments and intellectuals, stimulating the scientific analysis of economic variables and the professionalization of economists. In this context, as suggested by Besomi (2011, 74–75), the appropriation of the noun “crisis” from medicine to describe the downswings of business cycles is crucial to understand how economics slowly evolved from a discipline dominated by images and metaphors to theories with precisely defined terms widely accepted among peers.1 At the end of this process of transfer (Besomi 2011, 73) and transformation (Maasen, Mendelsohn, and Weingart 1995) “crisis” lost its original medical meaning and the wider public inextricably linked it to an economic significance, while economists would generally shun it in favor of more complex models and terminology. Besomi makes the case for the English language, but the same holds true for the Italian one. From the 18th to the first half of the 19th century, vocabularies and dictionaries (Cardinali 1846, 414) defined “crisi” as a medical term signifying: “that new phase of a malady when nature intends to help the sick” (D’Alberti di Villanuova 1797, 2:191) or “the outcome of nature’s effort to overcome the consequences of an illness” (Dizionario della lingua italiana 1835, 1:737). The meaning of crisis was, at this stage, positive: a state of distress, synonym for fever or secretion, imposed by nature to resolve a sickness. How this significance was transferred to other disciplines can be understood via a simple Google Books search. The analysis, here summarized in Table 1.1, comprises the 131 books of the Google database, written in Italian and published in the 19th century, containing the noun /crisi/2. Despite the rare use of this term, some conclusion can still be drawn from the evidence, by broadly dividing the topic of the publications into politics, culture (literature, art, etc.), morals, economics and medicine. A clear acceleration in the presence of the noun /crisi/ in the common discourse can be identified in the decades from 1820 to 1850, a timespan that also marks its diffusion outside the medical jargon, specifically in economic writings. This increased popularity derived from a debate around the “doctrine

DOI: 10.4324/9781003144601-3

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of the crises” that raged in Italian medicine between the followers of the dictates of Hippocrates (Pignacca 1840) and the supporters of the Brunonian system (Gasparini 1835). The doctrine of the Scotsman John Brown was only scantly accepted in England but attained high popularity in Germany as part of Romanticism. In Italy, the ideas of Brown were introduced at the turn of the century through the university of Padua, causing a harsh reaction from the local empiricist tradition (Pignacca 1840, 90–92). During the postNapoleonic Restoration, though, any rupture with tradition was considered revolutionary and perilous, so that the old Hippocratic medicine regained its preeminent position and maintained it until the Italian Unification. Hence, the wave of historicism, also in the medical science: whatever new knowledge had to be rediscovered in ancient texts and adapted from old doctrines. Among the physicians who veiled their new practices with an ancient aura was Emanuele Pancaldo (Sofia 1988), a follower of Mazzini and Garibaldi who was exiled from Sicily and later imprisoned for his seditious activity. In 1826, Pancaldo resumed in a little booklet all past and present medical theories and practices regarding crises (Pancaldo 1826). He started his analysis by referring—obviously—to Hippocrates and Galen, the first ones to define crises as a judgment of life or death in a malady. Hippocrates credited crises, brought about by fever or the secretion of compromised tissue, with bringing back health (Hippocratic crisis).3 This would happen in severe sicknesses, when “a sudden resolution with expulsion of material was called crisis” (Pancaldo 1826, 28), and in chronical maladies, when the resolution would be called lysis. Galen instead introduced the possibility of crises with a deadly outcome (Galenian crisis). In this case, the sickness would compromise the function of organs or the relationship among organs and no visible expulsion could be ascertained: the crisis became functional and deadly. Pancaldo himself defended the ancient theories against the recent Brunonian euphoria by developing a dynamic physiological theory, whereas secretions were a necessary part of a more complex transformation process (Pancaldo 1826, 40) that would separate the healthy from the sick tissue (Pancaldo 1826, 6). We hope to have proved—concluded Pancaldo—that our physiological existence (a continuous pathological state) cannot persist without an uninterrupted crisis; that the so-called disease is the consequence of a tissue being attacked and destroyed and a resulting crisis is necessary (…); that the idea of transformation is a necessary consequence of the doctrine of crises and without it any recovery would just be the beginning of another disease. (Pancaldo 1826, 33) During the restoration, Rome was the stronghold of the Italian Hippocratic tradition. Here practiced the most “Hippocratic” of Italian physicists: Onofrio Concioli (Savi 1846), member of the medical college of La Sapienza

Economic crises in nineteenth century Italy

23

in Rome and advisor to the Pope in the attempted reform of the Roman University. Concioli was also at the heart of the most important Roman intellectual salon of the time, held in the residence of Orsola Priuli Maccarani between 1820 and 1850. The salon, open on Wednesdays, hosted not only the Roman aristocracy and local politicians, as Annibale Bontadossi, Felice Desjardins and Giovanni Corboli Bussi, but also intellectuals like Giacomo Leopardi, Antonio Rosmini, Vincenzo Gioberti and Carlo Troya.4 This circle cloaked innovation and patriotism in a profound knowledge of classical culture, nurturing the belief that the Pope could successfully unite Italy into a Federation of states. Concioli held a similar stance in medicine. He adhered to the empiricist and inductive method of Hippocrates, refuting the modern abstract theorizing and correlated experimental frenzy,5 but at the same time denied a strict adherence to old practices. He advocated, for example, a new edition (Barker 1840) of the work of John Barker who referred to the old masters but modernized their practices and condemned bleeding (Barker 1748).6 The definition of crisis, though, for Concioli and his circle, remained the Hippocratic one. So that, for example, Giacomo Leopardi would speak of a “salutevole crisi” a healing crisis (Leopardi 1885, 68). Most of the 54 Italian medical texts that contained the term /crisi/ in the first half of the 19th century (Table 1.1) can be traced back to old-school and Hippocratic physicians as Pancaldo and Concioli or to nonexperimental empiricist as Maurizio Bufalini (1833, 341–349.) and Luigi Galassi (Atti 1872, 74). Nonetheless, in the same years, more experimental minds began to subdivide the generic category of crisis into manifold symptoms that could then be related to specific maladies or to the functioning/malfunctioning of specific organs.7 In the second half of the 19th century, the term crisi was finally marginalized in medical literature (Table 1.1) in consequence of the growing criticism toward the genericity of the Hippocratic definition of crisis, its exaggerated reliance on the doctrines of Pythagoras and the unreliability of the related practice to induce crises to facilitate the healing process.8 Table 1.1 Italian Books Published in the 19th Century, Mentioning the Term /crisi/9 Political Crisis 1800–1810 1810–1820 1820–1830 1830–1840 1840–1850 1850–1860 1860–1870 1870–1880 1880–1890 1890–1900 Tot

Cultural Crisis

Moral Crisis

Economic Crisis in Other Crisis Medicine

2 5 8 2 3 1 6 27

3 1 1

2 1 8

2

1 1 4

4 15 3 1 1 3 2 2 31

5 1 37 2 9

1 55

1 1 4

6

Total 8 2 53 28 15 1 4 5 11 4 131

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All the fuss about the doctrine of crises in medical circles during the post-Napoleonic Restoration favored the transfer of the use and meaning of the noun crisi to other disciplines, be it with the significance of a Hippocratic or Galenian crisis. During the 1830s, the most various crises popped up in political, cultural and economic texts. The derivation from medicine was quite acknowledged. The journal La Civiltà Cattolica, founded in 1850 by Jesuits to defend the catholic culture, recurred many times to the word crisis in relation to economics,10 morals and politics, and in 1883 affirmed: In truth we use the word crisis as it is done by physicians in discussing ailments; because here we are speaking of an ailing state [France] and worse, one affected by a mortal sickness. The crisis has ended, as predicted, not with a return to health, but only with a sort of containment of the malignant humors. (La Civiltà Cattolica 1883, 664) In the comedy on “The crisis of a marriage,” also, written in 1824 by Luigi Pellico,11 the derivation of the meaning of the noun “crisi” is clear. Complaining about the crisis of her marriage, Donna Costanzina pleads to a friend: “So, be my physician, explain to me how to overcome the crisis!” (Pellico 1824, 54). In the case of economics also, the derivation of the term and its significance are quite clear. In the 19th century, the first book mentioning a /crisi/ in economic terms was the renewed edition of the “Lessons on trade” by Antonio Genovesi [1765] published by Gino Doria in Milan in 1820. Not surprisingly, Genovesi maintained the Hippocratic definition of crisis as an event that, even if distressful, could bring about the “reform of a completely rotten nation” (Doria 1820, 1:113). As will be specified in the following paragraph, when the news about the repeated commercial crises originating in England reached Italy, local journals reported the theories of foreign economists and as such imported the meaning that the term crisis had in other cultures (Sacchi 1827a, 1827b) along with medical metaphors like that of a glut hampering the circulation of trade (Boccardo 1853, 85; Romagnosi 1835, 22). More interesting for the present research is the significance that Italian authors attributed to this noun, a significance that was still strongly inf luenced by the meaning that the term had in Italian medicine. During the commercial crisis of 1826, Giuseppe Pecchio, a regular contributor to the Annali Universali, was in England and reported extensively of his experiences on the journal and in a dedicated volume (Pecchio 1827). To defend liberalism, Pecchio reaffirmed the great achievements of free trade and compared the recurring crises to a malady, an epidemics or labor pains: occasional ailments of a vulnerable and mortal body (Pecchio 1827, 21, 58, 114). While discussing the political economy measures of the British government, Pecchio affirmed that: “they were taken not to cure the malady (an impossible feat since the malady would be cured by itself ), but to alleviate its effects and prevent its recurrence” (Pecchio 1827, 79).

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The compiler of the renowned Annali universali di statistica, economia pubblica, storia, viaggi e commercio, too, in 1833, adhered to the medical meaning of the term, neatly merging it into the, by then, liberal credo of the Milanese journal. If a country is artificially ruined by the bad work of men and by corrupt institutions fostering privileges—wrote the compiler—then in case of an economic crisis the government should remedy to the disorders until they are completely removed. If a country is in normal conditions and the real social equilibrium of riches is attained, then every regulative intervention would be negative and unjust. (…) so, it has been shown to posterity that only when the social body is sick can policies be enacted that in a healthy social body would be harmful. (Lampato 1833, 64) Clearly, the Hippocratic significance of crises as positive and necessary occurrences that helped to purge the body of toxins and decayed tissue suited well the spreading liberalism, according to which commercial crises represented a temporary imbalance in the circulation of goods caused by an obstruction (Romagnosi 1835), a deviation from the equilibrium due to external shocks or to an excess of production that needed a vent. According to this liberal view, in the 1820s and 1830s crises were mainly considered a passing imbalance caused by political factors, wrong policies or excessive speculations. In all the articles, published between 1835 and 1840 by relevant commercial journals12 following the renewed crisis that from America had contaminated Europe, no doubt emerged about the long-term stability of the trading world. To understand the causes and consequences of the crisis, the authors empirically analyzed detailed data on the circulation of money, bank reserves, public debt, bankruptcies and trade balances, while metaphors were not useful and not used. The only remnant of the medical language was in the title of one of the magazines: Termometro Mercantile, a mercantile thermometer that served Milan’s marketplace by publishing, from 1831 onwards, “all that refers to the general trade movement,” specifically: the most relevant variations in the prices of goods on the most important markets, the fairs and their proceedings, the harvest results, the foundation and ceasing of societies, the bankruptcies, the buying and selling propositions, listings of public debts and similar data that concern the practice of trade. (Margaroli 1831) The journal would further report the major technological and scientific innovations in both industry and agriculture, and the changes due to the caprices of fashion. All this was deemed necessary both to the tradesman and to the manufacturer to best manage their activity. In this kind of positivistic

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publication, the language dedicated to the recurring economic crises was optimistic, filled with numbers and devoid of imaginative excesses. An alternative idea of economic crises, more romantic than empirical, came from abroad and is represented, in the present sample, by the Italian translation of the works of J. C. Simonde de Sismondi (1840a, 1840b), and Pellegrino Rossi’s reference to the work of Malthus (Rossi 1843a, 1843b).13 Only in these writings, crises acquired the significance of Galenian crises: deadly maladies leading capitalism to its demise. In Italy, doubts about the capacity of free trade to create wealth and nurture individual freedom, as will be specified in the third paragraph, began to surface more diffusely after the Unification of the country because of the rampaging financial crises and the extensive corruption of governments (Giordano 1866, 13). Among the texts included in the Google Books sample, socialism was then evoked, and protectionism was invoked to overcome the dire conditions of Italy’s economy (Bozzalla 1877), postulating the inevitable recurrence of crises. In the final decades of the century, so, the waning of the term crisis from medical publications lent to the term a widely accepted social, political and economic significance that became part of the system of metaphors that forged the more general worldview (Maasen, Mendelsohn, and Weingart 1995). Italian economists, though, never loved the word /crisi/. The discussions ensuing from the transfer of the term crisis to economics in the 1820s and 1830s held a profound heuristic value for the newly born science, but they did not cause a transformation in the meaning of the term, nor made it one of the constituent concepts of the discipline. Economists preferred the concept of cycle, derived from astronomy (Boccardo and Pagliani 1878, 5:728–730) to construe an accepted conceptual framework to analyze the phenomenon of crises. The sample includes one example of this constitutive choice (Montemartini 1891), but there were several others. Italian economists specifically pursued the quest for natural laws governing crises (Boccardo 1879, 127–153; Cognetti de Martiis 1878a). Nonetheless, crises remained something alien to the orderly and mechanical functioning of the economy per se and were attributed to external causes as the corruption of governments and banks and the failings of human rationality (Ciccone 1874, 2:444–454). Crises—wrote Antonio Ciccone, Neapolitan professor of medicine and political economy—are social illnesses that can be predicted, but neither prevented nor cured. They cannot be prevented because in the initial stage of the crisis, society believes to be healthy and prosper, thus shunning the prophets of doom. They cannot be cured, because once exploded they must complete their cycle. (Ciccone 1874, 2:454) The negative effects, though, could be lessened, by reforms or better education.

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The government—noted Gerolamo Boccardo on the British case—orders public and solemn enquiries, gathers data, enlightens the population with useful publications, sends amidst the people teachers and preachers. England is at that time a sick man, perilous and in peril; but a great physician, the common sense, severs the roots of the malady. (Boccardo 1853, 84) While economics so transformed from “fisiology” to “pathology and clinical analysis” (Boccardo 1885, 135), the stance of Italian economists toward crises would not vary from this ingrained attitude.

1.2 Imagining crises: Great Britain as one of Hell’s holes14 In the 19th century, Italian economists at first experienced economic crises only indirectly, through reportages and recounts on the crisis that aff licted the British Empire after the end of the Napoleonic wars (for a similar condition in Spain, see Section 6.2.1). Economists such as Malthus, Torrens, Say and Ricardo participated in the heated discussions on the origins and consequences of the repeated and dreadful overproduction crises. Francesco Ferrara, in 1864, recollected: This phenomenon of congestion (English authors call it glut) impressed some economist on the Continent so much, that a school was formed, under the direction of Sismondi, that chose as theme of its reproaches industrialism, the excess of industrial activity. (Ferrara 1864a, VII–IX) These debates found an echo in the publications issued in preunification Italian states and shaped a long-lasting prejudiced image of England as a land of extensive poverty and social injustice. As late as in 1853, Gerolamo Boccardo would recall: We have only just outlined a generic profile of the English crises; by going into more details, we could describe such miseries as cannot be imagined. In Bolton, a city of 50.000 citizens, 50 manufactories usually employ 8.124 workers: in 1824 the crisis shut down the operations of 30 factories and 5.061 workers lost their sustenance. Hunger leads to unlawfulness: crime follows from misery. Preston normally had just 27 criminals, but in 1824, after the crisis, the number had climbed to 183. In Manchester, in those dire times, many workers often would not eat for two days in a row. Some, having lost all hope, waited for a slow death, lying in the straw. Others, to assuage the rising hunger, smoked tobacco of awful quality, or got mad amid the desperate cries of their families… (Boccardo 1853, 84)

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The idyllic image of Italy as a wealthy and rightful nation founded on agriculture that would characterize the entire Risorgimento (Mori 1989, 623–630) was then constructed as a negative to this stereotype. First reactions to the English crisis appeared in 1819 on the pages of Il Conciliatore,15 a short-lived scientific and literary periodical, edited in Milan by a group of intellectuals who preached liberalism in politics but were otherwise sympathetic with romanticism and expressed criticism against the liberal school of political economy. These enlightened intellectuals, bent on reforming society and educating the population, had no use for a theory that paralleled economic interaction to the eternal and equilibrate movement of planets. Giovanni Arrivabene, for example, reviewing a work by Adeodato Ressi, typically invoked institutional change and education as means to improve society (Arrivabene 1819a–1819d). The society he envisioned evolved on a path of melioration and could neither be subject to natural and immutable economic laws nor abide to the liberal policy of nonintervention. But the doctrine of perfectibility—claimed Arrivabene—had another kind of adversary, much more dangerous. They are some Optimists who, believing everything good, consider devoid of sense trying to purge society from the vices that aff lict it, and they even attempt to prove that the vices and social disorders are useful and necessary, because they are the pillars of the present social and economic order. (Arrivabene 1819a, 39) While for liberal economists, crises were temporary ailments procuring a vent for unnecessary production, Italian intellectuals saw in them the consequence of an unjust social order that could and should be amended by political intervention. The main inspiration for this editorial line of Il Conciliatore was the economist and statistician Melchiorre Gioja (Barucci 1965), who believed in a process of industrialization guided by the government. Il Conciliatore subscribed Gioja’s belief that a certain measure of protection was necessary to stimulate the adoption of innovations in industry, in France (Pecchio 1819a, 1819b) as in Italy (Pecchio 1819c). The economic positions of Il Conciliatore, though, were also inf luenced by a certain romanticism represented by the work of Simonde de Sismondi. Giuseppe Pecchio, in fact, reviewed the Nouveaux principes d’économie politique ou de la richesse dans ses rapports avec la population of Sismondi in three articles published by Il Conciliatore in 1819 (Pecchio 1819d–1819f ). He particularly appreciated Sismondi’s definition of political economy as the research of the political means through which the maximum number of people could participate to the maximum of physical welfare.16 The need for state intervention followed from this necessity to guarantee a share in a nation’s welfare to every man, as affirmed by Melchiorre Gioja. Reviewing Sismondi, Pecchio also faced the problem of economic crises and industrialism. He did so by comparing the case of Lombardy, where

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the introduction of machines with protectionist policies had revived a rather slouching economy, to England where, instead, unemployment, excessive working hours and wages under subsistence had caused social unrest and revolts against the use of machines. The best solution, according to Il Conciliatore, was a hymn to economic backwardness: Italy should have maintained the rural structure of its economy and society. The only hints of modernity allowed into this Arcadian scene were the introduction of agricultural machines (Serristori 1819c) and the development of sparse manufactories in the countryside. The idea that an economic development solidly rooted in agriculture would be exempt from the ruinous economic, social and moral crises that plagued England (Serristori 1819a, 145) was particularly dear to Tuscany’s intelligentsia (Serristori 1819a, 1819b). When the Austrian censure closed Il Conciliatore in 1819, the discussion on industrialism and economic crises continued along the same lines on the Antologia, a periodical published in Florence between 1821 and 1832. In its first issues, the Antologia published a series of letters, allegedly written by a S. James, in 1819, to answer the fears of Italian investors that the capital they had invested in England would be swallowed by an impending revolution ( James 1821a). The letters, clearly signed with a pseudonym, elaborated Sismondi’s arguments along the same interpretative line adopted by Pecchio on Il Conciliatore. The real problem of England, in the perception of the author, had been the centuries long concentration of wealth in the hands of a few monopolists of land and capital, concentration that had left an enormous mass of proletarians not only without the means of survival but also with no bond or interest whatsoever in the existing social order ( James 1821b). The overproduction problem followed from the fact that the enormous amount of people working in the manufacturing sector needed a potential number of consumers that far exceeded the internal market. Waterloo, opening markets worldwide, had disrupted many English monopolies and condemned more than half a million English artisans to destitution. Industrialization was the ultimate reason for the absolute helplessness of these unemployed workers. In Italy or France, where industry was practiced mostly as a side activity, artisans as spinners or weavers, in case of failure of their homework activity, could always retrieve their subsistence from agriculture ( James 1821c). After having further described England’s finances and political situation ( James 1821d–1821i), S. James returned to the question of unemployment in the 10th and 11th of his missives, suggesting possible political remedies. The English government could offer to the destitute workers a “magical” solution, in form of faith in a potential future employment, or a more real possibility of employment in public works as the cultivation of fallow land, the drying of swamps, the digging of canals and the paving of roads ( James 1821j, 1821k). A more advisable solution, though, was, in the opinion of the author, to restore the general community of interest that had been lost to England’s society. To recreate such harmony of interests between manufacturers and workers, these last should have been given the property of small units of land

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near their home to grow food for their families’ subsistence. In agriculture, instead, the mass of small tenants that had been expelled from extensive land estates, becoming industry workers and artisans, should have received back their former employment. Thusly reintroduced into the social pact, “we will see them,—claimed S. James -like the peasants of Val d’Arno, bless their landlord, to whom they shall give a share of the gifts that the Lord wants to be divided among all men” ( James 1821k, 48). The conclusion of this letter perfectly corresponds to an already rhetoric representation of the recurrent English economic crises as the inevitable result of an unchecked and precipitous industrialization.17 Other articles on the economic situation of England, published in later years, only confirmed this stylized depiction (Antologia 1823). The proposed solution to English economic misfortunes was utopian: to transform the greatest commercial and military nation of the West into a wider Tuscany, with tenant farming and sharecropping. As had been in Il Conciliatore, this interpretation of the causes of England’s crises was accompanied in the Antologia by a thorough admiration for Sismondi’s historical work. Given the friendship uniting the editor, Giovan Pietro Vieusseux,18 with Sismondi, the Florentine journal was the first,19 in 1821, to present to its readers the monumental work History of the French, reprinting its introduction (Sismondi 1821). History—wrote Sismondi in it—is the fundament of al social sciences because it offers us the collection of all experience’s lessons (…). In giving form to society, the legislator must look for all that can contribute to the moral advancement of mankind and to its welfare. Only experience can guide him in this research. (Sismondi 1821, 134) The empiricism and historicism of Italy’s 19th-century tradition of economic thought and the manyfold discussions on the concept of civilization as a guide to the art of government derived from the profound inf luence of Sismondi and of this kind of romantic historiography. The reception of Sismondi’s economic theory on crises, though, was much more debated (Manfredi 2011). Exemplary is the discussion that f lared up in Italy in 1824 on Sismondi’s article On the balance between consumption and production, published on the Revue Encyclopedique.20 The essay was translated and reprinted, both in the Antologia (Sismondi 1824b) and Annali (Sismondi 1824a), as the latest study of the renowned author of the History of the Italian Republics.21 Notwithstanding all the professed deference, liberals openly questioned and criticized its policy conclusions. In Florence, for example, the Accademia dei Georgofili, a stronghold of Tuscan liberalism (Tartini-Salvatici 1825), discussed at length the problem of machines, and Giuseppe Gazzeri decidedly refuted the theses of Sismondi. His lecture, held at Georgofili the March 7, 1824, was later published by the

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Antologia (Gazzeri 1824), as was another article on machines that blamed the English economic crisis not on the mechanization process but on protectionism (Antologia 1824). In the Annali, Sismondi’s article was published in the very first issues, when the inf luence of Melchiorre Gioja and his interventionist stance was still dominant. The only comment attached to the writing of Sismondi was, so, a brief claim that the theses of Sismondi had already been exposed in Gioja’s Nuovo Prospetto delle Scienze Economiche in 1816 (Annali Universali di Viaggi 1824).22 From these ideas—concluded the reviewer—evidently follows that between the maximum ignorance and the maximum civilization, between the maximum poverty and the maximum wealth, between the maximum inertia and the maximum activity of the nations, it might often happen that industry is in want in respect to demand and the laborer remains unemployed in consequence of changes in fashion, of mechanical innovations, of new trading routes… This theory is of the cited Italian author. De Sismondi seems to have used it as a fundament of his article but reaching different conclusions. (Annali Universali di Viaggi 1824, 236) The renewed English crisis of 1826 sparked novel debates on industrialism. The Antologia, by publishing the personal observations of Giuseppe Pecchio, who was in exile in England at that time, observed that “the big commercial crisis of 1826 has made epoch in the history of economic thought, not so much for its immediate effects, but for the scientific discussions it ignited again,” so that “no one who is interested in the evolution of science can omit to cite this point of contemporary history” (Antologia 1827, 19). The Florentine journal dedicated several articles to the crisis23 but maintained its liberal position even amidst heavy criticisms.24 Sismondi’s Nouveaux principes d’économie politique were reviewed in their second edition in the very same issues of the journal (Bosellini 1827). The reviewer, Carlo Bosellini,25 ascribed Sismondi’s erroneous interpretation to his excessive philanthropic interests, while he, himself, judged the origin of the present malady to lie in the unequal distribution of wealth produced by England’s f lawed legislation and institutions. Whenever the social construction was not aimed at the welfare of the population, every adverse casualty, however little, could origin enormous negative consequences. Given this assumption, the rapid solution of the calamity forecasted by Say could not become reality. “Without the said reforms of civil law, the English people could never attain the scope of a stable welfare and social order” concluded Bosellini (1827, 16). The model to be imitated was, again, the Tuscan one, where the participation of all men to the agricultural wealth of the region, thanks to the tradition of sharecropping, granted the desired stability of the social order. On the same lines, the anonymous review of L’industrie et la morale (Antologia 1826a) became an excuse to glorify a Tuscany characterized by liberal policies and

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a participative distribution of wealth, in opposition to a France for which Charles Dunoyer (1825) invoked a moral improvement coerced by the state. On the Annali the English crisis of 1826 was analyzed, from the point of view of economic theory, by Giuseppe Sacchi (1827a, 1827b). In two lengthy articles, Sacchi compared the analyses of the crisis by Álvaro Flórez Estrada,26 Jan Baptiste Say and Simonde de Sismondi. Sacchi heavily criticized the idea expressed by Estrada that the origin of England’s malady was to be found in the scarcity of precious metals, due to their ceased import from the Americas and the excessive capital export of England toward other European countries, stimulated by speculation. Estrada had based his reasoning on false data—affirmed Sacchi—as easily shown at hand of studies of Gioja and other authors. Sismondi, again, was treated with more respect, “a profound thinker used to look at science with passionate eyes,” worthy of gratitude “for having diffused in the public economy the philanthropic sparks of social charity” (Sacchi 1827a, 54). Nonetheless, his analysis of the causes of England’s crisis as written in the Nouveaux Principes was erroneous. Sismondi confused cause with effect. The reason of the crisis—argued Sacchi—had to be searched in the international relations of England with foreign countries, as would be further explained. When the crisis exploded, it spread among manufacturers, laborers, and peasants. So that it was not production that grew in respect to consumption, but the erroneous distribution of products in relation to consumption that accelerated the crisis. (Sacchi 1827a, 54–55) Say, lastly, identified the source of the crisis in the excess of money in circulation, a speculation fueled to the extreme by the activities of banks. In the opinion of Sacchi, though, even Say confused cause with effect, because the speculation he described was only the most recent link of a causal chain that originated somewhere else completely (Sacchi 1827a, 55–57). The reasoning that Sacchi himself volunteered in the second of his articles on the origin of England’s predicament aimed at uniting all the explanations offered by the other authors, by identifying the righteous succession of events and causation effects (Sacchi 1827b). Sacchi described the long civilization process of England as bearing a fruit of immense wealth in the form of goods, credit means and precious metals. The manufacturing and trading activity of England had caused an enormous inf low of gold and silver into the country, procuring not only the f lourishing of trade but also the devaluing of specie. In consequence, metals had f lown out the country toward speculations abroad, while in England itself they had been substituted by means of credit. The production, though, excessively stimulated and financed by credit, had reached a point where it could not find a demand, not even in foreign countries, so that the letters of credit and the debt issues could not be repaid. Herein laid the origin of the crisis with its consequences on the financial

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sector—with the loss of faith in credit means, and the run on banks in the desperate attempt to convert them in gold or silver—and on production, with price def lation, bankruptcies and unemployment. With his interpretation on the English crisis of 1826, Sacchi, for the first time on Italian journals, attempted an explanatory theory that comprised all symptoms of crises: shortage of production, shortage of demand and financial imbalances. Similar attempts would be made only in the second half of the century by Gerolamo Boccardo and Francesco Ferrara. In 1826, the Annali, in search of some explanation to the ever more frequent trade disorders and commercial imbalances, also reexamined the positions of Malthus27 and his criticisms toward Ricardo, but, according to an editorial line that was becoming more staunchly liberal, concluded the debate in favor of the latter.28 Melchiorre Gioja, instead, took occasion from the novel discussion to personally review the second edition of Sismondi’s Nouveaux principes on the Biblioteca Italiana (Gioja 1827a, 1827b). His criticism was harsh and dismissive.29 With the passing of the threshold of the 1830s, crises gave way to a period of relative stability and economic growth. Journals lacked the verve of the theoretical debates of the 1820s and became full of reports on technological and agronomical innovations if not of poetry and ancient history. Censure had its hand in this trivialization process, due to ever more stringent norms and controls. When crises begun to aff lict the European economy again, their nature had changed, and no one would speak anymore of isolated gluts or simple overproduction.30 The financial and monetary sides of crises became manifest, requiring more systematic analyses (Cattaneo 1839). The identification of England with the ruinous consequences of industrialisms also became obsolete. The image of a country in social disarray, plagued by pauperism, remained only in the popular or populistic discourse (Il Giornale illustrato 1865a)—even in art—but not in journals or in the works of economists. Through the transfer of the prejudiced image of England from specialist publications to the common discourse (Maasen, Mendelsohn, and Weingart 1995), the question of the right path of development to choose for a unified Italy seeped down from intellectual discourse to common prejudice, from intellectuals to illiterates. While theorists already discussed the cyclicality of crises and the role of financial institutions and monetary markets in igniting them, the populace of Italy was still fed the mythos of a social order that had never really existed, a past enlightened ideal that was already crumbling under the blows of a culture of class interests, nationalistic identity and extensive state intervention.

1.3 Experiencing crises: maladies, krachs and perturbations in a field of miracles After the fateful 1848, the economy and its scientific research increasingly acquired the attention of politicians and ruling classes. In Italy, a Methodenstreit,

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fought more for political than dogmatic reasons, not only inf lamed established journals as the Nuova Antologia, the Annali Universali di Statistica and the Politecnico, but also newly founded periodicals exclusively devoted to economic matters (Poettinger 2013b, 2014).31 Societies for the diffusion of political economy were also established (Augello and Guidi 2000), while the teaching of economics was professionalized (Augello et al. 1988). Crises, though, remained an astonishingly rare topic in journals and publications. Nobody would deny any more the benefits offered by industrial development and references to crises mostly concerned Italy’s primary sector. Agriculture still employed most of the Italian population, granted its scanty survival and supplied Italy’s exports. It also attracted many attentions by Italian economists: from the series of articles written after the unification of Italy by Gaetano Cantoni on Il Politecnico (Cantoni 1864, 1865a, 1865b), to the analysis of the English predicament done by Luigi Einaudi on the pages of the Giornale degli Economisti at the end of the century.32 The crisis of Italy’s agriculture, though, lamented by many economists and even measured precisely through innovative statistical analyses (Benini 1893), was unanimously attributed to the increased international competition and the consequent protectionist policies of the Italian government (Giornale degli Economisti 1891). Technological advancement and liberal policies were all that was needed to revive the most important sector of Italy’s economy (Della Bona 1888). Considering their experiential ignorance on industrial crises, Italian economists still referred to foreign economists and their languages and maintained medical and organicist metaphors to address them. For his Dictionary of political economy Gerolamo Boccardo (1857), for example, reached out to French antecedents. He also kept the Hippocratic significance of the term by defining crises as “more or less deep perturbations of the social interests” (Boccardo 1857, 731), momentarily perturbations, by definition, not capable of bringing society to its death. Less than a decade later, in 1864, Francesco Ferrara introduced the fourth volume of the second series of the Biblioteca dell’Economista (Ferrara 1864b) with a lengthy essay on economic crises (Ferrara 1864a). Definition and taxonomy corresponded to Boccardo’s Dictionary. Ferrara used a pictorial and metaphoric language and vividly described economic crises as distresses of a nation’s economic life, quite similar to a physiologic disease: an epidemic menacing the orderly functioning of the economic body (Ferrara 1864a, V). The crisis had three main forms of appearance: insufficient production, excessive production and scarcity of money (Ferrara 1864a, VI–XI). Like Boccardo, Ferrara too stressed how the subdivision concerned the sectors involved, looking at the symptoms of the economic malady. In reality, a crisis could involve more than one sector at a time (Perri 1980): the three typologies could all follow from the same cause, as might be a war, and arise at the same time, or one could cause the other in a seemingly circular path of economic growth and decay (Ferrara 1864a, XI). Ferrara, following the early example of Sacchi, departed from a mere analysis of crises through a catalog of symptoms and proposed a study of their causes

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and of their recurrence in time. Otherwise, the policy conclusions of Ferrara, a staunch liberal, were not different from what had emerged from the Italian tradition of thought in the first half of the century. Crises are not a destiny. They are, as all economic illnesses, a natural consequence of our own, more or less voluntary, aberrations. They are not a modern illness, if not for the circumstance that only recently they have been studied in search of a cure. They do not need any dedicated medicine and won’t be avoided by any new artifice or governmental policy. The progress of knowledge, activity and customs that will bring production to perfection, will also make crises less and less frequent and severe until they will vanish completely. (Ferrara 1864a, LXX) While Ferrara still used the noun /crisi/, in 1878, Salvatore Cognetti de Martiis, in his lectio inauguralis to the chair of political economy at the university of Turin, later published on the Giornale degli Economisti,33 discussed the problem of crises avoiding the term whenever possible. The article was consequently titled: Shapes and Laws of Economic Perturbations and heavily relied on the concept of cycles as defined by Giffen (1877). The perturbations of the economic currents—wrote Cognetti—are phenomena, like any other of the cosmic order, natural and in their irregularity regular. They have their reason of existence and their laws and so it is possible to construe a scientific theory on them. (Cognetti de Martiis 1878b, 22) Cognetti subscribed to an evolutionary and organicist/biological view of economic phenomena and, so, as Boccardo and Ferrara before him, he attempted to catalog and define crises through universal characteristics. By observing and comparing the many crises recurring in the 19th century, in the financial, monetary, trading and industrial sectors, he derived three universal laws: their diffusiveness, their periodicity (predictable when the discount rate exceeded 7%–10%) and their constructiveness, i.e., their capacity to purify the market. While he spoke of cycles and cyclicity, though, there was no doubt for him that equilibrium was the healthy state of the economy and that crises—as the buoyant growth that preceded them—were mere “perturbations” of it. Crises were introduced, in this automatic mechanism, by the inherent imperfection of man. Cycles followed from man’s irrationality: “speculation excites him, competition inf lames him, prospective wealth exalts him. His brain functions are upset” (Cognetti de Martiis 1878b, 23).34 As for a solution, Cognetti had none, except a vague idea of solidarity to be diffused among all market participants. Cognetti’s shift in terminology did not imply a momentous change in the explanatory power of the proposed laws in respect to the cyclicality of crises.

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By abandoning the term /crisi/, he merely acted in the wake of the medical profession that, as seen, had substituted the Hippocratic and Galenian analysis of crises with a more accurate cataloging of symptoms according to precise pathologies, but no economic physiology was born out of his pathological studies.35 The metaphorical language used by Cognetti in his essay still relied heavily on medical terms, specifically in describing the recurrence of historical crises, but in the more theoretical part of his work he switched to metaphors related to physics.36 Cognetti himself recognized the corresponding transfer of significance: And here we should observe that, similarly to what happens in the physics of Earth, there equally is, in the overall market and in the national markets, a constant tendency toward equilibrium. Accordingly, the currents reactivate themselves and return to their ordered movements and the more positive state of the trading and industrial activity resurfaces. (Cognetti 1878b, 21–22) Economic dynamics was still a long way to come, even if the insistence on a serious analysis of the laws and causal factors of recurrent crises was peculiar to the Italian tradition of economic thought and might have had a precursory effect on later developments of dynamic economic theory (Tusset 2009). Gerolamo Boccardo, for example, in the subsequent editions of his treatise of political economy, expanded the section on crises by giving ample account of all available theories on their cyclicality. Quoting Cognetti, Boccardo subdivided the explanations of cycles between those related to the fallibility of human nature and those that invoked a natural factor (Boccardo 1885, 135–136). Among the first could be counted all kind of speculations, fraud and wrong policies, among the second the failing of crops or sunspots.37 To determine the laws governing cycles would require, henceforth, the scientific method: empirical observations over long periods of time and the derivation, from them, of explanatory theories that could then be tested in their predictive capability. Boccardo himself proposed an ambitious research plan to register astronomical, botanical and economic data and analyze their correspondence. Economics practiced in this way had a precise science of reference, not medicine but astrophysics (Boccardo 1885, 137). If not for these essays, crises and cycles were not a popular topic among Italian economists, not even at the end of the century. In the Essay on Italian Economic Bibliography for the years 1870–1890, compiled by Angelo Bertolini (1892), crises were included in a general section on national and international trade. Only 9 out of the 110 titles listed referred to economic crises. Two of them tried to explain the trading problems of Italian wine and spirits (Cantalamessa 1888; Snider 1889), others referred to the crisis of Italy’s economy in the late ’80s,38 one particularly in relation with the institutional framework of the stock exchange (Bonis 1889). The only theoretical text in the bibliography was that on commercial crises written by the German economist

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Max Wirth (1886). In fact, the persisting backwardness of Italy limited the interest of economists and politicians for the phenomenon of industrial crises. The question that emerged after the unification of Italy and focused the attention of the public39 was the enormous growing of public debt caused by the military expenses (L’Economista 1880). All economic problems, from monetary disorders to excessive taxation and famine, were perceived as a mere outcome of the buoyant public spending of the infant Italian nation.40 Italian patriots plunged from Risorgimento’s enthusiasm directly into a taxation nightmare, a new kind of slavery (Gadda 1868). In the first decades of life of the Italian state, journals as Il Politecnico analyzed in painful detail every voice of the state budget (Testa 1867), but many popular magazines and satirical publications likewise entertained their readers with the composition of debt, the augmentation of taxes and the desperate research for novel sources of income (Il Giornale Illustrato 1865b, 223). The treasure obtained from this comprehensive drainage sustained the military and the growing phalanx of government officials, for large part veterans, and financed the modernization of Italy’s infrastructures. Liberals, from the columns of L’Economista,41 journal founded in Florence in 1874, condemned this turn toward a complex and centralized statocracy, where the government acted as employer, entrepreneur, banker and philanthropist. All came at a cost, though. The corso forzoso was only the most apparent of the measures, the tax on f lour the most hateful. An extensive political patronage and nepotism pervaded all layers of government. Scandal after scandal a comprehensive corruption system unveiled its tentacles embracing parliament, justice courts, banks and many of the newly founded limited companies. From the Lobbia case (Dibattimenti 1869) to that of the Banca Romana (Vitale 1972), Italy experienced modernity mostly in form of bank failures, payment crises, ruinous speculations and frauds. All fears expressed by Italian intellectuals and economists in respect to a currency granted only by public authority came to life. Banks printed money in excess, even recurring to forgery to multiply millions and finance politicians and friendly entrepreneurs. In the absence of sound investments, all this excess money was funneled into speculations involving the modernization of Italian cities or fictive public companies. From the Alps to Neaples, such schemes always ended with the bankruptcy of banks and municipalities and with stock exchange crashes. Fanfulla, satirical magazine founded in Florence in 1870, hosted many ironic articles on the frauds of United Italy. Not accidentally, it was a bank employee, Vincenzo Salvatore, to sign, as Ego, most of the critical pieces on economic matters (Ego 1872, 1874a, 1874b, 1875). Salvatore stigmatized the “actiomerolus semperpagans” (Ego 1874b)—the foolish always-paying shareholder—who run as a simpleton wherever new joint-stock companies were founded for the most absurd motivations but with boards full of famous personalities, wherever petty municipalities went deep in debt with guarantees worth nothing and wherever banks irrationally emitted notes bringing chaos and ruin to the monetary circulation. The resulting society structure

38 Monika Poettinger

was divided in just two classes: speculators, swindlers and scammers, pompously driving through cities in elegant tilburies, and pedestrians, plagued by debts, underpaid in their jobs and robbed by taxes, looking upon them with envy and hope (Crispo 1874). In his masterpiece “Pinocchio,” Carlo Lorenzini described as the utopic land of the Owls this realm of political corruption, juridical fraud and entrepreneurial figments as opposed to a rural poverty aff licted by famine and moral uncertainty (Poettinger 2011). You must know—recounted the Fox to the blockheaded puppet, without freedom nor reason—that in the land of the Owls there is a sacred field called by everybody the Field of Miracles. In this field you must dig a little hole, and you put into it, we will say, one gold sovereign. You then cover up the hole with a little earth; you must water it with two pails of water from the fountain, then sprinkle it with two pinches of salt, and when night comes you can go quietly to bed. In the meanwhile, during the night, the gold piece will grow and f lower, and in the morning when you get up and return to the field, what do you find? You find a beautiful tree laden with as many gold sovereigns as a fine ear of corn has grains in the month of June. (Lorenzini [1883] 1914, 61–62) Written in 1881,42 Pinocchio represented the vanishing dream of Italian patriots in front of the dire reality of Italian economic and political life. In the Land of Owls, there was no hope to obtain justice. As he denounced the fraud, Pinocchio was arrested and convicted. The same happened to many an honest parliamentarian, as Cristiano Lobbia, who tried to expose Italian economic scandals in the decades after the unification of Italy. The only way out was to join the ranks of the delinquents.43 Articles on financial speculations and bankruptcies, curiously, substituted the term /crisis/ with /krach/44: “an Ostrogothic absurd wording” (Fanfani and Arlía 1890, 303) as lamented by the linguist Pietro Fanfani. Krach, an onomatopoeic German word for burst,45 sometimes Italianized as /crac/, was firstly canonized by the economist Alberto Errera after the banking failures of the early 1870s. Errera described the “krach” as “a special event, full of suffering, disillusions, failures, robberies, commotions and suicides” (Errera 1874, 417). Even Cognetti de Martiis used krach to refer to the Austrian financial crisis of 1873 (Cognetti de Martiis 1878b, 4, 12). Up to the end of the century, krachs called for research on the usefulness of stock exchanges (Il Politecnico 1863), for discussions on the legal foundations and economic rationality of joint-stock companies (L’Economista 1875), for the reform of the banking system (Ferrara 1873; Martello 1877) and for studies on monetary policies (De la Pichardais 1877; L’Economista 1877). In all these analyses, though, bankruptcies, speculations and stock manipulations were considered consequences of fraud, corruption and mismanagement, not as symptoms of more general economic

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crises or part of economic cycles (L’Economista 1878a–1878c). The choice of a foreign word to describe these phenomena corresponded to the idea that these crises were alien to the orderly functioning of the economy and their causes exogenous. In 1890, Maffeo Pantaleoni still attributed the Italian crisis of the previous four or five years to the interventionist policies of the Italian state. Protectionism, subsidies and bureaucratization had drugged the Italian economy, distorting investments and eradicating competition (Pantaleoni 1890). The same accusation was expressed with rhetoric animosity in an editorial of the Giornale degli Economisti published in December 1893. At the end of the century, Italy’s economy was still, in the imagery of economists, intellectuals, and the population at large, a land of Owls instead of a proper market and herein laid the origin of its repeated economic crises. The adoption of liberal economic policies, the education of the population and the spread of moral values would assuredly purge the economy from these maladies.46

1.4 Conclusion The analysis of Italian journals and economic literature of the 19th century highlights how the relative backwardness of Italy’s economy and the almost complete absence of an industrialization process limited the analysis of economic crises. The term crisi in itself was rarely used. Its originating discipline, responsible for its significance, was medicine. Thanks to the many debates on the Hippocratic theory of crises, the term spread to other specialized scientific languages. Slowly abandoned in the medical usage in the second half of the 19th century, it became current in a social, political and economic context. While industrial crises plagued the English economy at the beginning of the century, Italian intellectuals and politicians still coped mainly with famines. The debate on industrialism was so conducted on Italian periodicals only in reference to Great Britain. Its metaphorical representation as a Hell full of destitute laborers living in unhuman conditions, subject to whims of fate in form of unemployment and misery, became the excuse to praise the backward state of Italy’s economy, blessed by participative institutions granting to proprietors and tenants a diffused wealth. The path of development chosen by Italy’s ruling class after the unification of Italy would still bear the mark of this prejudice. In the second part of the 19th century, crises spread worldwide and called for more specific analyses. Italian economists devised or transferred from other languages precise taxonomies of crises and tentatively advanced causal explanation theories. The term /crisi/ still maintained its medical meaning. Liberals would impute to crises the Hippocratic capacity to favorably solve the economic illnesses, while socialists and Catholics would rather transfer the Galenian significance. Next to medical metaphors also metaphors taken from physics were used and the more general issue of cycles became relevant.

40

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The typology of crisis that Italians directly experienced was the financial one. Italy jumped abruptly, with not minor falls and bruises, from an agrarian economy to Pinocchio’s field of miracles, where unscrupulous speculators managed to rob foolish and ignorant citizens of their meager earnings. Generally, the cause of these crises was attributed to corruption, wrong policies, fraud or the irrationality of the human mind. In any case, the origin was exogenous to the otherwise orderly functioning of the economy. Alien was also the term used to describe such crises: krach, a German word that became popular after the Austrian financial crisis of 1873.

Notes 1 According to the formalist and nominalist tradition of economic thought, metaphors and a pictorial language correspond to a prescientific discourse. Pareto, for example, stated: “Words are often the depositories of the experience of men, and so long as a new-born science has not succeeded in accumulating for itself a sufficient aggregate of direct experience it may find it advantageous to have recourse to the common fund of experience more or less vaguely represented by words” (Pareto 1897, 496). More recent philosophical approaches, instead, attribute to metaphors a proper hermeneutical value (Hodgson 1995, 340–341). 2 In the Italian language, /crisi/ stands for both singular and plural of the noun / crisis/. 3 On this, see also Zanchi 1831. Transferring the meaning of Hippocratic crisis into economic writings, via metaphors, was done also in the English language, see: Besomi 2011, 88–89. 4 Carlo Troya, historian, patriot and politician, would be the one to write down affectionate memories of the Salon, also underlining the centrality of the figure of Concioli in the Roman intellectual milieu of the time. See: Troya 1841, 428. 5 On the Hippocratic or vitalist school in Italy in the 18th century, see: Pignacca 1840, 76–79. 6 On the theories about the practice of bleeding in Italy from the 17th century onwards, see: De Renzi 1846, 4:338–394. 7 See, for example, the Italian translation of the magna opus of the German physicist and botanist Kurt Polycarp Joachim Sprengel, “Versuch einer pragmatischen Geschichte der Arzneikunde” [1792–1799] translated in Italian in 1841 (Sprengel 1841, 4:233–234). 8 See, for example: Magri 1841; Z 1833. 9 Source: Google Books advanced search ( January 10, 2019). Multiple entries and multiple editions were discarded. 10 See, for example: La Civiltà Cattolica 1874, 1875. 11 Luigi Pellico was the brother of the more famous Silvio, patriot and literate (Contilli 2017). 12 The present research retraced the use of the noun /crisi/ in the following journals: the already quoted Annali Universali, the Nuovo Osservatore Veneziano edited by Lorenzo Fracasso, the Termometro Mercantile edited by Giovanni Battista Margaroli, the Giornale del Lloyd Austriaco and the Bollettino di notizie italiane e straniere e delle più importanti invenzioni e scoperte o progresso dell’industria e delle utili cognizioni. 13 See: Blanch 1841. On similar theses, see also: Cerini 1858. 14 Il Giornale Illustrato 1865a. 15 All quotations from this periodical, cited in the paper were taken from the reprint: Branca 1953–1965.

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16 “A definition—wrote Pecchio—so compliant to the interest of human race that could only have been conceived by the historian of The Italian Republics of the Middle Ages, an historian who didn’t simply value the glory of arms, the growth and decay of governments’ power and the capacity to prevail upon any circumstance, but always judged events for their effect on the welfare of populations” (Pecchio 1819d, 728). 17 The Antologia published two more letters of S. James that do not contain any more reference to participation practices but only political suggestions ( James 1821l, 1821m). 18 On Viesseux and the culture in Florence at the times of Antologia, see: Mascilli Migliorini 1998. 19 The Biblioteca Italiana introduced the work of Sismondi only in 1822. See: Biblioteca Italiana 1822. 20 For a recent assessment of Sismondi’s work and its reception, see: Sowell 2006. 21 On the fame and fortune of this historical work of Sismondi and its importance in the movement of Risorgimento, see: Giornale Agrario 1840. 22 The article was signed only as M. so that many interpreted it as written by Melchiorre Gioja himself. Historiography, though, attributes it to Giuseppe Montano. See: Macchioro 2006, 10–11. 23 See, for example: Antologia 1826b. This article was translated from The Globe. 24 The most forceful voice in favor of a measure of protectionism was that of Aldobrando Paolini (1827). The essay was reviewed by the Annali universali di statistica economia pubblica, storia, viaggi e commercio. 25 On this author, see: Augello 1976; Parisi Acquaviva 1980. 26 On this Asturian economist, see: Rodriguez Braun 2008. 27 On the reception of Malthus in Italy during the Risorgimento, see: Donnini Macciò and Romani 2020; Bini 2003. 28 The critique of Malthus’ theories, specifically that of rent, was conducted with sound analytical arguments by the renowned physicist and chemist Alessandro Volta (1826a, 1826b). 29 “Sismondi—wrote Melchiorre Gioja—led astray by his disproportionate sensibility, while examining the causes of the latest crises aff licting England, blamed the principles of modern economy, and from particular circumstances, extraordinary and limited to that isle, deduced general conclusions valid in all nations. He could be compared to a man that having seen a physicist stroked by lightning, would begin to lecture against Franklin’s rod” (Gioja 1827b, 258). 30 The persistence of the older position in respect to industrialization and crises may still be found in: Romagnosi 1835. 31 Among the more relevant: the various filiations of the English The Economist— L’Economista of Turin, Milan and lastly Florence (Poettinger 2013a)—and the Giornale degli Economisti (Augello, Bianchini, and Guidi 1996). 32 The articles, published between 1895 and 1896, were collected in the volume: Einaudi 1896. 33 Cognetti de Martiis 1878a, 1878b. 34 There is a vast and complex body of writings in the English language that attributes crises to “speculation fever” and/or some sort of madness or irrationality of man. See: Besomi 2011, 83–88. 35 For a similar judgment in respect to the work of Clément Juglar, see: Besomi 2011, 102–104, and Baranzini and Besomi in this volume (Chapter 2). 36 For the use made by English-speaking economists of similar metaphors derived mainly from physics, during the 19th century, see: Hodgson 1995. 37 Boccardo took the sunspot theory of William Stanley Jevons very seriously, appreciating his empirical and statistical approach. He so compared the data presented by Jevons with various other series of data concerning agriculture, prices and financial

42 Monika Poettinger

38 39 40 41 42 43

44 45

crises. His conclusions were mixed. He doubted that solar activity would suffice to justify the occurrence of crises but thought the hypothesis, nevertheless, worthwhile pursuing. On Jevons and his theory, see: Gallegati and Mignacca, 1994. See: Dalla Volta 1888; De Johannis 1885; Montaldo 1885; Tanlongo Bernardo 1889; Usigli 1890. On the economic policies of the time and their theoretical foundations, see: Bini 2014, 3–13. On Italian public debt in its historical evolution, see: Artoni and Bianchini, 2003. On this periodical, see: Poettinger 2013a. Pinocchio was published in episodes on the Giornale per i bambini, weekly attachment to Fanfulla, between 1881 and 1883 (Lorenzini 1881–1883). For a recent reprint of the original edition, see: Lorenzini 2002. “«If the others are to be let out of prison, I will go also,» said Pinocchio to the jailor. «No, not you,» said the jailor, «because you do not belong to the fortunate class.» «I beg your pardon,» replied Pinocchio, «I am also a criminal.» «In that case you are perfectly right,» said the jailor, and, taking off his hat and bowing to him respectfully, he opened the prison doors and let him escape” (Lorenzini [1883] 1914, 101). See: Errera 1874; G.F. 1879; Pareto 1891. The use of “Krach” in German-speaking countries diffused in the same 1870s to describe a financial crisis or a bankruptcy so grave as to inf luence the entire market (Die Länderbank 1882). In respect to the budget problems of Swiss railways, a pamphlet, for example, would write: If you wish it to end otherwise, for the crisis to be avoided and for you to be saved from the “great krach”, you must have the courage to analyse the causes of the crisis. Only if those causes are averted then the illness can be cured. Everything else is just quackery. (Memminger 1877, 19)

46 The most important dissenting voice in respect to this deeply ingrained worldview must at least be mentioned: Verismo an empiricist literary movement similar to the French réalisme. In the wake of the historical romanticism practiced by Sismondi and Alessandro Manzoni, verismo analyzed the effect of government decisions on the welfare of the population. Led by the results of the many public enquiries launched after Unity, some Italian novelists selected the poorest of the poor to describe the backwardness of the Italian economy and society. Their plots were ruled by economic determinism and social Darwinism and their characters would not believe and could not be relieved by the thought of the well-ordered functioning of the economic cosmos. The slight perturbations of the liberal economy became, for these wretched human beings, catastrophes of incommensurable magnitude to which there was no solution. See: De Vito 1954.

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D’Alberti di Villanuova, Francesco. 1797. Dizionario universale critico enciclopedico della lingua italiana. Lucca: Stamperia di Domenico Marescandoli. Dalla Volta, Riccardo. 1888. Sulla recente depressione economica. Memoria letta nella seduta del 5 Agosto 1888 all’Accademia dei Georgofili. Firenze: M. Celini e C. De Johannis, A.G. 1885. ‘Sulla situazione economica dell’Italia.’ Rassegna Nazionale 23 (4): 666–672. De la Pichardais, Robinot. 1877. ‘L’Inf luenza dei metalli preziosi sul saggio di interesse.’ L’Economista 7 (163): 733–734. De Renzi, Salvatore. 1846. Storia della medicina Italiana. Napoli: Filiatre-Sebezio. De Vito, Anthony J. 1954. ‘Roba e miseria: motivi dominanti nell’opera di Giovanni Verga.’ Italica 31 (4): 225–236. https://doi.org/10.2307/477090. Della Bona, Giovanni. 1888. ‘Delle crisi economiche.’ Giornale degli Economisti 3 (March–June): 251–267. Dibattimenti nella causa contro Cristiano Lobbia, deputato, Prof. Antonio Martinati, Cristiano Giusto Caregnato, Giuseppe Novelli e Carlo Benelli imputati di simulazione di delitto. 1869. Firenze: Eredi Botta. Die Länderbank und der Pariser Krach. 1882. Wien: Hartleben. Dizionario della lingua italiana: arricchito di tutte le giunte che si trovano negli altri dizionarj. 1835. Livorno: Pei Fratelli Vignozzi. Donnini Macciò, Daniela, and Roberto Romani. 2020. ‘Malthus’s Italian incarnations, 1815–1915.’ In Malthus across nations, edited by Gilbert Faccarello, Masashi Izumo and Hiromi Morishita, 236–273. Cheltenham: Edward Elgar Publishing. https://doi.org/10.4337/9781788977579.00010. Doria, Gino, ed. 1820. Lezioni di commercio o sia di economia civile dell’abate Antonio Genovesi napoletano cui vanno uniti opuscoli interessantissimi risguardanti l’economia politica e l’agricoltura. Milano: Giovanni Silvestri. https://books.google.ch/ books?id=3lBL9x8UHcIC&printsec=frontcover&hl=fr&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false. Dunoyer, Barthélemy-Charles. 1825. L’industrie et la morale considérées dans leurs rapports avec la liberté. 2 vols. Paris: A. Sautelet & Cie Libraires. http://gallica.bnf.fr/ document?O=N082926. Ego [Vincenzo Salvatore]. 1872. ‘Memorie di un azionista.’ In Almanacco del Fanfulla pel 1872, 168–183. Roma: Tipografia dell’Italie. ———. 1874a. ‘Storia della finanza italiana.’ In Almanacco del Fanfulla pel 1874, 45– 60. Roma: Tipografia dell’Italie. ———. 1874b. ‘Il krach.’ Fanfulla, February 23. ———. 1875. ‘Affari di borsa.’ Fanfulla, April 13. Einaudi, Luigi. 1896. La crisi agraria nell’Inghilterra: lavoro eseguito nel laboratorio di economia politica della università di Torino. Torino: Tipografia Alfonso Garagnani. Errera, Alberto. 1874. ‘Il “krach” del 1873–74.’ Nuova Antologia 25 (2): 416–465. Fanfani, Pietro, and Constantino Arlia. 1890. Lessico dell’infima e corrotta italianità. Milano: P. Carrara. Ferrara, Francesco. 1864a. ‘Delle crisi economiche.’ In I.W. Gilbart, H. Scherer, P.G. Stirling, edited by Francesco Ferrara, Biblioteca dell’Economista. 2da Serie. Trattati speciali, Vol. 4, V–LXXI. Torino: Stamperia dell’Unione Tipografico-Editrice. ———, ed. 1864b. I.W. Gilbart, H. Scherer, P.G. Stirling. Edited by Francesco Ferrara. Vol. 4, Biblioteca dell’Economista. 2da Serie. Trattati speciali. Torino: Stamperia dell’Unione Tipografico-Editrice.

46 Monika Poettinger ———. 1873. ‘La questione dei banchi in Italia.’ Nuova Antologia 24 (10; 11; 12): 351–384; 622–652; 883–913. Gadda, G. 1868. ‘Amministrazione e finanza.’ Il Politecnico S. 5, 5 (2): 127–136. Gallegati, Mauro, and Domenico Mignacca. 1994. ‘Jevons, sunspot theory and economic f luctuations.’ History of Economic Ideas 2 (2): 23–33. Gasparini, Antonio. 1835. Di alcuni abusi nella medicina pratica Italiana. Milano: Pirotta. Gazzeri, Giuseppe. 1824. ‘Memoria letta dal Prof. Gazzeri nell’adunanza del dì 7 Marzo 1824 della R. Accademia dei Georgofili.’ Antologia 14 (41): 102–122. G.F. 1879. ‘Il Krach a Parigi?’ L’Economista 10 (283): 630–632. Giffen, Robert. 1877. Stock exchange securities: An essay on the general causes of fluctuations in their price. London: George Bell and Sons. Gioja, Melchiorre. 1827a. ‘Nouveaux principes d’économie politique, par S. De Sismondi Art. I.’ Biblioteca Italiana ossia Giornale di Letteratura Scienze ed Arti 47 (7 July): 84–101. ———. 1827b. ‘Nouveaux principes d’économie politique, par S. De Sismondi Art. 2 e ultimo.’ Biblioteca Italiana ossia Giornale di Letteratura Scienze ed Arti 47 (8 August): 238–258. Giordano, Michele. 1866. Brevi cenni sul metodo razionale di risolvere la presente crisi finanziaria senza ricorrere al disarmo, all’aumento delle imposte, ed agli imprestiti ordinarii, etc. Bologna: Aiudi. Giornale Agrario Lombardo-Veneto e Continuazione degli Annali Universali di Agricoltura, di Industria e d’Arti Economiche. 1840. ‘Istoria delle repubbliche italiane, di J. C. L. Sismondo de Sismondi.’ 14 (7) July: 68. Giornale degli Economisti. 1891. ‘La crisi agricola e la politica doganale.’ 3 (August): 156–165. Giornale degli Economisti. 1893. ‘La crisi e il programma liberale.’ 7 (December): 471–487. Hodgson, Geoffrey M. 1995. ‘Biological and physical metaphors in economics.’ In Biology as society, society as biology: Metaphors, edited by Sabine Maasen, Everett Mendelsohn and Peter Weingart, 339–356. Dordrecht: Springer Verlag. https://doi.org/ 10.1007/978-94-011-0673-3_14. Il Giornale Illustrato. 1865a. ‘Le sorgenti del bilancio.’ 28 (2): 223. Il Giornale Illustrato. 1865b. ‘Un lodging-house a Londra.’ 2 (32): 256. Il Politecnico. 1863. ‘Dell’inf luenza delle operazioni di borsa sull’economia sociale.’ 2, 18 (87): 368–387. James, S. 1821a. ‘Lettera I.’ Antologia 1 (1): 71–74. ———. 1821b. ‘Lettera II.’ Antologia 1 (1): 74–78. ———. 1821c. ‘Lettera III.’ Antologia 1 (2): 175–178. ———. 1821d. ‘Lettera IV.’ Antologia 1 (2): 178–181. ———. 1821e. ‘Lettera V.’ Antologia 1 (2): 181–182. ———. 1821f. ‘Lettera VI.’ Antologia 1 (2): 182–187. ———. 1821g. ‘Lettera VII.’ Antologia 1 (2): 187–190. ———. 1821h. ‘Lettera VIII.’ Antologia 1 (2): 190–192. ———. 1821i. ‘Lettera IX.’ Antologia 1 (3): 417–423. ———. 1821j. ‘Lettera X.’ Antologia 1 (3): 423–427. ———. 1821k. ‘Lettera XI.’ Antologia 1 (4): 42–48. ———. 1821l. ‘Lettera XII.’ Antologia 1 (4): 49–51. ———. 1821m. ‘Lettera XIII.’ Antologia 1 (4): 52–54. L’Economista. 1875. ‘Delle società anonime.’ 3 (37) January 17: 93–97. L’Economista. 1877. ‘Il mercato monetario in Europa.’ 7 (158) May 13: 561–562.

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L’Economista. 1878a. ‘La crisi presente e i suoi rimedi.’ 9 (204) March 31: 194–197. L’Economista. 1878b. ‘La crisi presente e i suoi rimedi.’ 9 (205) April 7: 209–210. L’Economista. 1878c. ‘La crisi presente e i suoi rimedi.’ 9 (207) April 21: 241–243. L’Economista. 1880. ‘Il sistema finanziario dello stato.’ 11 (336) October 10: 1473–1475. La Civiltà Cattolica. 1874. ‘Austria. Crisi finanziaria ed eredità da essa lasciata.’ 1 (9): 612–615. La Civiltà Cattolica. 1875. ‘Cronaca-Prussia.’ 8 (9): 496–502. La Civiltà Cattolica. 1883. ‘L’odierna crisi francese.’ 1 (781): 664–675. Lampato, Francesco. 1833. ‘Nota del Compilatore.’ Annali Universali di Statistica, Economia Pubblica, Storia, Viaggi e Commercio 35 (103): 64. Leopardi, Giacomo. 1885. Scritti editi sconosciuti. Recanati: Simboli. Lorenzini (Collodi), Carlo. 1881–1883. ‘Pinocchio.’ In Giornale per i Bambini. Roma: Ferdinando Martini. ———. [1881–1883] 2002. ‘Pinocchio.’ In Giornale per i Bambini. Firenze: Polistampa. ———. [1883] 1914. Pinocchio. London/ Philadelphia: Lippincott. Maasen, Sabine, Everett Mendelsohn, and Peter Weingart. 1995. ‘Metaphors: Is there a bridge over troubled waters?’ In Biology as society, society as biology: Metaphors, edited by Sabine Maasen, Everett Mendelsohn and Peter Weingart, 1–10. Dordrecht: Springer Verlag. https://doi.org/10.1007/978-94-011-0673-3_1. Macchioro, Aurelio. 2006. Studi di storia del pensiero economico italiano. Milano: Franco Angeli. Magri, Andrea. 1841. ‘Critiche rif lessioni sulle crisi.’ Bollettino delle Scienze Mediche S. 2, 11: 371–374. Manfredi, Marco. 2011. ‘La ricezione di Sismondi nella cultura italiana della Restaurazione.’ In Sismondi e la nuova Italia, edited by Letizia Pagliai and Francesca Sofia, 71–124. Firenze: Polistampa. https://doi.org/10.1400/195544. Margaroli, Giovanni Battista. 1831. ‘Introduzione.’ Termometro Mercantile e d’Industria 1 (1): 1. Martello, Tullio. 1877. ‘La questione dei banchi in Italia.’ L’Economista 8 (4): 161–165. Mascilli Migliorini, Luigi. 1998. ‘“L’Atene d’Italia”: identità fiorentina e toscana nella formazione dello Stato nazionale.’ Meridiana 12 (33): 107–123. Memminger, Anton. 1877. Der Krach: kritische Gänge durch das schweizerische Eisenbahnwesen. Zürich: Selbstverlag des Verfassers. Montaldo, E. 1885. ‘Ancora della nostra situazione economica.’ Rassegna Nazionale 24 (1): 167–179. Montemartini, Giovanni. 1891. La teorica delle crisi. 1: La crisi di produzione e consumo. Pavia: Bizzoni. Mori, Giorgio. 1989. ‘Industrie senza industrializzazione. La penisola italiana dalla fine della dominazione francese all’Unità nazionale (1815–1861).’ Studi Storici 30 (3): 603–635. Pancaldo, Emanuele. 1826. Memoria sulla dottrina delle crisi. Napoli: Tipografia della Minerva. Pantaleoni, Maffeo. 1890. ‘La crisi in Italia e i suoi medici.’ Giornale degli Economisti 1 (August): 227–228. Paolini, Aldobrando. 1827. ‘Alcune idee di supplemento ai cenni sulla Maremma Senese dell’avvocato Paolini.’ Antologia 27 (80): 47–70. Pareto, Vilfredo. 1891. ‘Le krach de Livourne.’ Le Monde Économique, April 4: 330–331. ———. 1897. ‘The new theories of economics.’ Journal of Political Economy 5 (4): 485–502. https://doi.org/10.1086/250454.

48 Monika Poettinger Parisi Acquaviva, Daniela. 1980. ‘Note e discussioni: Carlo Bosellini storico del pensiero economico.’ Rivista Internazionale di Scienze Sociali 88 (1): 141–148. Pecchio, Giuseppe. 1819a. ‘De l’industrie française Art. I.’ Il Conciliatore 2 (64): 427–434. ———. 1819b. ‘De l’industrie française Art. II.’ Il Conciliatore 2 (66): 460–469. ———. 1819c. ‘Progressi dell’industria italiana Art. III.’ Il Conciliatore 2 (67): 475–486. ———. 1819d. ‘Nouveaux principes d’économie politique ou de la richesse dans ses rapports avec la population, par J. C. L. Simonde De Sismondi Art. 1.’ Il Conciliatore 2 (83): 727–731. ———. 1819e. ‘Nouveaux principes d’économie politique ou de la richesse dans ses rapports avec la population, par J. C. L. Simonde De Sismondi Art. 2.’ Il Conciliatore 3 (89): 34–41. ———. 1819f. ‘Nouveaux principes d’économie politique ou de la richesse dans ses rapports avec la population, par J. C. L. Simonde De Sismondi Art. 3.’ Il Conciliatore 3 (90): 50–60. ———. 1827. L’anno milleottocentoventisei dell’Inghilterra. Lugano: G. Vanelli. Pellico, Luigi. 1824. La crisi del matrimonio: commedia. Preceduta da un ragionamento intorno alla convenienza di verseggiare la commedia italiana. Torino: Stamperia reale. Perri, Stefano. 1980. ‘Crisi, moneta e credito in Francesco Ferrara.’ Annali Della Fondazione Luigi Einaudi 14: 411–450. Pignacca, Antonio. 1840. Frammenti per l’istoria della medicina italiana del secolo decimonono. Pavia: Libreria della Minerva di Luigi Landoni. Poettinger, Monika. 2011. ‘Un burattino in libertà nell’Italia di fine Ottocento.’ In Carlo Lorenzini dal Risorgimento all’Unità, edited by Cosimo Ceccuti and Antonia Ida Fontana, 127–182. Firenze: Associazione Culturale Pinocchio di Carlo Lorenzini. ———. 2013a. ‘Introduzione.’ In Firenze e l’Europa liberale. L’Economista (1874–1881), edited by Monika Poettinger, 5–30. Firenze: Polistampa. ———. 2013b. ‘La diffusione della scienza economica come strumento di propaganda liberale: L’Economista (1874–1881).’ Il Pensiero Economico Italiano 21 (1): 151–176. https://doi.org/10.1400/221348. ———. 2014. ‘Besieging the French liberal fortress: The diffusion of Italian and German economic thought in the last quarter of the 19th century.’ Rivista di Storia Economica 1 (1): 37–58. Rodriguez Braun, Carlos. 2008. ‘Álvaro Flórez Estrada. Compromised Liberalism in nineteenth-century Spain.’ The Independant Review 13 (1): 81–98. Romagnosi, Gian Domenico. 1835. ‘Parallelo fra l’attuale industria francese ed inglese tratto dall’esame del sig. Lefebvre-Duryle.’ Annali Universali di Statistica, Economia Pubblica, Storia, Viaggi e Commercio 43 (127): 17–31. Rossi, Pellegrino. 1843a. Corso di economia politica. Napoli: Dallo Stabilimento del Guttemberg. ———. 1843b. Storia dell’economia Napoli: Dallo Stabilimento del Guttemberg. Sacchi, Giuseppe. 1827a. ‘Osservazioni intorno alle opinioni di A. F. Estrada, L. Sismondi e G. B. Say sulla crisi commerciale dell’Inghilterra (Articolo 1°).’ Annali Universali di Statistica, Economia Pubblica, Storia e Viaggi 11 (31): 48–57.

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———. 1827b. ‘Osservazioni intorno alle opinioni di A. F. Estrada, L. Sismondi e G. B. Say sulla crisi commerciale dell’Inghilterra (Articolo 2° e ultimo).’ Annali Universali di Statistica, Economia Pubblica, Storia e Viaggi 11 (32): 150–167. Savi, Francesco. 1846. Miei studj ippocratici: lettera al dott. Onofrio Concioli. Firenze: Gabinetto di G.P Vieusseux. Serristori, Luigi. 1819a. ‘Sopra gli stabilimenti del sig. Fellemberg a Hofwyl Art. I.’ Il Conciliatore 2 (45): 142–149. ———. 1819b. ‘Sopra gli stabilimenti del sig. Fellemberg a Hofwyl Art. II.’ Il Conciliatore 2 (45): 161–167. ———. 1819c. ‘Applicazioni che potrebbero farsi delle macchine a vapore, singolarmente in Toscana.’ Il Conciliatore 2 (91): 71–75. Simonde de Sismondi, Jean Charles Léonard. 1821. ‘Storia dei francesi.’ Antologia 3 (7): 130–147. ———. 1824a. ‘Della proporzione fra il consumo e il prodotto, discorso del sig. Sismondi, tratta dalla Rivista Enciclopedica.’ Antologia 15 (44): 49–76. ———. 1824b. ‘Della bilancia delle consumazioni colle produzioni.’ Annali Universali di Viaggi, Geografia, Storia, Economia Pubblica e Statistica 1 (2/3): 192–233. ———. 1840a. Studi intorno all’economia politica, parte prima. Capolago: Tipografia Elvetica. ———. 1840b. Studi intorno alle scienze sociali. Capolago: Tipografia Elvetica. Snider, A. 1889. La crisi degli spiriti e dei vini in Italia: esame e proposta di rimedi con alcuni appunti per uno schema di legge. Memoria. Milano: Tipografia C. Civelli. Sofia, Angelo. 1988. Galluppi e Pancaldo: due patrioti dalla vecchia alla nuova Italia. Messina: EDAS. Sowell, Thomas. 2006. ‘Sismondi: a neglected pioneer.’ In On classical economics, edited by Thomas Sowell, 104–128. New Haven, CT: Yale University Press. Sprengel, Curzio. 1841. Storia prammatica della medicina. Firenze: Tipografia della Speranza. Tanlongo, Bernardo V. 1889. Relazione sulla crisi economica nazionale, approvata dalla Camera nella seduta del 21 Marzo 1889. Roma: Tipografia Della Accademia dei Lincei. Tartini-Salvatici, Ferdinando 1825. ‘Rif lessioni sugli effetti della libera concorrenza. Memoria letta all’Accademia dei Georgofili nell’adunanza del 10 Aprile 1825.’ Antologia 19 (55): 19–31. Testa, Antonio. 1867. ‘Rivista finanziaria.’ Il Politecnico S. 4, 3 (2): 198–212. Troya, Carlo. 1841. Della condizione de’ romani vinti da’ longobardi e della vera lezione d’ alcune parole di Paolo Diacono. Napoli: Stamperia reale. Tusset, Gianfranco. 2009. ‘The Italian contribution to early economic dynamics.’ The European Journal of the History of Economic Thought 16 (2): 267–300. https://doi.org/ 10.1080/09672560902891051. Usigli, César. 1890. La crise italienne et ses causes. Roma: Forzani e C. Vitale, Eligio. 1972. La riforma degli istituti di emissione e gli scandali bancari in Italia, 1892–1896: Relazioni di inchieste ed ispezioni, progetti e testi legislativi, atti processuali, varie. Roma: Camera dei Deputati Archivio storico. Volta, Alessandro. 1826a. ‘Osservazioni sui principj dell’economia politica di Malthus, contrapposti ai principj di Davide Ricardo. (Art. 1°).’ Annali Universali di Statistica, Economia Pubblica, Storia e Viaggi 10 (28): 13–28.

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———. 1826b. ‘Osservazioni sui principj dell’economia politica di Malthus, contrapposti ai principj di Davide Ricardo. (Art. 2° ed ultimo).’ Annali Universali di Statistica, Economia Pubblica, Storia e Viaggi 10 (29): 142–156. Wirth, Max. 1886. L’équilibre économique et les causes de la stagnation actuelle des affaires. Roma: Botta. Z. 1833. ‘Sfigmica. Intorno alla scienza de’ polsi del Dott. Rucco.’ Il Progresso delle Scienze, delle Lettere e delle Arti 6 (5): 116–124. Zanchi, Petrus. 1831. De crisi et diebus criticis. Pavia: Fusi.

2

Clément Juglar’s epistemic use of metaphors Roberto Baranzini and Daniele Besomi

2.1 Introduction In 1856, Clément Juglar—a medical doctor who had refocused on social and economic problems—published the first of a series of writings on commercial crises, a topic that absorbed his attention almost until his death half a century later. In particular, he published a book titled Commercial crises and their periodical return in France, England, and the United States ( Juglar 1862), which was greatly expanded for its second edition published in 1889. This work was path-breaking for being the first systematic treatise on crises and for its extensive and crucial use of data, although most of Juglar’s points were not novel. The documentary evidence he presented, nevertheless, contributed in an essential way to make acceptable in France the view that crises are part and parcel of the working of capitalism and perform a useful function in the growth process—a view that would have been considered as totally heretical by the dominant school of Liberal economists to which he belonged. Juglar’s writings are characterized by an extensive use of metaphors in the more theoretical passages of his book—both editions, but particularly the 1889 one, which has more theoretical ambitions than the first—while the more descriptive passages are very factual and almost free of figurative language and analogies. This suggests that metaphors played a crucial role in Juglar’s construction, and to inquire into this is precisely the purpose of this chapter. We shall proceed as follows. In Section 2.2, we brief ly summarize Juglar’s view on crises, focusing in particular on their role in the functioning of the economic system, also giving some context on the approach to crises in France at the time. In Section 2.3, we discuss Juglar’s use of metaphors, while in Section 2.4 we overview how the same metaphors were used— sometimes in the same direction as Juglar’s, other times to argue precisely the opposite—in the 19th-century literature; finally, in Section 2.5 we wrap up the argument. Some of Juglar’s metaphors will not directly resonate with English readers. We have, however, opted for a literal translation, with the crucial help of Cécile Dangel-Hagnauer (the original French passages, at any rate, are reported in the footnotes).

DOI: 10.4324/9781003144601-4

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2.2 Juglar’s understanding of commercial crises Juglar’s explanation of commercial crises relied on a number of analytical ingredients that had been available for some time, some dating back several decades. He did, however, assemble them very skilfully in the first full-f ledged treatise on the subject, accompanied by a wealth of data on commercial and banking statistics that were not only illustrative of his argument but an integral part of it.1 In France, towards the middle of the 19th century, the largely dominant2 school of thought was that of the Liberals: devoted to the heritage of JeanBaptiste Say, they were staunch supporters of laissez-faire and believers in the economic system’s ability to self-adjust. In their view, crises could only be the partial and temporary result of disturbances, caused either by natural disasters or by wars or by some undue interference by the government in the operating of market mechanisms—protection, in particular: in short, crises were considered as a ‘political disease,’ to borrow the words of the master himself (Say 1814, 1:149–150; see below, Section 2.4). For the Liberals, crises, therefore, had a specific individual, essentially exogenous cause, and were independent of each other. Yet, the recurrence of crises on a semi-regular basis and the similarity in their morphology cast growing doubts on this interpretation, making this view less and less tenable. By the middle of the century, it was largely (but, of course, not universally) agreed that crises were a periodical phenomenon, although almost nobody would have interpreted ‘periodicity’ as implying strict regularity. This suggested to many—at first in England, but soon also in more doctrinaire France—that crises were intrinsic to the working of a capitalist economy. There followed a cascade of questions: What made them possible, and why were they necessary? Did crises represent a disfunction of the commercial system or did they perform some specific function in its working, maybe even a useful one? Could a law of crises be found? Were they predictable?3 Juglar’s work is to be seen in this context. Trained as a medical doctor in the mid-1840s, after a few years of practice his interest switched to commercial crises, probably via a study he conducted on population movements ( Juglar 1851, 1852). The conclusions of this research found an echo in his first writing on crises, where he observed that these periodical perturbations of trade heavily affect the conditions of the working class and result in f luctuations in the number of weddings and deaths ( Juglar 1856). From this point to his death in 1905, Juglar wrote almost exclusively on this subject and on monetary issues. Juglar was a member of the French Liberal school: he was a regular participant in the meeting of the Société d’Économie Politique, wrote for the Journal des Économistes, published with Guillaumin, and was very much respected by the other members. Yet his views were at odds with the mainstream: although he carefully abstained from explicitly dissenting from Say’s law of markets, he did not endorse it either and argued instead that

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general commercial crises are a periodical outcome of the intrinsic tendency of producers and merchants to trade beyond their means thanks to credit. This position is at the border of the narrow line dividing acceptance and rejection of Say’s law: the mechanism advocated by Juglar does not pertain to the relationship between production and consumption with which the Law of markets is concerned but is based instead on the monetary mechanism, in particular the role of credit. This solution allowed numerous writers, in France as well as in England and elsewhere, to contemplate the possibility of general crises without actually infringing on the then orthodox and almost universally accepted Law of markets. The argument goes back in its essence at least to William Huskisson (Huskisson 1810; Besomi 2010b), and by Juglar’s time it was widely spread, having made it into John Stuart Mill’s Principles (Mill 1848, Book III, Ch. 12, § 3). In Juglar’s version, it runs as follows. In the early stages of prosperity, trade proceeds cautiously at first, and more decidedly later. At some point, the spirit of speculation is awoken: as profits depend on the amount traded, it is worth borrowing money in order to expand trade. Credit, thus, allows traders to expand their business, which raises prices, which, in turn, induces speculative behaviour. Once the process is started, this ‘overtrading’ is cumulative, but in the long run it is not sustainable. Merchants get ‘overexcited,’ enterprises become more and more adventurous, and banks are increasingly exposed; sooner or later one or a few of them fail, their default drags others into bankruptcy, and the entire construction suddenly and quickly collapses. The businesses and banks that were more exposed fail, credit and speculation are brought to a halt, the rise of prices stops and reverses its course, gradually bad businesses are liquidated, and finally the conditions are set for the resumption of the normal course of trade. Juglar placed particular emphasis on a few key aspects of this narrative. None of them was totally novel, but together they strongly characterize his understanding of the role of crises in a capitalist economy and differentiate his view from that of the more orthodox Liberals. First, Juglar is adamant that crises are no accident but are rooted in the previous prosperity—more precisely, in the excesses that take place in the later stages of the previous prosperity. A crisis, therefore, is not a purely destructive anomaly, nor should its occurrence be surprising; it is instead a necessary and indeed useful phase in economic progress. It is necessary because credit is essential for the expansion of trade on the one hand, but credit allows the traders’ ‘passion for gambling’ to grow into overtrading. It is useful, because it wipes out bad credit and brings the economic system back to its normal state.4 Not only the occurrence of crises is not surprising, but credit, trade, and speculation, once they have become excessive, leave clear traces in the banking data, which can be decoded and made an instrument for forecasting: towards the end of his career, Juglar claimed that there is a ‘law of crises’ and was accordingly nicknamed ‘the prophet of crises’ (Neymarck, in Société d’Économie Politique 1893, 7, and Passy 1905, 421).

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The most essential analytical ingredient of all is the understanding that the excesses of the late stages of prosperity make this state of the system essentially and increasingly unstable. Instability results from the fact that both speculation during prosperity and bankruptcies during the liquidation have an intrinsic tendency to propagate, from some businesses to others and from one country to others, following both the commercial and the debt connections. This explains not only the universal,5 sudden, and violent outbreak of crises, but also the fact that, when the system is in such a state, any small disturbance can cause a crisis; on the contrary, when the system is stable as it is in the early stages of prosperity, even a big shock is not enough to disturb its progress— not even a war, maintained Juglar (1857a, 38; 1889, xvii). Instability is related to two other important ref lections strongly emphasized by Juglar. One is epistemological and concerns his view on causality. Juglar argued that the primary cause of crises—the excess of speculation—is the source of the instability which will eventually topple the system. This cause is common to all crises and ref lects the causal principle that similar effects must originate from the same cause. When the primary cause is active, the event actually sparking off a crisis—be it a war, a famine, a natural disaster— is nothing but a secondary cause, not necessary to the result and sufficient for it only insofar as the primary cause is effective. This brings us to the second aspect highlighted by Juglar, namely, that the rival theories of crises— those understanding crises as separate and independent events caused by some exogenous event or some political interference—mistook the secondary causes for the primary one. We will start our discussion precisely from this point.

2.3 Juglar’s use of metaphors It is in Juglar’s discussion of the issues highlighted in the previous section that we find most of his metaphors: the more descriptive parts of his book (hundreds of pages, in the second edition!) and articles are lacking in figurative language. 2.3.1 The causal principle Our starting point here is Juglar’s own, as he opened the first edition of his book ( Juglar 1862, 2–3) with a discussion on causality by using the medical distinction between predisposing and occasioning causes. This must be set in context. As we mentioned above, the theoretical landscape was dominated—in France as elsewhere—by the view that the economic system normally runs smoothly, with capitals f lowing where they are needed so that production matches demand, except for the normal small f luctuations when adjustments are needed following new conditions of either demand or supply or following some major interference with the unhindered working of the system. In this view, crises are accidents to be ascribed to the specific

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disturbance interfering with the normal process of production and exchange. Accordingly, the theories of crises ref lecting this view explained the phenomenon in terms of the entire set of circumstances that had contributed to occasion them. For instance, the following were listed as the main causes of the current crisis at a meeting of the Société d’Économie Politique held in December 1857: Mr. Ch. Renouard, adviser at the Court of Appeal, summarizes as follows the main causes of the crisis: food shortage, first cause independent of people;—war, that caused direct and indirect losses and troubled the social economy;—the excessive development of public works;—the spirit of speculation which, by its nature, always reaches extreme limits;— the moral state of the country: having disregarded too much the noble concerns with arts, science, politics and the grand ideals, it too exclusively engrossed itself in the concerns of business, of physical pleasures and of luxury.6 Similarly, in his entry on ‘Crises Commerciales’ in the Dictionnaire Universel du Commerce et de la Navigation, Joseph Garnier discussed as follows the causes of crises: The causes that can be assigned to crises are numerous and different in character. We can classify them all under the following headings: The political and social agitations, from which worries about the future and lack of safety result; Wars, and the consequent re-establishment of peace; Famines; the scarcity of crop in important raw materials; any catastrophe; abundance. The slowing down of consumption, with its consequences for exchange and production; The rapid increase in production due to the excitement in the spirit of enterprise and to speculation fevers, which incite badly conceived operations; The diversion of capitals due to the development of public works or to new large enterprises; The development of credit, and the monopoly of credit institutions; The rapid increase of the quantity of precious metals, gold or silver; The sudden increase in tariffs, national or foreign; The backlash of foreign crises.7 Each crisis had its own specific explanation; each was, therefore, seen as a separate incident. By the middle of the 19th century, however, with several major crises having taken place every ten years or so, this view seemed less and less tenable. Observers had been pointing out for some time that crises seemed to recur with some regularity (Besomi 2010c), shared similar features, and followed a common path. In particular, crises broke out as the speculative phase characterizing the last stage of a period of prosperity had intensified beyond reason, and this was eventually seen as the cause of each crisis. Already by the 1840s, some writers—Robert Cockburn (1840), Jean-Edmond Briaune (1840), Isaac Preston Cory (1842), Charles Coquelin

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(1852), and more explicitly and extensively James Anthony Lawson (1848)8 — began to invoke some form of the causal principle that similar effects must be produced by similar causes to turn the observation of the periodical return of crises into a theory of the phenomenon. The causal principle was understood as providing the scientific explanatory basis of crises, no longer interpreted as separate incidents but as periodic outbreaks of the same tension, recurringly increasing during prosperity and eventually relaxing. The authors mentioned above argued, in some way or another, that the multiple causation approach to crises mistook secondary causes for the primary one, the one common to all crises, and that the illusion that crises have different origins is due to the fact that the primary cause acts by destabilizing the economic system so that any small perturbation may occasion a crisis. Juglar offered one of the best arguments along this line, beautifully blending an epistemic argument on the nature of causal thinking with powerful rhetoric, at once ridiculing his adversaries and claiming a scientific status for his own approach. The argument was cast by means of a transfer to crisis theory of a distinction between predisposing and occasioning causes, using medical jargon and an example widely used in the contemporary medical literature, but giving it an etiological interpretation that was ahead of his time. Juglar’s discussion is of particular interest here because, contrary to the vast majority of the writers on crises who were not specialists in the field from which they borrowed their analogies, he was trained as a medical doctor and only later turned to economics; therefore, he was presumably far more familiar than others with the recent developments of French medical thought, and one can expect that he used his medical terminology in a precise way.9 The first edition of Juglar’s book opens with a warning that economic phenomena, being subject to various inf luences of all sorts, can easily induce the inquirer to ‘mistake occasional causes for the true nature of the disease’: Food shortages, wars, revolutions, tariff changes, loans, fashion variations, new trade openings, these are the main causes of crises that have in turn been put forward. However, the real test would be to see these causes reproduce, in similar circumstances, the same effects. Unfortunately, when we consider social phenomena and everything that concerns life, this relationship between causes and effects is rarely prominent. In this state of uncertainty, the most dissimilar causes are called upon to explain the same facts. We have good reason to be surprised by the lack of judgment of the human mind and the facility with which it accepts anything it is presented with; it is so hungry for an explanation that, when it finds nothing better, it is satisfied with words. Indeed, the multiplicity of the causes that are suggested is sufficient, in our opinion, to prove their little effectiveness, since, whereas a single one should suffice, a great number are accumulated; now, as they are not always simultaneously present, it is natural to think, as we eliminate them one by one, that

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none is a determining cause, since its intervention is not indispensable to produce the result ascribed to it. The determining cause is elsewhere. It is the consequence of a previous state that must be studied carefully. In medicine we call it a predisposition. Cold weather, for instance, is the cause of many illnesses: in one patient it causes rheumatism; in another, pneumonia; in still another, pleurisy. Although the cause is the same, the result differs. The individual predisposition is what tips the scales in one or the other direction, the proof being that, in its absence, cold weather produces no illness in a healthy individual. The same applies to crises; this is what we will seek to demonstrate. We will endeavor to determine the circumstances in which crises develop and specify the causes that lead to their outbreak. However, we will mainly insist on the conditions that are indispensable for them to exist, on the phenomena that are then constantly observed notwithstanding the so many, the so diverse causes that are mentioned depending on the need of the moment.10 ( Juglar [1863] 2010a, 118) The rhetoric of this passage is very effective. Juglar outlines the rational requirements for a theory of crises and at the same time rejects as irrational the entire family of multicausal explanations of the phenomenon.11 Juglar’s statement on causality explicitly relies on medical terminology. It is tempting to infer from this that he drew his statement from the shared medical thought and procedure of the time. Yet, at a closer examination, it becomes apparent that he was actually radically departing from the medical tradition in which he was educated. In the passage quoted above, Juglar is arguing that the cause of a crisis to be identified should be sufficient (‘a single [cause] should suffice’), necessary (‘lacking which, even the supposedly most powerful causes fail to produce an effect,’ ‘the conditions that are indispensable to their existence’: 1862, 2), and universal (‘phenomena that are then constantly observed, regardless of the diversity and variety of the causes that are invoked depending on the need of the moment’). This was a viewpoint alien to the medical tradition contemporary to Juglar. At the time, neither the predisposing nor the occasional causes were seen as necessary or sufficient: both types were listed, and it was stressed that on occasion predisposing causes could be occasional and vice versa.12 This ref lects the fact that diseases were characterized in terms of symptoms or of morbid alterations of the body, and each episode of the disease was treated as an individual case, with each patient being subject to different circumstances. Physicians, thus, described the cause of a disease in terms of a collection of circumstances found in individual cases, without an attempt to single out what was common among them.13 The medical view, then, was at the time more akin to the multicausal explanations of crises than to Juglar’s approach. A different view was suggested by Henle in a sort of manifesto of ‘rational medicine’ in 1844, where the etiological approach

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based on necessary, sufficient, and universal causes was clearly outlined. However, although a few researchers were setting forth causal explanations of specific diseases that fitted into Henle’s idea, the principle as first applied to puerperal fever by Semmelweis did not seem to have gained acceptance in Europe before 1862, and no consensus was reached on it until Koch’s work in the 1880s.14 Juglar was thus moving ahead of the medical thinking of his time, and surely the thinking of his mentors at the Paris clinical school.15 The difference does not lie in the notion of a predisposing cause. Juglar meant pretty much the same thing as his contemporaries, and even the example of the cold weather affecting people in different ways was canonical.16 But the writers in the traditional medical approach understood the predisposing causes as determining each particular instance of a disease, with no hierarchy between these causes which were thus interchangeable. This was precisely how Garnier (in the example quoted above) saw the economic system as subject to several plausible causes of derangement. Juglar’s approach, on the contrary, was etiological: he ordered his causes hierarchically, distinguishing between the circumstances continuously present in all crises and accessory circumstances, whose presence affected the specific character of a crisis but whose absence would not prevent crises from occurring. Although at first glance Juglar and his contemporaries used the phrase ‘crise commerciale’ to designate the same thing, in reality their conceptions were different. For some writers, a crisis was characterized by a certain configuration of events, including falling prices, unemployment, and failures; in other words, they understood a crisis by its symptoms; accordingly, crises were characterized by, or even named after, some specific manifestation: ‘panics,’ ‘gluts,’ ‘distress,’ and ‘embarrassment.’17 For Juglar, crises were the product of precise circumstances and were thus understood in terms of their causes. Thus, while for most authors a crisis could be the consequence of a war, Juglar went as far as to deny that, in the absence of credit and speculation, a major war could cause a crisis ( Juglar 1857a, 57). Analogously, the adoption of the etiological approach in medicine implied a redefinition of diseases: after Koch, ‘tuberculosis’ was no longer defined by the symptomatic presence of tubercles, but by the presence of the causative agent, the tubercle bacillus, so that diseases previously classified as tuberculosis, giving similar symptoms but lacking the bacillus, were eventually reclassified under a different heading (Carter 2003; A. S. Evans 1993; Grmek 1998, 240). The etiological approaches in medicine and by Juglar in economics likely developed independently. Juglar, who abandoned medical practice in the very early 1850s, was probably unaware of the new, isolated advances in medicine (also because a number of them were originally published in German and were unaccompanied by philosophical ref lections on their implications). Therefore, he could hardly have appreciated their importance by the time he wrote his book on crises in 1862. In spite of using the medical notion of ‘predisposing cause,’ then, Juglar’s achievement is likely to have originated

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elsewhere—probably in the mechanistic spirit which permeated the scientific atmosphere of the 19th century,18 as did the achievements of the other writers who had previously advocated the adoption of the causal principle, in particular Briaune (1840), Lawson (1848), and Coquelin (1852).19 Yet Juglar’s understanding of ‘cause’ must be interpreted with some caution. Many of the instances of causation he refers to do not provide an explanatory mechanism but are simple antecedents. Juglar indeed seemed to believe that antecedents are causes. In the passages quoted above opening the first edition of his book, Juglar specified that one needs to study the ‘previous state’20 and focus on the circumstances in which crises develop and break out, and on the conditions for their existence (1862, 2). He described his procedure as examining the facts in their chronological development, finding a monotonous repetition of the succession of stages in which the movement of the antecedents (e.g., discounts, anticipations, and metallic reserves)—the ‘precursory symptoms’21 (1862, 5, 173)—systematically and in an orderly manner precedes the buildup, explosion, and liquidation of crises. Eventually, he concluded that ‘the correspondence is …perfect.’22 He then cross-checked that the same phenomenon applies not only to France but also to England, the United States, and elsewhere for the entire series of available data: ‘this will be our touchstone, the real criterion of crises’23 (1862, 3–4). In 1862, Juglar cautiously stopped short of interpreting his findings as an economic law but nonetheless claimed that the concordance between the development of crises and of their antecedents could not be a mere accident: Although the examination of the following statistical documents may lead us to conclude and to recognize an economic law, prudence recommends that we do not hurry too much… Nevertheless, if we deny them for the moment all the rigor of a new law, we must see here more than a simple coincidence left to chance.24 He was far less hesitant at the time of the second edition, when he declared that ‘without relying on any theory or hypothesis, the mere observation of facts has been sufficient to bring out the law of crises and their periodicity.’25 This purely empiricist stance is indeed in line with his description, although, to say the truth, despite this strong statement in the second edition there is far more theory than in the first—there are discussions of theoretical debates, in particular between the banking and currency schools, and there are fragments of explanatory mechanisms. Often, however, he merely describes the sequence of events, stressing their monotonous repetition, and while calling the preceding one the ‘cause’ of the following, he rarely details the specific genetic mechanism. It is at this point that many of Juglar’s metaphors are called into play to fill in the theoretical gaps. In the remainder of this section, we shall then follow the buildup, explosion, and liquidation of a crisis until the return to ‘normal,’ focusing on the metaphors Juglar used to complete his narrative.

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2.3.2 Prosperity and the buildup of crises After a period of orderly development of the economy, merchants, traders, and producers abandon their prudence and start accelerating their activities beyond what is justified by their private and the general circumstances. This is made possible by the availability of credit, both from the banks and also between merchants. Juglar does not explain why they do so, but blames human nature: ‘It is characteristic of human nature never to remain within appropriate limits,’26 leading to excessive enthusiasm, a mania of speculation.27 The starting point is essentially the people’s passion for gambling, eventually nourished by the early success: The symptoms that precede crises are the signs of great prosperity, in particular undertakings and speculations of all kinds; the rising prices of all products, land, and houses; workers’ demand, the rise in wages, the fall in interest, the gullibility of the public, who, at the sight of a first success, no longer doubts anything; the taste for gambling in the presence of a continuous rise takes hold of the imaginations with the desire to get rich in a short time, as in a lottery.28 The development of activity can only accelerate and become a frenzy: in the periods of prosperity which follow [the liquidation of crises], one is struck by the impetus and the unparalleled enthusiasm that manifest themselves, the boundless confidence in the future, which one imagines in the brightest colours. Just as we did not see a limit to the drop, neither do we see any to the rise; the enthusiasm, the frenzy of the public for all assets is without measure, everyone is fighting for them. There not being enough of them in the market, others are brought into existence to satisfy an insatiable demand. All the businesses created by speculation are good, all are quoted with a premium; we anticipate a future, which, for most, should not exist. The first payments are minimal, the others are postponed as much as possible; when the deadlines are reached, they precipitate the crisis.29 The remainder of the description can be characterized by Juglar’s extensive use of qualifications of credit and speculation as ‘excessive,’ ‘exaggerated,’ ‘abusive,’ ‘imprudent,’ ‘extravagant,’ and ‘fictitious,’ eventually leading to an increase in prices above their natural level.30 Juglar’s emphasis on abuses and exaggerations is likely to ref lect the medical emphasis on excesses as the cause of most diseases, a view still prevalent at the time of Juglar’s first writings (Carter 2003, 20–21); indeed, we will see in Section 2.3.5 that Juglar saw crises as the depuration of such excesses. In medicine, the discovery of pathogenic agents, in fact, was taking place in those years and was far from being a generally accepted theory; some specific

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instances were known, but a general perception of disease in these terms was still lacking. Pasteur’s discovery of bacteria was more or less contemporary with Juglar’s book. On the other hand, the idea that men are prone to excesses also fits well with Juglar’s Jansenism, which could, therefore, have played a role in the formation of Juglar’s view on crises. Besides the probable medical origin of the emphasis on excesses, it should be noted that this and the other terms mentioned above that Juglar used in this context would require him to define a corresponding comparison level, namely, that at which activity is not excessive. A definition of the equilibrium state at which activity could prosper without getting out of hand, however, is lacking in Juglar’s text—as is typical of the tradition of theories of crises to which Juglar’s interpretation belongs. In both editions of Juglar’s book, the starting point relies on the psychological propensity to gamble. The acceleration is described by means of metaphors again indicating irrational behaviour: unbridled speculation, on behalf of people foreign to any industry and in items they were unfamiliar with, carried away as they were at the sight of the profits that were made and the excitement of their brokers. A fever of speculation takes hold of the public; any project, however absurd it may be, finds a taker.31 In the second edition, the comparison of trading and speculating activity with a fever is more frequent (1889, 4, 48, 85, 120, 126, 295, 334, 363, 378, 387, and 389), suggesting that prosperity, and not the crisis, is the diseased stage; similarly, the madness of speculation: ‘speculation no longer knows any limits; it is sheer madness.’32 Speculation is also described as contagious (1862, 95; 1889, 166, 445, 495). As speculation is made possible by credit, which involves the banking system, banking data ref lect the progress of speculation first, and crises and liquidation later. While several of Juglar’s contemporaries emphasized credit among merchants as a way to expand trade and production, Juglar focused on banking statistics, as they were the only data he could collect. He gathered data relating to France, England, and the United States on discounts, reserves, bank notes, and deposits. He quickly discovered, however, that only discounts and reserves showed the perfect concordance he was looking for, and so he focused on them, attributing the less regular character of f luctuation of circulation and deposits to local circumstances. His starting point was that the volume of trade is ref lected in the movement of discounts of the Bank and is, therefore, a synthetic indicator of the state of the economy: A little ref lection was sufficient to convince us that the development of the Bank of France’s discounts would give us the most faithful and accurate picture of this movement. The perusal of the reports published

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annually since 1800 unveiled to us, in all its evidence, the succession of periods of prosperity and of crisis which make up the life of the people.33

2.3.3 Crisis Juglar gave explicit definitions of ‘crisis’ in two dictionary entries ( Juglar 1863, 1891) written shortly after each of the two editions of his book ( Juglar 1862, 1889). In 1863, he described them as follows: A commercial crisis is … a disruption to the course of business, a failure of mercantile paper to clear across the various world markets—which requires the intervention of metallic specie—followed by the downgrading and the depreciation of commodities, and by the suspension, the bankruptcies, and the collapse of imprudently engaged commercial firms. ( Juglar [1863] 2010a, 116) ‘[C]rises are the natural reaction that occurs as a consequence of efforts made to raise even further production that has already been carried to excess proportions’ (p. 118). In 1891, as in 1889, he shifted the emphasis to prices: a crisis is ‘the moment where all credit having disappeared, the movement of trade having been interrupted, all business stops and great houses collapse’ (2010b, 150): it ‘is therefore the stoppage in the increase of prices, that is, the moment when new buyers are no longer to be found’ ( Juglar 1889, 14; 1891, 152; 2010b, 152). Juglar’s characterization of the properties of crises relies on several metaphors. The first one is the name itself. Even if he did not explicitly refer to the etymology of the word ‘crisis,’ Juglar explained that its use in medicine—the discipline that picked up the term from the Greek—indicates that crises are ephemeral; he added that the acute stage only lasts 10–15 days: This acute state, which seals the fate of the greater number of speculators, cannot last more than 10 or 15 days; it is the acute state of the crisis, like the critical period in diseases that we call by the same name; this indicates how short-lived it is. Once this inevitable liquidation of all the liabilities that exceeded the speculation’s capacity has been achieved, calm returns, the discount rate falls almost as quickly as it had risen, the period of liquidation begins and lasts several years.34 ( Juglar [1891] 2010b, 153) The verbs he uses more or less interchangeably to describe the outburst of crises are ‘éclater’ and ‘to explode.’ The former means breaking into pieces, with violence and generally producing noise and scattering fragments around, and can be applied to various objects, including bombs and explosives. The 1832–1835 edition of the Dictionnaire de L’Académie française specifies that

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in the figurative usage, éclater indicates what becomes apparent all of a sudden, after having remained concealed for some time. Both, thus, indicate the suddenness, violence, and speed of the event; the latter feature is also highlighted by a comparison with lightning.35 Juglar pointed out that crises are often preceded by a brief feverish jolt: ‘They begin with a convulsion that shakes the social body, but this is only the signal for the much more serious disorders that will occur.’36 He also stressed that in spite of their common origin and features that he was at pains to stress throughout his book, they retain an individual character: As in the crowning piece of a fireworks display, all the rockets are indeed set off together, but all do not rise to the same height and do not blow up at the same time: it is the same for the explosion of crises around the world. Each, depending on the times and the country, displays a particular character; whatever these accidents may be, their effect on bank balance sheets is always the same.37 Finally, he distinguished his understanding of crises from that of his Liberal contemporaries by denying that crises had a surprising and, therefore, unpredictable character, refuting the metaphors that his contemporaries often used of the storm out of the blue sky: ‘By studying these periodic storms, their prodromes, the explosion and the calm that follows all this feverish activity, it is not long before we recognize that no crisis breaks out like a thunderclap in calm weather.’38 2.3.4 Instability As we have seen, Juglar’s explanation of crises is rather patchy: he invoked a number of constraints on the monetary market becoming more stringent without, however, laying out in detail all the necessary connections. Besides the problem of closing this gap, Juglar also had to explain an issue he had left open in his argument on causality: he had subtly ridiculed his adversaries for mistaking proximate causes for the true causes of crises, but to complete his task he still had to explain how some minor causes could actually set off a crisis, and in what consisted the error of those who interpreted crises as the result of accidental events, alien to the proper working of the economic system. Juglar tackled both problems at once: he argued that the primary cause operates by destabilizing the economic system and bringing it to the threshold of rupture; at that point, any small perturbation can cause the ‘explosion.’ The previous writers mistakenly focused on the small perturbations instead of on the main picture: It is difficult to understand how people like Messrs John Francis, [McCulloch], Newmark, [MacLeod], Tooke, because they ignored the links founding their relations, have not insisted on the periodic return of

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commercial crises at various times in similar circumstances and studied each one in isolation. These circumstances are so characteristic and so unvarying that it can be said that they are fundamental and that without them there is no crisis. We can only attribute this shortcoming to the difficulty in obtaining official records of bank operations, as English authors cite only a small number of them. Had they had the documents before them, they would have immediately recognized the sequence of periods and would have attributed to events only a minor role, like that of the last drop of water which, depending on whether it falls a little earlier or a bit later, makes an already full basin overf low. The same inf luences must have produced the same results at all times.39 The argument was expanded in the second edition. The ‘last drop’ metaphor of the previous quote (roughly equivalent to the last straw that breaks the camel’s back) recurs two more times in 1889, one of which is particularly meaningful also for its use of other metaphors: While it may be admitted that the environment in which business thrives is not always favourable to the explosion of a crisis, even when this accident that we regard as indispensable occurs, for the wick, so to speak, to set fire to the powder, the mine must at least have been loaded beforehand. Now, this preparation cannot be carried out in an instant; we must allow time for speculation to develop all the unhealthy elements that must be swept away by the storm, and thus should it not be recognized that crises are not something unforeseen?40 The accident to which was attributed the greatest role therefore takes a back seat, it is no longer but an occasional cause with often no direct relation to the market’s unstable equilibrium, it is the last drop that makes the basin overf low. If an unforeseen and unfauvorable accident cannot be the cause of a crisis, should a favourable event, such as a good harvest, be attributed the power to prevent the unfortunate consequences of excessive speculation? At first glance, one does not understand how the benefits of a good harvest could restore the equilibrium of a deeply troubled situation in all the various branches of industry. This unexpected windfall can relieve the area for a while, push back the moment of the explosion, the only way to cure crises, moderate their violence, but it will always be necessary to liquidate.41 The reference to the loaded mine also recurs in crucial passages of Juglar’s reasoning: Therefore, the explosion of crises is not due to an accident; there would be no explosion if everything were not prepared and if the mine was not loaded.42 These embarrassments, in England as well as in France, do not constitute what one should call a genuine trade crisis.—The period was too short;

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in 1858, hardly had the liquidation of the crisis of 1857 ended, in the two countries. The resumption of business and the rise in prices had yet to spur speculation to plunge into the fray. Credit had not yet been used and abused, in short the mine’s charge was not sufficient to make it explode, but threatening external complications suddenly stopped the movement of operations on an immense scale all over the world. One wanted, out of prudence and in the presence of such eventualities, to alleviate one’s positions and in so short a time that the mechanism of exchange nearly blew out.43 In these passages, there are several elements of importance. The discussion of the accidentality of crises opens the idea that crises are subject to some law, which indeed Juglar claimed to have discovered, thereby opening the possibility of forecasting. Instability (the word is Juglar’s own, in his later contributions, e.g., 1889, 31, 165, 196, 360, 481; Société d’économie politique 1893, 3, 4) is created by the action of speculation, fed by credit, given the constraints of the monetary market. Given enough time, this creates the conditions for an explosion, which consists in the development of unhealthy elements that will have to be swept away by the storm, which thereby plays the necessary cleansing function. Instability is expressed by a number of metaphors. The most frequent one is the explosion. The term is found in the literature in association with crises, and as we have seen Juglar often uses it—as an alternative to the verb ‘éclater’— simply to indicate the outbreak of a crisis, obviously to echo the violence and suddenness of a crisis but without further metaphorical implications. It indicates instability when Juglar associates it with a phase of preparation, as in the passages quoted above about the loaded mine, or when referring to excessive or scarce crops of wheat not being a determinant cause of crises but the event that ‘ignites the powder when everything is prepared for the explosion.’44 Other metaphors were only used sparsely, but some are nonetheless meaningful: the out-of-plumb scaffolding of speculation45 or of credit,46 credit as a spring pulled until it breaks47 or as an inverted pyramid,48 or the overfull bladder that bursts.49 All these tropes refer to some previous problem that created the preliminary tension, which again a small additional disturbance can make excessive and cause a crisis to break out. Juglar’s use of these metaphors reveals at once a powerful intuition and the incapacity of better articulating his thought. The intuition is that, in order to produce an endogenous explanation of crises, one should consider at the outset the possibility of movement, which would be precluded if the system was thought to tend towards a stable position of equilibrium. In the latter case, crises could only be explained by means of exogenous disturbances or political interference. An endogenous explanation requires instead that some instability is incorporated in the theoretical construction. Juglar, however, was not able to specify in detail the thresholds to which his system was subject: as we have seen, his description falters at the crucial point. His metaphors

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are called to substitute for a full explanation, referring to phenomena with which his readers were surely familiar, all showing that increasing tension or pressure would inevitably cause the system to burst violently and suddenly, without, however, providing a mechanism applicable to crises. Nevertheless, metaphors help to clarify that (as Niehans had noted: 1991, 562–563) Juglar’s view of crises belongs to the family of tension-relaxation mechanisms—yet only leaving to the reader’s intuition what the mechanism is. 2.3.5 Liquidation: back to equilibrium After the acute phase of a crisis, a long and painful period of liquidation ensues. Juglar, however—in line with many of his contemporaries—was adamant that this suffering is not useless but entails positive consequences and indeed is necessary for the elimination of the excesses and abuses accumulated during the speculative phase and for bringing the system back to equilibrium. He explicitly referred to the medical notion of his time: if a disease is a consequence of excesses, the remedy consists in eliminating them: [The crisis] is a time of stoppage that, after a rise of several years during which speculation eventually took the first place, allows regular trade to resume its normal course after getting rid of reckless speculation. Thus, at no other time do we see such enthusiasm, more ease in business, more confidence and security than after the liquidation of crises. As their name suggests, they are unfortunate accidents, it is true; but, as in diseases, they prepare a better state by expelling everything that was impure. Despite the large number of bankruptcies reported in their path, it is rare to see good houses fail…. The decline is so quick that, the means of credit, which had set it up and kept it going until then, now lacking, ruin is inevitable, trade thus re-enters its natural routes50. Failure spread like wildfire, by direct contact: from country to country (‘Like fire along a powder train, the embarrassments spread to all countries between which there are business relations,’51 and from city to city: ‘All the markets of Europe were affected and the upheaval extended to Frankfurt, Turin, Lisbon, Madrid, Berlin, Amsterdam, Hamburg, Vienna; in a word, as in all crises, as is characteristic of them, the shock spread as along a powder train to all the trade centers.’52 Yet, while houses that had contracted bad debts or engaged in excessive speculation fail, those that have been prudent survive.53 The carnage is, therefore, selective, not universal: it preserves healthy firms and suppresses the bad ones, thereby re-establishing a state of equilibrium that enables regular trade to take place. Such an equilibrium will be the solid base on which business can restart: ‘a crisis is merely a general liquidation that allows business to resume on a more solid basis,’54 or again the ‘the natural unfolding [of crises] brings back equilibrium and prepares a firm ground on which one can fearlessly rest, ready to go through a new period.’55 A crisis,

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then, ‘for a nation as for individuals, it is not ruin and death; it is the necessary means for re-establishing the equilibrium broken by excesses’56; ‘As in diseases, a commercial crisis is a critical moment to go through’57 ( Juglar 2010b, 150). The liquidation is described as a ‘kind of lethargy,’58 a ‘state of languor’59 and of temporary paralysis: After each crisis and once the liquidation has been carried out, there is therefore a period of calm. The country heals its wounds and the slowdown of industrial and commercial activity, combined with the power of savings, makes a large mass of capital available, which is not long in giving back impetus to the social body, some parts of which were more or less paralyzed.60 The steady development of the wealth of nations does not occur painlessly and without resistance. During crises, everything stops for a while, the social body seems paralyzed; but it is only a passing torpor, the prelude to grander destinies. In short, it is a general liquidation.61 The liquidation, thus, brings back equilibrium. Juglar used this word in precisely this connection in both editions of his book, only a few times in 1862 but dozens of times in 1889. He also referred to this condition as the normal or natural state (again, more often in 1889) as, e.g., in the passage ‘natural, regular and normal movement observed in each period after the crises.’62 ‘Natural’ was also used with references to the equilibrium price level (an example is cited above). Again he used a medical metaphor: In common language, the prosperous period has no name; it is what we regard as the normal state, we do not even talk about it; it is with prosperity as with health, nothing seems more natural.63 This reference to prosperity—better, to its early stages—as the normal, natural, and healthy state of the economy is troublesome, as equilibrium is defined only as the absence of excesses and exaggeration precisely as in the medical dictionaries of the time ‘health’ was defined as the absence of disease while at the same time the disease was defined as the absence of health following some disturbance. The argument is circular, and again the ‘health’ metaphor—as well as the ‘solid ground’ in the examples above—is used in place of an inquiry not only into the specific features of equilibrium, but also into the mechanics of the recovery. Juglar does not even have a name for the recovery, as he focuses on crises, of which he considers the preparation, the explosion, and the liquidation. The recovery not only does not need a name; it does not even need an explanation: prosperity begins not because some force induces business to resume its proper pace, but simply because in the absence of excesses (even in spite of major perturbations) it is ‘normal’ or ‘natural.’

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2.3.6 Juglar’s use of metaphors In Juglar’s texts, metaphors are rarely used for stylistic or merely illustrative purposes. Most of them either play a heuristic function (in particular, this seems to be the case with predisposition and causality) or act as a substitute for a missing or partial explanation. It is not surprising, therefore, that most of the metaphors appear in the theoretical passages of Juglar’s writings— sometimes, they actually are the theory!

2.4 How the same metaphors were used by other writers Juglar used a wide range of metaphors, some of which (or related to which) were also used by his contemporaries, sometimes with the same purpose but also, at other times, transferring different properties of the same source to reach different conclusions. An exhaustive survey is obviously not possible in the compass of this article, but it remains, nonetheless, useful to quickly report different uses of the same tropes. The medical metaphor was one of the most ubiquitous. It was used by different interpretative traditions to argue a wide spectrum of positions. The school of thought that included Juglar’s French Liberal friends, but also the strains of classical political economists who adopted Say’s law of markets, understood the economic system as being capable of self-adjusting, and they correspondingly saw crises as accidental and temporary disturbances to the otherwise smooth running of business transactions caused by natural disasters or, more often, by the improvident action of the government. Crises were, thus, seen as the diseased state of the system from which, however, the economy will quickly heal itself provided that it is left free of the impediment, so that the remedy simply consists in the removal of the political perturbation. By contrast, those who shared Juglar’s view that crises originate in the excesses of trading and speculation during the prosperous phase saw the disease in overtrading—with mental and physical disturbances frequently being used in expression like ‘speculation fever’ or ‘mania of speculation.’ The crisis here is seen as the process of expurgation of the excesses that made the economic body sick. These writers also used the contagion metaphor to describe both how the speculative effort is transmitted from one person (or city or country) to the next, and how bankruptcies cause further failures. Other writers, who understood crises as the expression of the natural f luctuations of trade in particular circumstances, referred to the miasmatic interpretation of epidemies current in the first half of the 19th century, blaming the foul atmosphere created by inappropriate laws (protection, in particular, the corn laws being the first target in Britain) or banking regulations that amplifies the otherwise innocuous oscillations of production and demand.64 The explosion metaphor was used much less frequently. In some cases, it indicated either the suddenness or the violence of the outburst of a crisis, or its destructiveness—specifying that the damages are larger close to the

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epicentre. The most frequent use, however, refers to the instability related to speculation, stressing that in the latest phase of prosperity any shock can cause a collapse. Both before and after Juglar, some writers also concluded, like him, that instability has implications on the causation of crises, although it is only in Juglar that we find an epistemic use of the trope. The same applies to the ‘last drop’ metaphor, which was used not much to stress the disproportion between cause and effect but to focus on the preliminary accumulation of water drops. The only ref lection on causality is due to Benard (1856, 61) who, however, reached a different conclusion from Juglar: both stressed that the last drop is not the primary cause of the overspill and that the occurrence of the overf low is not to be seen as surprising but is a consequence of the basin being already full. But while Benard sees all drops as equally relevant and originating in the same process, Juglar distinguishes between what fills the basin (the credit-overspeculation mechanism) and the somehow accidental nature of the last drop. There are only a few occurrences of the powder train metaphor in the literature, all used to express transmission—for instance, in the spreading of panic. There seems to be only two instances in which the emphasis is on the transmission by contact, as in Juglar: Martin 1789, 121, and in The Saint Paul Globe 1902, 4. While Juglar only occasionally used metaphors relating to building, these appear fairly frequently in the literature on crises. As physical buildings require strong structural elements and must be based on adequate and proportionate foundations anchored on solid ground, these requisites were transferred to business buildings or to the entire economy. Juglar referred to two of them: the solidity of the ground on which the foundations are laid (Section 3.5), and the narrowness of the foundations (Section 3.4). Both tropes were widely used in the literature, where one can also find references to foundations too weak for a building growing taller and taller, and to the use of inappropriate (and, in particular, decaying) materials in the building’s construction. These metaphors were mainly used by writers in the tradition that saw crises as the result of the excesses taking place during prosperity, blaming specifically either the mismanagement of the currency (in particular, an excess of banknote issues which facilitates the lending of money for increasingly speculative trades) or the overspeculation occurring during the prosperous phases. Finally, weather metaphors were, and still are, among the favourite among writers on crises, to be found in all the main European languages. It occurs both in the writings of those who believe that crises are individual events, originating from some cause external to the proper operation of economic laws, and in the writings of those who interpreted crises as a necessary consequence of what takes place during prosperity. The authors in the first group referred to storms for their destructive character, and their taking place suddenly, surprisingly, and unexpectedly precisely at the height of prosperity when all businesses were doing their best; this use of the storm

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metaphor ref lects the understanding of crises as an anomaly, as something completely alien to the working of the economic system, and out of which comes only ruin and misery. The writers who—like Juglar—believed, instead, that crises find their origins in the excesses of prosperity offered a radically contrasting description, emphasizing different properties of storms. First, storms are only seemingly surprising: their sudden formation has an explanation, and they can be seen gathering some time ahead of their outburst. These writers stressed that the destructiveness of economic storms is not universal but affects only the houses overtrading and excessively engaged in speculation. Their elimination has a positive function, as it eliminates the original cause of crises and enables the economy to restart (for some time at least) along an unimpeded path; indeed, this was soon seen as a necessity, and crises were interpreted first as the price to pay for growth, and finally as a necessary condition for the recovery (see Besomi 2014 for a more detailed discussion).

2.5 Conclusion The metaphorical transfer of properties from one object or discipline to another is nothing new. As to crisis theories, Juglar was particularly prolific in this respect, but both before and after him metaphors can be found scattered everywhere in the literature. As the overview of the main tropes used by Juglar and his contemporaries shows, the same source can often be used to say rather different things, depending on the selection of properties of the source that are transferred to the target: a storm can either destroy property or irrigate the ground and can be surprising or predictable; a crisis can be an illness or the cure for a disease (see Chapter 1). Among the metaphors not considered in this paper, the pendulum has been used to describe equilibrium (see Chapter 9), cycles (see Chapter 8), or chaos; comets were either surprising and destructive or descriptive of the periodical return of crises; and the sea level described a stable equilibrium but its waves and tides illustrated cycles and f luctuations. Metaphors can be used for different purposes, e.g., rhetorical, pedagogical, heuristic, epistemological, methodological, and analytical. Juglar used them for a number of purposes. The predisposition trope served an epistemological purpose, as he used it to discuss how to apply the causal principle to the ref lection on crises. So, to some extent, did the various metaphors highlighting the instability of the later phase of the prosperity to the extent it had to conform to the causal principle, while these tropes also served as a substitute for a proper mechanism describing the breakdown of credit, speculation, and trade. In Juglar, metaphors are never a mere ornament but play an essential role. This explains why they are particularly concentrated where the theoretical discussion is—or where the theoretical argument has a gap of which Juglar was aware.

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Acknowledgement We would like to thank the Swiss Science Foundation for financially supporting this research (grant no. 100018_169900).

Notes 1 In contrast with Jevons (see Chapter 3), Juglar did not draw charts until the 1880s and relied instead on data in tabular form. 2 The Liberals exerted a strong grip on publication outlets, namely, the Journal des Économistes and the Guillaumin publishing house. 3 See Chapter 1 for the same range of questions in Italy. 4 Juglar is adamant that the early phases of the prosperity are the economy’s normal state: see Section 2.3.5. 5 Universality is, however, limited to the countries or regions where the credit system is fully developed. 6 ‘M. Ch. Renouard, conseiller à la Court de Cassation, résume les principales causes de la crise: dans la disette, première cause indépendante des hommes;— dans la guerre, qui à occasionné des pertes directes et indirectes et jeté le trouble dans l’économie sociale;—dans le développement excessif des travaux publics;— dans l’esprit de spéculation qui, de sa nature, tend à aller toujours à l’extrême;— dans la situation morale du pays, qui abandonnant beaucoup trop, il faut le dire, les nobles préoccupations des arts, des sciences, de la politique, des grandes idées, enfin, s’est beaucoup trop exclusivement jeté dans les préoccupations d’affaires, de jouissances physiques et de luxe’ (Société d’Économie Politique 1857, 473). 7 ‘Les causes que l’on peut assigner aux crises sont nombreuses et diverses. Nous croyons pouvoir les ranger à peu près toutes dans les catégories suivantes:  Les ébranlements politiques et sociaux, d’où résultent la préoccupation de l’avenir, le manque de sécurité; La guerre, et par suite le rétablissement de la paix; La disette; le manque de la récolte d’une  matière première importante; une catastrophe quelconque; l’abondance;  Le ralentissement de la consommation, réagissant sur l’échange et la production; L’accroissement rapide de la production par l’excitation de l’esprit d’entreprises et la fièvre des spéculations, provoquant des opérations mal conçues; Le détournement des capitaux par suite du développement des travaux publics, ou des grandes entreprises nouvelles; Le développement du crédit, le monopole des institutions du crédit; L’accroissement rapide de la quantité de métaux précieux, or ou argent; Les changements brusques des tarifs nationaux ou étranges dans le sens de la prohibition; Le contre-coup des crises étrangères.’ (Garnier 1859, 921). 8 For a general discussion, see Besomi 2010a, 208–224, also including a few writers after Juglar. 9 The following couple of pages follow Besomi 2011a. 10 ‘Les disettes, les guerres, les révolutions, les changements de tarif, les emprunts, les variations de la mode, de nouvelles voies ouvertes au commerce, voilà les principales causes invoquées tour à tour. Mais leur véritable critérium serait de les voir, dans des circonstances semblables, reproduire les mêmes effets. Malheureusement cette relation évidente entre les causes et les effets est assez rare dans les phénomènes sociaux et dans tout ce qui touche à la vie. Dans cette incertitude, on invoque successivement les causes les plus contraires pour se rendre compte des mêmes faits. On a le droit d’être surpris de la légèreté, de la facilité avec laquelle l’esprit humain accepte tout ce qu’on lui propose; il est

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Roberto Baranzini and Daniele Besomi tellement avide de se rendre compte, que lorsqu’il ne trouve rien de mieux, il se paye de mots. En effet, la multiplicité même des causes que l’on invoque suffit, il nous semble, pour prouver leur peu d’efficacité, puisque, alors qu’une seule devrait suffire, on en accumulé un grand nombre; or, comme elles ne sont pas toujours réunies, on peut penser, en les éliminant une à une, qu’aucune d’elles n’est déterminante, puisque sa présence n’est pas indispensable pour produire le résultat attendu. La cause déterminante est ailleurs; elle est la conséquence d’un état antérieur qu’il faut étudier avec soin. C’est ce qu’en médecine on appelle la prédisposition. Le froid, par exemple, est la cause de beaucoup de maladies: chez l’un d’un rhumatisme, chez l’autre d’une pneumonie, chez un troisième d’une pleurésie. La cause restant la même, le résultat est pourtant tout différent. C’est la prédisposition locale qui fait pencher la balance dans un sens ou dans un autre, et la preuve, c’est qu’en son absence le froid ne produit aucune maladie sur un individu sain. Il en est de même pour les crises; ce sera notre tâche de le démontrer. Nous nous attacherons à déterminer quelles sont les circonstances dans lesquelles elles se développent, et les causes à la suite desquelles elles éclatent. Mais nous insisterons surtout sur les conditions indispensables à leur existence, sur les phénomènes constants que l’on observe alors en dehors des causes si diverses, si variées, que l’on invoque selon le besoin du moment.’ ( Juglar 1863, 616. 1862, 2–3; 1889, 27–28). See, for instance, Juglar 1862, iii, ix–xi, 1–3, 5–6, and passim; he further insisted on this in the second edition: 1889, 5, 27–29, 36, 43, 165, 197. An essay on the theory of fever could, thus, take as its starting point the following propositions: ‘Different effects may f low from one remote cause. […] Different remote causes may produce the same effect; and we often find them to co-operate to produce them’ (Cooke 1828, 61). For a detailed discussion, see Albury 1998; Carter 1997, 2003, Ch. 1; Hamlin 1992; Waller 2002, 12–16. Voltaggio, however, argues that the anatomopathological paradigm of the Paris clinicians prepared the ground for the idea that a specific cause corresponds to a specific disease by looking for the primary (if not unique) cause of localized pathological changes in bodily organs or tissues (1999, 38–42). Carter 2003, Ch. 2 on Henle and Ch. 3 on Semmelweis. Alfred Evans (1993, Ch. 1) gives more weight to the achievements of researchers in the 1840s and 1850s; it is clear, however, that such accomplishments were rather occasional. On Juglar’s teachers in Paris, see Frobert and Hamouda 2008, 176–178. Carter (2003, 11, 14) lists Juglar’s mentor Auguste-François Chomel as a subscriber to the multicausal approach. Chomel’s position is also made clear by a number of entries on causation he wrote for the Nouveau dictionnaire de médicine. Under the heading ‘predisposing cause,’ those which prepare the development of diseases, Chomel distinguished between general and individual causes. The former act upon several individuals and predispose them to the development of endemic and epidemic diseases; they include the quality of the air, the altitude, the amount of sun people receive, and so on. The individual causes are very numerous and include the different conditions pertaining to an individual (gender, age, habits, wealth, etc.), and all that pertains to hygiene. Chomel observed that ‘often the general and individual predisposing causes concurrently act in the production of diseases. Sometimes the ones or the others have enough energy to act in isolation’ (Chomel 1826, 1:391). Barlow also cited as an example the exposure to cold, giving rise to catarrh, or rheumatism, or inf lammation of the bowel. Trousseau used a frozen drink, Lagasquie referred to people laying on humid ground while being covered in sweat (Lagasquie 1849, 313; the other two examples are cited in Carter 2003, 14–15).

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17 For a discussion of the usage of these and other terms concerning crises, see Besomi 2011b. 18 The distinction between essential phenomena and accidents is at the heart of Galileo’s epistemology: see, e.g., Koertge 1977 or Ducheyne 2006. 19 On Briaune, see Le Gall 2006; on Lawson, see Besomi 2008; and on Coquelin, see Besomi 2011a. 20 ‘état antérieur’. 21 ‘symptômes précurseurs’. 22 ‘la concordance est … parfaite’ ( Juglar 1862, 4). 23 ‘Ce sera là pour nous la pierre de touche, le véritable critérium des crises.’ 24 ‘Quoique l’examen des documents statistiques qui vont suivre puisse engager à conclure et à reconnaître une loi économique, la prudence conseille de ne pas trop se hâter … Néanmoins, si on leur refuse pour le moment toute la rigueur d’une loi nouvelle, il faut y voir plus qu’une simple coïncidence abandonnée au hasard.’ ( Juglar 1862, 6). 25 ‘Sans faire intervenir aucune théorie, aucune hypothèse, l’observation seule des faits a suffi pour dégager la loi des crises et de leur périodicité’ ( Juglar 1889, xv; see also Société d’Économie Politique 1893). 26 ‘il est dans la nature humaine de ne se tenir jamais dans de justes limites’ ( Juglar 1862, 20). 27 ‘On souscrit avec fureur’. ( Juglar 1862, 205). 28 ‘Les symptômes qui précèdent les crises sont les signes d’une grande prospérité; nous signalerons les entreprises et les spéculations de tous genres; la hausse des prix de tous les produits, des terres, des maisons; la demande des ouvriers, la hausse des salaires, la baisse de l’intérêt, la crédulité du public, qui, à la vue d’un premier succès, ne met plus rien en doute; le goût du jeu en présence d’une hausse continue s’empare des imaginations avec le désir de devenir riche en peu de temps, comme dans une loterie.’ ( Juglar 1862, 5; 1889, 4). 29 ‘aux époques de prospérité qui succèdent [aux époques de crises], on est frappé de l’élan, de l’entrain sans pareil qui se manifestent, de la confiance sans bornes dans l’avenir, qu’on se représente sous les couleurs les plus brillantes. De même qu’on ne voyait pas de limite à la baisse, on n’en voit pas non plus à la hausse; l’engouement, la frénésie du public pour toutes les valeurs est sans mesure, on se les arrache. Celles qui sont sur le marché ne suffisant pas, on en crée d’autres pour satisfaire une demande insatiable. Toutes les affaires qu’invente la spéculation sont bonnes, toutes sont cotées avec prime; on escompte l’avenir, qui, pour la plupart, ne doit pas exister. Les premiers versements sont minimes, on recule les autres autant que possible; quand les échéances arrivent, elles précipitent la crise.’ ( Juglar 1862, 201–202). 30 ‘The exaggeration of internal and external trade at prices inflated by speculation, and not at natural prices, is one of the main causes of all embarrassments affecting the sale of products’ (‘L’exagération du commerce intérieur et extérieur à des prix enflés par la spéculation et non aux prix naturels, voilà une des principales causes de tous les embarras pour la vente des produits’ ( Juglar 1862, xi; 1889, xiii). 31 ‘une spéculation effrénée, au nom des personnes étrangères à toute industrie et dans des articles qu’elles ne connaissaient pas, entraînées qu’elles étaient par la vue des bénéfices réalisés et les excitations de leurs agents de change (brokers). Une fièvre de spéculation s’empare du public, tout projet, quelque absurde qu’il soit, trouve preneur’. ( Juglar 1862, 56). 32 ‘la spéculation ne connaît plus de limites, c’est de la folie’ ( Juglar 1889, 322 and passim). 33 ‘Quelques réf lexions suffirent pour nous convaincre que le développement des escomptes de la Banque de France nous donnerait le tableau le plus fidèle et le plus

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Roberto Baranzini and Daniele Besomi exact de ce mouvement. Le dépouillement des comptes rendus annuels depuis 1800 nous découvrit alors, dans toute son évidence, la succession des périodes de prospérité et de crise dont se compose la vie des peuples.’ ( Juglar 1862, ii). ‘Cet état aigu qui décide du sort du plus grand nombre des spéculateurs ne saurait persister plus de dix ou quinze jours; c’est l’état aigu de la crise, comme dans les maladies la période critique qu’on appelle du même nom, ce qui indique combien elle est éphémère. Cette liquidation inévitable de tous les engagements qui dépassaient les forces de la spéculation sitôt opérée, le calme se rétablit, le taux de l’escompte redescend presque aussi vite qu’il est monté, la période de liquidation s’ouvre et dure plusieurs années.’ ( Juglar 1889, 15–16; 1891). ‘The onset of the crisis followed the suspension of the Hoare Buxton House in London. The return of unpaid bills caused embarrassment, which spread with lightning speed. The panic was such that for no guarantee did we want to part with our money.’ (‘Le début de la crise suivit la suspension de la maison Hoare Buxton de Londres. Le retour des effets non payés fit naître des embarras, qui se propagèrent avec la rapidité de l’éclair. La panique était telle que pour aucun gage on ne voulait se séparer de son argent.’) ( Juglar 1889, 493). ‘Elles débutent par un frisson qui ébranle le corps social, mais ce n’est que le signal des désordres beaucoup plus graves qui vont se produire’ ( Juglar 1889, 163). ‘Comme dans le bouquet d’un feu d’artifice, toutes les fusées partent bien à la fois, mais toutes ne s’élèvent pas à la même hauteur et n’éclatent pas au même moment, il en est de même de l’explosion des crises dans le monde. Chacune selon les époques et le pays a un caractère particulier; quels que soient ces accidents, leur action sur les bilans des banques est toujours la même’ ( Juglar 1889, 291). ‘En étudiant ces orages périodiques, leurs prodromes, l’explosion et le calme qui succède à toute cette activité fiévreuse, on ne tarde pas à reconnaître qu’aucune crise n’éclate comme un coup de tonnerre par un temps calme.’ ( Juglar 1889, 4). ‘On s’explique difficilement comment des hommes comme MM. John Francis, Mac Culloch, Newmark, Mac Leod, Tooke, négligeant les liens qui établissent leurs relations, n’ont pas insisté sur le retour périodique des crises commerciales dans des circonstances semblables aux diverses époques, au lieu de faire une étude isolée de chacune d’elles. Ces circonstances sont tellement caractérisées et si constantes, qu’on peut dire qu’elles sont fondamentales et que, sans elles, il n’y a pas de crise. Nous ne pouvons attribuer cette lacune qu’aux difficultés de se procurer les documents officiels des opérations des banques, car les auteurs anglais n’en citent qu’un petit nombre. Les documents sous leurs yeux, ils auraient reconnu de suite l’enchaînement des périodes et n’auraient attribué aux événements qu’une part relative, comme celle de la dernière goutte d’eau qui, selon qu’elle tombe un peu plus tôt ou un peu plus tard, fait déborder un bassin déjà plein. Les mêmes inf luences ont dû produire les mêmes résultats dans tous les temps’ ( Juglar 1862, v; 1889, viii). Storms and explosions are also associated in the following (somewhat cryptic) double metaphor: ‘c’est ce qu’on appelle l’explosion de la crise, car, comme un cyclone, tout étant préparé, le moindre accident quel qu’il soit la détermine et c’est lui que l’on accuse d’en être la cause’ ( Juglar in Société d’Économie Politique 1893, 2). ‘En admettant que le milieu dans lequel se brassent les affaires n’est pas toujours favorable à l’explosion d’une crise, même quand se présente cet accident qu’on regarde comme indispensable, cette mèche, pour ainsi dire, qui met le feu aux poudres, il faut au moins qu’au préalable la mine soit chargée. Or, cette préparation ne peut se faire en un instant; il faut laisser à la spéculation le temps de développer tous les éléments malsains qui doivent être balayés par la tempête, et alors n’est-ce pas constater que les crises n’ont rien d’imprévu? L’accident

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auquel on attribuait le plus grand rôle passe donc au second plan, ce n’est plus qu’une cause occasionnelle sans rapport direct souvent avec l’équilibre instable du marché, c’est la dernière goutte d’eau qui fait déborder le bassin. Si un accident imprévu et défavorable ne peut être la cause d’une crise, faut-il attribuer à un événement favorable, tel qu’une bonne récolte, la puissance de prévenir les suites fâcheuses d’une spéculation excessive? A priori, on ne comprend pas comment les bénéfices d’une bonne récolte pourraient rétablir l’équilibre d’une situation profondément troublée dans toutes les diverses branches de l’industrie. Cette pluie d’or imprévue peut soulager la place pour un temps, éloigner le moment de l’explosion, seul moyen curatif des crises, en modérer la violence, mais il faudra toujours liquider.’ ( Juglar 1889, 165; the other occurrence is on p. 48). ‘L’explosion des crises ne tient donc pas à un accident, si tout n’est pas préparé pour l’explosion et si la mine n’est pas chargée’ ( Juglar 1889, 30; 2010b, 158). ‘Ces embarras, aussi bien en Angleterre qu’en France, ne constituent pas ce qu’on doit appeler une véritable crise commerciale.—La période était trop courte, à peine la liquidation de la crise de 1857 était-elle terminée en 1858, dans les deux pays. La reprise des affaires et la hausse des prix n’avaient pas encore poussé la spéculation à se jeter dans la mêlée. On n’avait pas encore usé et abusé du crédit, en un mot la mine n’était pas assez chargée pour faire explosion, mais des complications extérieures menaçantes vinrent arrêter brusquement le mouvement des opérations engagées sur une immense échelle dans le monde entier. On voulut, par prudence et en présence de pareilles éventualités, alléger ses positions et dans un délai si court que le mécanisme des échanges a failli éclater.’ ( Juglar 1889, 277). ‘sans être une cause déterminante de la crise, elle [la récolte de blé en déficit ou en excédent] met le feu aux poudres quand tout est préparé pour l’explosion’ ( Juglar 1889, 93). ‘As in Brussels and the United States in 1837–1839, as in England in 1864–1866, prominent houses, powerful credit institutions upheld a whole scaffolding of speculations already out of balance, but still able to stand thanks to all the parts that connected them together and, in this unstable equilibrium, it took only one part to break off for the whole edifice to collapse, at a time when it was hoped it would be seen to last and even to consolidate.’ ( Juglar 1889, 481: ‘Comme à Bruxelles et aux États-Unis en 1837–1839, comme en Angleterre en 1864–1866, de grandes maisons, de puissantes institutions de crédit ont maintenu tout un échafaudage de spéculations déjà hors d’aplomb, mais pouvant encore se tenir debout par l’ensemble des pièces qui les reliaient et, dans cet équilibre instable, il a suffi qu’une seule se détachât pour faire crouler tout l’édifice, à un moment où l’on espérait le voir durer encore et même se consolider’). ‘Then this brilliant scaffolding of credit crumbles; premiums have disappeared, all the securities offered no longer finding buyers; you must liquidate and give up your dreams, bear a loss, where a year before you counted a fortune.’ ( Juglar 1862, 203: ‘Alors l’échafaudage si brillant du crédit s’écroule; les primes ont disparu, toutes les valeurs offertes ne trouvant plus d’acheteurs; il faut se liquider et abandonner ses rêves, réalisant une perte, là où une année plus tôt on comptait une fortune’). ‘Everywhere, expenses having exceeded receipts, the difference could, for a time, be filled in by credit, until the moment when its overstretched springs broke.’ ( Juglar 1862, 164: ‘Partout les dépenses ayant excédé les recettes, la différence a pu, pendant un temps, être comblée par le crédit, jusqu’au moment où ses ressorts trop tendus se brisent’). ‘If a food shortage is associated with the overf low of portfolios, the crisis will no doubt be more serious, but it will still be merely an accident, the cause of disturbances all the greater that, the credit pyramid having capsized, at the

76 Roberto Baranzini and Daniele Besomi

49

50

51 52

53

54 55 56 57 58 59

60

slightest further shock everything collapses and crumbles.’ ( Juglar 1862, x: ‘Si la disette se rencontre avec le trop-plein des portefeuilles, la crise sera plus grave sans doute, mais ce ne sera toujours qu’un accident, cause de troubles d’autant plus grands, que, la pyramide du crédit se trouvant renversée, à la moindre nouvelle secousse tout s’affaisse et croule’). ‘The rise in the Bank of England’s discount rate erupted under such circumstances like a thunderclap: the swollen bladder burst.’ ( Juglar 1862, 122; 1889, 462: ‘L’élévation de l’escompte de la Banque d’Angleterre dans de telles circonstances éclata comme un coup de tonnerre: la vessie gonf lée crève’). ‘[La crise] C’est un temps d’arrêt qui, après une hausse de plusieurs années où la spéculation finit par prendre la première place, permet au commerce régulier de reprendre son allure normale après s’être débarrassé d’une imprudente spéculation. Aussi à aucune époque ne voit-on un pareil entrain, plus de facilité dans les affaires, plus de confiance et de sécurité qu’après la liquidation des crises. Comme leur nom l’indique, ce sont des accidents fâcheux, il est vrai, mais, comme dans les maladies ils préparent un état meilleur en rejetant au dehors tout ce qui était impur. Malgré le grand nombre de faillites que l’on signale sur leur passage, il est rare de voir des bonnes maisons succomber … La baisse est si rapide que, les moyens du crédit qui l’ont engagé et soutenu jusqu’à là lui faisant défaut la ruine est inévitable; le commerce rentre ainsi dans ses voies naturelles.’ ( Juglar 1862, 14; 1863, 622; 1889, 256). ‘comme une traînée de poudre, les embarras se répercutent dans tous les pays entre lesquels il y a des relations d’affaires’ ( Juglar 1889, 47; see also p. 168). ‘Toutes les places de l’Europe furent touchées et l’ébranlement s’étendit à Francfort, Turin, Lisbonne, Madrid, Berlin, Amsterdam, Hambourg, Vienne; en un mot ainsi que dans toutes les crises, ce qui est leur caractère propre, la secousse se propagea comme par une traînée de poudre à toutes les places de commerce’. ( Juglar 1889, 381). That is, firms having committed beyond their own means (‘les maisons imprudentes ayant embrassé au delà de leurs forces’), as opposed to ‘les plus sages, les plus dignes de crédit seront à peine ébranlées, et permettre une reprise naturelle des affaires’ (1862, 207). ‘une crise n’est qu’une liquidation générale pour permettre aux affaires de reprendre sur une base plus solide’ ( Juglar 1862, 176). L’evolution naturelle [des crises] rétablit l’équilibre et prépare un sol ferme sur lequel on peut s’appuyer sans crainte pour parcourir une nouvelle période’. ( Juglar 1862, vii; 1889, x). ‘Une crise, pour une nation comme pour des individus, n’est pas la ruine et la mort, c’est l’opération rendue nécessaire pour rétablir un équilibre rompu par des excès’ ( Juglar in Société d’Économie Politique 1884, 288). ‘La crise commerciale, comme dans les maladies, est un moment critique à passer.’ ( Juglar 1891, 641). ‘espèce de léthargie’ ( Juglar 1862, vii; 1889, x). ‘During a year of languor, in which the portfolios of the two banks were half empty (1858), equilibrium was regained’ ( Juglar 1862, 172: ‘Pendant une année de langueur, dans laquelle le portefeuille des deux banques se vide moitié (1858), on reprend équilibre’); ‘A state of languor and rest follows the extraordinary impulse of 1825’ ( Juglar 1862, 151: ‘Un état de langueur et de repos succède à l’impulsion extraordinaire de 1825’). ‘Après chaque crise et quand la liquidation est faite, il y a donc une période de calme. Le pays panse ses plaies et le ralentissement du mouvement industriel et commercial, combiné avec la puissance de l’épargne, rend disponible une grande

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62 63 64

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masse de capitaux qui ne tardent pas à redonner l’impulsion au corps social dont quelques parties étaient plus ou moins paralysées.’ ( Juglar 1889, 31). ‘Le développement régulier de la richesse des nations n’a pas lieu sans douleurs et sans résistances. Dans les crises, tout s’arrête pour un temps, le corps social parait paralysé; mais ce n’est qu’une torpeur passagère, prélude de plus belles destinées. En un mot, c’est une liquidation générale.’ ( Juglar 1862, epigraph; see also p. 13. 1889, epigraph and p. 255, 555). ‘mouvement naturel, régulier et normal que l’on observe dans chaque période après les crises’ ( Juglar 1889, 354). ‘Dans le langage vulgaire, la période prospère n’a pas de nom; c’est ce que l’on regarde comme l’état normal, on n’en parle même pas; il en est de la prospérité comme de la santé, rien ne paraît plus naturel.’ ( Juglar 1889, 16). See Besomi (2011a) for a more detailed discussion and Chapter 1 for different notions of crisis in Italy.

References Albury, William R. 1998. ‘Corvisart and Broussais: Human individuality and medical dominance.’ In Constructing Paris medicine, edited by Caroline Hannaway and Ann La Berge, 221–250. Amsterdam: Rodopi. https://doi.org/10.1163/ 9789004333284_005. Benard, Théodore-Napoléon. 1856. Les lois économiques. Paris: Guillaumin. Besomi, Daniele. 2008. ‘James Anthony Lawson on commercial panics and their recurrence.’ Structural Change and Economic Dynamics 19 (4): 330–341. https://doi. org/10.1016/j.strueco.2008.07.003. ———. 2010a. ‘‘Periodic Crises’: Clément Juglar between theories of crises and theories of business cycles.’ In Research in the History of Economic Thought and Methodology: A Research Annual, edited by Jeff E Biddle and Ross B Emmet, Vol. 28A, 169–283. Bingley: Emerald Group Publishing Limited. https://doi.org/ https://doi.org/10.1108/S0743-4154(2010)000028A010 ———. 2010b. ‘Paper money and national distress. William Huskisson and the early theories of the credit, speculation and crises.’ The European Journal of the History of Economic Thought 17 (1): 1–37. https://doi.org/10.1080/09672560903204437 ———. 2010c. ‘The periodicity of crises. A survey of the literature before 1850.’ Journal of the History of Economic Thought 32 (1): 85–132. https://doi.org/10.1017/ S1053837209990447. ———. 2011a. ‘Charles Coquelin: Banking monopoly and commercial crises.’ In Crises and cycles in economic dictionaries and encyclopedias, edited by Daniele Besomi, 209–224. London: Routledge. https://doi.org/10.4324/9780203816547. ———. 2011b. ‘Naming crises. A note on semantics and chronology.’ In Crises and cycles in economic dictionaries and encyclopedias, edited by Daniele Besomi, 54–132. London: Routledge. https://doi.org/10.4324/9780203816547. Briaune, Jean-Edmond. 1840. Des crises commerciales: de leurs causes et de leurs remèdes. Paris: Bouchard-Huzard. Carter, K. Codell. 1997. ‘Causes of disease and causes of death.’ Continuity and Change 12 (2): 189–198. https://doi.org/10.1017/S0268416097002907. ———. 2003. The rise of causal concepts of disease. Case histories. Aldershot: Ashgate. Chomel, Auguste-François. 1926. ‘Causes prédisposantes.’ In Nouveau dictionnaire de médicine, chirurgie, pharmacie, physique, chimie, histoire naturelle, etc., ou l’on trouve

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l’étymologie de tus les termes usités dans ces sciences, et l’histoire concise de chacune des matières qui y ont rapport, edited by Pierre Béclard, Auguste-François Chomel, Hippolyte Cloquet, Jules Cloquet and Mathieu Orfila, 391. Paris: Gabon et compagnie. Cockburn, Robert. 1840. Remarks suggested by the present state of trade and credit. London: Effingham Wilson. Cooke, John Esten. 1828. ‘An essay on the theory of fever.’ Transylvania Journal of Medicine and the Associate Sciences 1 (1): 59–92. Coquelin, Charles. 1852. ‘Crises commerciales.’ In Dictionnaire de l’économie politique, contenant l’exposition des principes de la science, l’ opinion des écrivains qui ont le plus contribué à sa fondation et à ses progrès, la bibliographie générale de l’économie politique, …, edited by Charles Coquelin and Gilbert Urbain Guillaumin, Vol. 1, 526–534. Paris: Guillaumin. Cory, Isaac Preston. 1842. Competition: Its abuse one of the chief causes of the present distress among the trading, manufacturing, and commercial classes: With suggestions for remedying it. London: Painter. Ducheyne, Steffen. 2006. ‘Galileo’s interventionist notion of ‘cause’.’ Journal of the History of Ideas 67 (3): 443–464. https://doi.org/10.1353/jhi.2006.0024 Evans, Alfred S. 1993. Causation and disease. A chronological journey. New York and London: Plenum Medical Book Company. Frobert, Ludovic, and Omar Hamouda. 2008. ‘The inf luence of the study of medicine on Clément Juglar’s first take on the economic cycle, 1846–1862.’ Journal of the History of Economic Thought 30 (2): 173–198. https://doi.org/10.1017/ S1042771608000173. Garnier, Joseph. 1859. ‘Crises commerciales.’ In Dictionnaire universel théorique et pratique du commerce et de la navigation, edited by Guillaumin, Vol. 1, 920–925. Paris: Guillaumin. Grmek, Mirko D. 1998. ‘Il concetto di malattia.’ In Storia del pensiero medico occidentale, edited by Mirko D. Grmek, Vol. 3. Dall’età romantica alla medicina moderna, 221–253. Milano: Laterza. Hamlin, Christopher. 1992. ‘Predisposing causes and public health in early nineteenth–century medical thought.’ Social History of Medicine 5 (1): 43–70. https://doi.org/10.1093/shm/5.1.43. Huskisson, William. 1810. The question concerning the depreciation of our currency stated and examined. London: John Murray. Juglar, Clément. 1851. ‘De la population en France de 1725 à nos jours (1849).’ Journal des Économistes 30 (128): 54–77. ———. 1852. ‘De la population en France de 1725 à nos jours (1849).’ Journal des Économistes 32 (129): 75–80. ———. 1856. ‘Des crises commerciales.’ Annuaire de l’Économie Politique et de la Statistique S. 2, 13: 555–581. ———. 1857a. ‘Des crises commerciales et monétaires de 1800 à 1857.’ Journal des Économistes S. 2, 14 (4): 35–60. ———. 1857b. ‘Des crises commerciales et monétaires de 1800 à 1857 (suite et fin).’ Journal des Économistes S. 2, 14 (5): 255–267. ———. 1862. Des crises commerciales et de leur retour périodique en France, en Angleterre et aux États–Unis. Paris: Guillaumin. ———. 1863. ‘Crises commerciales.’ In Dictionnaire général de la politique, avec la collaboration d’hommes d’État, de publicistes et d’écrivains de tous les pays, edited by Maurice Block, 615–627. Paris: Lorenz.

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———. 1889. Des crises commerciales et de leur retour périodique en France, en Angleterre et aux États–Unis. 2nd ed. Paris: Alcan. ———. 1891. ‘Crises commerciales.’ In Nouveau dictionnaire d’économie politique, edited by Léon Say and Joseph Chailley. Paris: Guilllaumin. ———. 2010a. ‘Commercial crises (1863/1873).’ Translated by Cécile DangelHagnauer. In Research in the History of Economic Thought and Methodology: A Research Annual, edited by Jeff E. Biddle and Ross B. Emmet, Vol. 28A, 115– 147. Bingley: Emerald Group Publishing Limited. https://doi.org/10.1108/ S0743-4154(2010)000028A008. ———. 2010b. ‘Commercial crises (1891).’ Translated by Cécile Dangel-Hagnauer. In Research in the History of Economic Thought and Methodology: A Research Annual, edited by Jeff E. Biddle and Ross B. Emmet, Vol. 28A, 149–167. Bingley: Emerald Group Publishing Limited. https://doi.org/10.1108/S0743-4154(2010)000028A009. Koertge, Noretta. 1977. ‘Galileo and the problem of accidents.’ Journal of the History of Ideas 38 (3): 389–408. https://doi.org/10.2307/2708671. Lagasquie, A. 1849. ‘Causes.’ In Dictionnaire de médecine usuelle, edited by Jean–Pierre Beaude, 313. Paris: Didier. Lawson, James Anthony. 1848. On commercial panics: a paper read before the Dublin Statistical Society. Dublin: Hodges and Smith. Le Gall, Philippe. 2006. ‘L’astronomie sociale de Jean-Edmond Briaune.’ In JeanEdmond Briaune (1798–1885). Cultivateur, agronome, économiste, edited by Jean– Pascal Simonin, 261–282. Angers: Presses Universitaires d’Angers. Martin, Marie-Joseph-Désiré. 1789. Étrennes financières; ou, Recueil des matières les plus importantes en finance, banque, commerce … etc. Paris: publié par l’auteur. Mill, John Stuart. 1848. Principles of political economy, with some of their applications to social philosophy. 2 vols. London: Parker. Niehans, Jürg. 1992. ‘Juglar’s credit cycles’. History of Political Economy 24 (3): 545– 569. https://doi.org/10.1215/00182702-24-3-545. Passy, Frédéric. 1905. ‘[Nécrologie–M. Clément Juglar].’ Journal des Économistes S. 6, 64 (1–3): 420–421. The Saint Paul Globe. 1902. ‘Cuban tariff is a victor.’ April 1, 1902: 1. Say, Jean-Baptiste. 1814. Traité d’économie politique, ou Simple exposition de la manière dont se forment, se distribuent et se consomment les richesses. Seconde édition, entièrement refondue et augmentée d’un épitome des principes fondamentaux de l’économie politique. Paris: Chez Antoine-Augustin Renouard. Société d’Économie Politique. 1857. ‘Origine et causes de la crise actuelle. Réunion du 5 décembre 1857.’ Journal des Économistes S. 2, 16 (12): 465–473. ———. 1884. ‘Y a–t–il une crise économique générale en France?’ Journal des Économistes S. 4, 25 (2): 286–290. ———. 1893. ‘Y a–t–il loi ou accident dans la périodicité des crises? Séance du 5 janvier 1893 (avec la participation de C. Juglar, R. G. Lévy, A. Neymarck, et une lettre de A. Courtois).’ Journal des Économistes S. 5, 51 (1–3): 1–13. Voltaggio, Franco. 1999. ‘L’evoluzione della causazione in medicina.’ In Le cause della malattia. Un’analisi storica e concettuale, edited by Evandro Agazzi and Carlos Viesca, 29–45. Genova: Erga. Waller, John. 2002. The discovery of the germ. Cambridge: Icon Books.

3

Riders on the storm W. Stanley Jevons, meteorology and the analysis of ‘commercial f luctuations’ Michael V. White The patient investigator will, in time, comprehend the subordination of innumerable perplexing details to a uniform, simple, and grand design, here as everywhere in Nature. W. Stanley Jevons (1859, 96)

In early 1879, W. Stanley Jevons began composing a defence of his analysis of sunspots and ‘commercial f luctuations.’ The extant drafts indicate that he was feeling both beleaguered and frustrated: ‘It is somewhat difficult to understand the scornful ridicule with which in England at least any allusion to sunspots is received. On several occasions I have brought the subject verbally to the notice of able & even scientific economists, only to be told that it is mere astrology, mere speculation.’ The effects of such ridicule would have only been amplified by criticism of his statistics. In January of the same year, an unsigned critique was published by The Times. Written by the astronomer journalist R.A. Proctor (1879),1 the article first evinced a marked scepticism regarding the impact of sunspots on terrestrial magnetism, rainfall and Indian famines. Proctor then turned to Jevons who had provided ‘in some respects the most singular suggestion respecting solar inf luence on mundane events.’ That argument required the periodicity of sunspot minima to ‘synchronize’ with commercial crises. Proctor’s statistics, however, indicated that minima synchronised with only seven of Jevons’ seventeen crises. Crises were more often associated with sunspot maxima. As Jevons’ reputation in political economy was based, in part, on his previous statistical work, it is not surprising the drafts indicate he felt his authority was at stake: I have received so many hints about my folly in carrying forward publishing speculations on this subject th. I will take the liberty of being egotistical & stating my qualifications. As regards the meteorological (?aspects) of the subject, I may state that employed in Australia as chemist

DOI: 10.4324/9781003144601-5

W. S. Jevons: Riders on the storm 81

at the Sydney Mint, I spent almost the whole of my spare time in the study of meteorology & in actual observ n. My regular weekly reports are to be found in the Empire newspaper or the Sydney Magazine & I also prepared a general acct. of the Climate of Australia, including an investigation of the periodicity of f loods and droughts. I feel sure that the practical study of meteorology & f luctuations was the best possible training for the statistical study in wh. we are now engaged with periodic events of even greater complication. Subsequent to my return to England I engaged in a most laborious statistical investigation of a strictly inductive character. About the years 1861–2 I collected a large series of secular statistics and (?) exhibited them in the form of an extensive series of diagrams wh. it was my intention to publish, an intention never yet carried out except as regards two elaborate diagrams. These diagrams have been of essential service to me, both for the training involved in their original construction and for the light wh. they constantly afford when referred to … Since 1862 I have never lost any opportunity of extending my collection of facts relating to … (?commercial fluctuations). Thus whatever speculations I may now put forth are grounded upon inductive inquiries of a most (?)… & laborious nature. It is rash to attribute haste to one who has continuously laboured a quarter of a century at …2 Although this particular discussion of Jevons’ previous work did not survive the drafting process,3 it is evident he regarded the sunspot analysis as the culmination of meteorological work begun in Australia (1854–1859). In that regard, he referred to his reports in the Empire newspaper and Sydney Magazine of Science and Art along with the highly detailed ‘Some Data concerning the Climate of Australia and New Zealand’ (Jevons 1859).4 The other references, following his return to England, were to his unpublished Statistical Atlas and two large diagrams, published in 1862, which reworked material in the Atlas. The first showed the Weekly Accounts of the Bank of England, since the passing of the Bank Act of 1844, with the amount of Bank of England, Private, and Joint Stock Bank Promissory Notes in Circulation during each week, and the Bank Minimum Rate of Discount (Jevons 1862c). The second showed the Price of the English Funds, the Price of Wheat, the Number of Bankruptcies, and the Rate of Discount, Monthly, since 1731 (Jevons 1862d; the diagram is reproduced here as Figure 4.2 in Chapter 4).5 Jevons could also have referred to his analysis of commercial fluctuations presented to the British Association for the Advancement of Science (BAAS) (Jevons [1862] 1884), the Statistical Society of London (Jevons 1866) and in the monograph A Serious Fall in the Value of Gold (SFG: Jevons 1863d). This chapter tracks Jevons’ work on commercial f luctuations from the early 1860s up to the first sunspots paper of 1875. The subsequent sunspots analysis will not be considered because the principal purpose is to identify the initial framework that explains the importance Jevons attached to the search for the effects of meteorological periodicity. To explore that framework, the unpublished Statistical Atlas will be brief ly examined (Section 3.1). When the Atlas

82 Michael V. White

is read in conjunction with Jevons’ early papers on commercial f luctuations and SFG, it is possible to identify his basic f luctuations analysis. Based on the complex statistical work in the Atlas, the project was concerned with attempting to explain decennial f luctuations, with wheat prices as the trigger. Jevons realised, however, that the story faced a substantive difficulty which he attempted to repair with the 1875 sunspots paper (Section 3.2). The analysis of sunspots, however, had begun much earlier. In the Atlas, Jevons intended to link and hence help explain commercial f luctuations with meteorological variables. The meteorological links were based on his continuing work in that domain and ref lected contemporary discussion of possible links between sunspots and terrestrial phenomena, including the weather (Section 3.3). Jevons also drew on the analysis of commercial f luctuations by James Wilson (Section 3.4).

3.1 The Statistical Atlas The economic crisis of 1857 was followed by a series of poor harvests in Britain and a particularly bitter winter in 1860/61. The Thames froze with severe employment effects in London’s East End which was dependent on the casual labour system at the docks. With the Poor Law system in crisis and rising wheat prices, bread shops were ransacked in the East End (Green 2010, 205). It was in that context that Jevons began work on the Statistical Atlas project. He recorded that, in October 1860, having ‘recently commenced reading at the (British) Mus. Libr. & met some stat. I began to form some diagrams to exhibit them,’ the first diagram ‘I think showing Mr. Newmarch’s Bill circ. research.’6 This referred to an article by the banker and statistician William Newmarch analysing the ‘amount … fluctuations, and progress’ of bills of exchange between 1828 and 1847 (Newmarch 1851, 183).7 Having ‘properly’ begun work after Christmas and completed ‘two or three diagrams,’ Jevons decided that he would produce ‘a Statistical atlas of say 30 plates exhibiting all the chief materials of historical stat.’ (PC 2:427). One of the initial diagrams, dated January 1861, is reproduced here as Figure 3.1. Jevons sent a copy with another diagram to his brother in the same month, describing them as ‘my first two etchings which are only practice—in preparation for large plates which I may perhaps do at some future time.’8 Figure 3.1, titled ‘Commercial Crisis of 1847. Monthly Returns of the Bank of England, etc. 1845–7,’ drew in part on Newmarch’s statistics.9 Although the labelling is confusing, the curves show the components of the Bank of England accounts, the rate of discount, quantity of bank bills and the average price of consols. Following the example of William Playfair’s Commercial and Political Atlas, first published in 1786,10 Jevons’ Atlas was a highly ambitious piece of work. It encompassed a wide range of topics and, compared with his first diagrams, a longer statistical time series and much larger graphs which Jevons called plates. By late 1861, he had ‘28 diagrams more or less finished, in the first copy’ (PC

W. S. Jevons: Riders on the storm 83

Figure 3.1 Jevons ‘Commercial Crisis’ Graph, 1861. Source: Jevons Archive, John Rylands University Library of Manchester, JA 6/23/116A. Signed ‘W.S. Jevons 1861.’

1:180). The number of diagrams corresponds with a Table of Contents which was presumably completed by the same time.11 Attempts to find a publisher were, however, disappointing and a visit to Newmarch’s office was devastating—he was an ‘ugly, man, who looked at my diagrams without interest & almost without a word so that I soon left him.’12 The publisher Stanford was the only firm interested in publishing some of the plates and that was on the condition that Jevons bore the printing costs (PC 1:180–181). Stanford eventually published two large graphs in July 1862 which were based on Plates VI–X in the Atlas ( Jevons 1862c, 1862d). By November, having realised that the expense of the original project would be prohibitive, Jevons proposed

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to produce a smaller ‘Merchants’ Atlas of Commercial Fluctuations’ which would be ‘restricted to the last twenty years’ (PC 2:459, 2:461). Although there is no precise description of the smaller Atlas, Jevons’ focus was on commercial f luctuations as some later notes, apparently written in March 1863, describe the plates ‘showing both seasonal and nonperiodic f luc. To afford material at same time for monthly averages exactly determining the seasonal f luct.’13 The language of ‘seasonal’ and ‘nonperiodic’ f luctuations was consistent with his paper on commercial f luctuations which had been read to the BAAS in 1862 ( Jevons [1862] 1884). While that paper drew on the large Atlas, the Merchants’ Atlas utilised a different and more detailed series of commodity prices. The series, which began in 1844, was taken from The Economist and used extensively in SFG, published in April 1863. An endpaper note in the original monograph stated the following was ‘in preparation’: The Merchant’s Atlas and Hand Book of Commercial Fluctuations, since the year 1844, exhibiting the progress of commerce from month to month, with a full analysis of the periodic and seasonal f luctuations. This never appeared and Jevons scaled down his ambitions in that regard. He told his brother in July 1863 that, given the comparative success of the 1862 Bank of England diagram, he was now thinking of producing ‘a single diagram well fitted for an office’ which, if it sold ‘well,’ would ‘spread one’s name, and might enable me at a future time to publish large works successfully’ (PC 3:33). By then, however, Jevons had accepted a teaching position at Owens College, Manchester and, with his departure to the north a few months later, the possibility of producing any further large diagrams apparently faded from view. Remnants of the Atlas manuscript can be found in the Jevons Archive at the John Rylands University Library of Manchester.14 Further material is held by the Royal Statistical Society in London and the Marshall Library at the University of Cambridge. Although the target audience for the Atlas was mercantile firms and, presumably, banks, there is no precise statement of Jevons’ objectives due to the incomplete state of the manuscript. One possibility, however, is that he sought to provide an historical perspective on the reasons for and threats to ‘the progress of Great Britain’ (Essay, Plate V). The plates can then be divided into four broad groups. The first considered a number of important variables for growth: population, inventions, individuals (engineers, inventors, politicians and political economists) and government. Also included were threats from the National Debt, wars, rebellions and food riots (Plates I–V). The second group covered the financial system and commercial f luctuations, including the Bank of England and Clearing House accounts, the price of consols, bank credit, prices of wheat and other ‘principal’ commodities (Plates VI–X). After two plates largely concerned with personal wealth (XI–XII), a third group provided a detailed

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analysis of specific commodities with a focus on those traded internationally (Plates XIII–XX). The last group was concerned with the condition of the working class, depicting nominal wages, the prices of principal consumption commodities (hence presumably giving some indication of real wages) and pauperism (Plates XXI–XXVIII). Pauperism was to be linked with the discussion of commercial f luctuations via wheat prices and the price of consols.15 Table 3.1 provides a summary of the sections of the remaining manuscript which are directly relevant for this chapter, while Table 3.2 lists the contents of two drafts for Plate XXI. Material not in the Manchester Archive is indicated by MLC (Marshall Library Cambridge). Table 3.1 Some Remaining Contents of the Statistical Atlas Plate Number and Title VI. The Funds, Price of Corn, Rate of Discount and Number of Bankruptcies (monthly) VII. Bank of England (half year)

Description of Contents Price of Consols [1731–1861]. Price of Wheat [1793–1861]. Rate of Discount on ‘first class bills of exchange.’ [1824–1861] Bankruptcies. [1700–1830→?]

Price of Bank Stock—highest and lowest. Dividend Bank Stock. B of E minimum discount rate on bills of exchange. VIII. Bank Issue Department—notes, amount of England gold and silver bullion, amount Weekly government and other securities Returns [INCOMPLETE]. Banking (Double) Department [INCOMPLETE]. Total Amount of Liabilities; total amount of means—Gold, silver bullion and coin, private securities, public securities. [1844 →] IX. Transactions Transactions Clearing House of Bankers’ London—Inland Bills, English Clearing House. Stocks, Foreign Stocks [1839 Bank Note only—total daily, average daily, Circulation average weekly and average monthly]. Circulation Bank Notes—England, Scotland and Ireland, average for February and August. Temperature—mean annual, mean June, July, August, September. Rain—depth of rain nine months.

Plate

Essay

√ [Marshall Library Cambridge (MLC)]

√

√ (Segment remains for temperature and rainfall)

(Continued)

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Plate Number and Title

Description of Contents

X. Creation Bills Part I. Price of Consols monthly Exchange average [preceding Plate]. (Quarterly) Creation Inland Bills of Rate of Exchange, ‘large’ and ‘medium,’ Discount drawn or created quarterly. Circulation Promissory Notes and Post Bills Bank Notes of Bank of England in circulation Prices Principal February and August. [1698 →? Commodities ] Half Yearly Accounts Bank of England—bank notes and bills, deposits, ‘rest.’ [1778–1853] Part II. Prices 15 ‘principal articles of commerce’ March, June, September, December—cotton, cotton yarn, cotton cloth, wool, woollen cloth, f lax, linen, indigo, silk, iron bars, copper, coffee, tin plates, tallow, sugar. [1834–1853] XXI. Price of Part I. Prices food—wheat Food. Change (quarterly averages), potatoes, of Population beef, mutton, mean temperature Amount of quarterly (corresponding to Pauperism quarters for wheat prices). Price and Population—births, deaths, Quantities of marriages (quarterly). Paupers— Wheat Sold total, indoor, outdoor (quarterly). Average price of consols (quarterly). Part II. Monthly price of wheat— including ‘correction for depreciation of paper currency. Quantity wheat imported and exported. Average duty of wheat imported. [1841–1861] XXII. Price of Number of oxen and sheep sold Provisions and (annual). Prices—salt, clover, Fodder hay, straw, mutton, beef, candles, Supply of Cattle beer, butter, cheese [dates vary but include 1688–1859] Wages daily—carpenters, plumbers, XXVII. Wages masons, bricklayers [1730–1859] and Pauperism [INCOMPLETE]

Plate

Essay

Part II can be reconstructed from Jevons’ sources

√ √

√ [MLC]

W. S. Jevons: Riders on the storm 87 Table 3.2 Contents of Early Drafts for Plate XXI Title

Contents

Pauperism Price of Provisions Consols Temperature of Air (Quarterly Averages) Pauperism Price of Provisions Mean Temperature of Air (Quarterly Averages)

Price of potatoes. Number of paupers. (1814–1859)

Average price of Consols. Paupers - total, indoor, outdoor. Average prices - wheat, mutton, beef, potatoes. Mean temperature of air. Wheat quantity sold and imported (weekly). Pauperism - total expenditure, per head of population, total population (England and Wales), mean numbers ‘at any one time’ - adults (indoor, outdoor, total), all (including children). (dates vary but include 1750–1860)

3.2 Searching for Periodicity It is evident from Figure 3.1 that a principal objective when Jevons started work on the Atlas was to provide an explanation of commercial f luctuations. Indeed, he told his brother in April 1861 that the ‘chief interest of the work will be in the light thrown upon the Commercial storms of 1793, 1815, 1826, 1839, 1847, 1857, etc. the causes of which will be rendered more or less apparent’ (PC 2:427). The analysis was continued in the two large diagrams published by Stanford in July 1862 ( Jevons 1862c, 1862d), a paper read to the BAAS in September of the same year ( Jevons [1862] 1884), SFG and an 1866 paper presented to the London Statistical Society ( Jevons 1866). The most detailed aspect of the project was to establish the timing and cause(s) of f luctuations. As mentioned above, in notes for the Merchants’ Atlas Jevons described the proposed plates as showing seasonal and nonperiodic f luctuations. The same distinction was made in the 1862 BAAS paper, where periodic f luctuations referred to weekly, monthly, quarterly and annual recurring phenomena, while the great ‘commercial storms’ were referred to as ‘non-periodic.’ It was necessary to first establish the ‘periodic variations before we can correctly exhibit those which are irregular and non-periodic and probably of more interest and importance’ ( Jevons [1862] 1884, 4). To exhibit the periodic variations in the BAAS paper, Jevons condensed and reworked much of the information for the 19th century contained in Plates VI–X of the Atlas. He argued there was a predictable pressure in the money market during the fourth quarter of each year, which was indicated by an increase in the number of private securities (bills) and a decline in bank

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deposits. The seasonal variation was ‘principally due to the gathering up and buying of the harvest, and the general proceeds of the year’s industry, which have then to be held in stock during the succeeding twelve months causing an absorption of capital’ ( Jevons [1862] 1884, 7). This explained the decline in bullion and loanable capital during the same period.16 Those variations were mirrored in graphs showing the quarterly variations of the discount rate (equated with the effective interest rate), the number of bankruptcies, the price of consols and the price of wheat. ‘As in the bank accounts… the most striking f luctuations are due to the gathering of the harvest, and the general termination of the year’s operations. The consequences are a rapid rise in the rate of discount, a sudden f lood of bankruptcy, and a fall of consols, followed by a rise.’ The link to the irregular storms was that, given the ‘periodic tendency to commercial distress and difficulty during these (autumn) months…. (it) is when great irregular f luctuations aggravate this distress, as in the years 1836, 1839, 1847, and 1857, that disastrous breaches in commercial credit occur’ ( Jevons [1862] 1884, 8–9). Jevons subsequently cited this statement in his extended analysis of the periodic ‘autumnal crisis,’ adding that ‘it is the abnormal (i.e. non-periodic) changes which are alone threatening or worthy of very much attention’ ( Jevons 1866; 1884, 164, 181). A more detailed analysis of the commercial storms can be found in the notes accompanying the 1862 wheat and bankruptcies diagram and in SFG. When he discussed the causes of price variations (apart from those due to the value of gold) in SFG, Jevons argued that commodities could be divided into two ‘principal classes.’ The first were ‘articles of immediate personal use (which), speaking generally, are constant in demand, variable in supply.’ Hence, ‘articles of food and personal use generally may be regarded as constant (in demand).’17 Although that commodity class included manufactured items, it was quite different from ‘metals, timber, and other articles of more permanent and remote use, (which) are comparatively constant in supply, but… undergo great variations in demand’ ( Jevons 1863d; 1884, 25, 27–28). The significance of the two classes for the analysis of commercial f luctuations was, in part, that, while the variations in demand commodities dominated the explanation, the distinction was crucial for understanding Jevons’ analysis of different types of ‘capital.’ The first was capital ‘temporarily invested but soon to reproduce itself ’ in an annual cycle. Invested, for example, in food and clothing, the amount of that capital did not ‘much vary’ and was returned relatively quickly as ‘ready money’ so that ‘it contributes to form the reserve of loanable capital in the Bank of England, or in other banks, or in private hands’ ( Jevons 1863d; 1884, 28). The role of temporary capital was the focus of the 1862 BAAS paper in explaining quarterly variations ( Jevons [1862] 1884). The second type of capital was invested in ‘permanent and remote’ projects such as the construction of ships, factories, mines, canals and railways, as well as foreign loans and investment. ‘Temporarily (the commodity forms of this capital) absorb the means of subsistence of the community—they are wealth

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in posse, rather than in esse.’ In general, although such investment increased the nation’s wealth, it also led to the large commercial storms because ‘great and permanent works’ tended to bunch in ‘particular periods’: When capital is abundant its owners look out anxiously for some mode of profitable employment. Any new discovery or fresh employment for money is eagerly taken up. Hope of gain is a most contagious emotion among business men, and presently hundreds set themselves to carry out this new discovery upon a most extended scale. ( Jevons 1863d; 1884, 28) The upturn thus required an increase in capital and the widespread use of innovations, since Jevons initially argued that the number of patents was a forward indicator of f luctuations (below). The expansion process then produced differential impacts on prices. With the increased demand, the ‘ordinary production’ of commodities entailing the investment of temporary capital ‘goes on … as usual, or even increases somewhat.’ At the same time, ‘(p)art of the available labouring power of the country is transferred’ to the production of commodities required for permanent investment (e.g., timber, iron and bricks). Since their production was not capable of responding quickly to the new demand, prices were ‘started upwards, and unwonted prosperity and hopes of gain fall upon nearly everyone in the country.’ As this quotation suggests, Jevons argued that ‘manias for speculative investment’ were an integral part of the expansion, one of the most striking being the 1840s railway boom ( Jevons 1863d; 1884, 29). While changes in both prices and expectations characterised the upturn, they were dependent on the extension of credit by the use of bank bills or promissory notes so that, with the prospect of rising prices driven by speculation, ‘prices and credit mutually inf late each other’ ( Jevons 1863d, 1884, 31). Consistent with the Banking School (Le Maux 2020; Smith 2011, ch. 7), Jevons argued the Currency School was in ‘error’ by claiming that ‘convertible Bank notes might have a peculiar efficacy in regulating prices and sowing the seeds of f luctuations.’ While it was the case that ‘an expansion of the currency occurs one or two years previous to a rise of prices,’ that rise ‘once started proceeds … independently of the currency for a time.’ The ‘currency theorists’ were thus ‘mistaken in supposing that notes have any peculiar effect; it is a superabundance of gold bullion that first turns prices upwards by a real but temporary lowering of the value of gold in the country… It is credit, or the creation of prospective gold, which allows prices to continue rising for a time while gold is decreasing.’ ( Jevons 1863d; 1884, 107, 108) This argument was clear in Jevons’ BAAS paper ( Jevons [1862] 1884, 7) and in comments on the 1862 Bank of England diagram: It is all nonsense to ascribe a rise of prices to bank notes being increased in numbers. It is a superabundance of gold that raises prices & perhaps quickens business & the increased circulation of notes is the result, as clearly shown on the diagram. (PC 2:451)18

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Of course, the expansion process was limited. Capital was necessary to discount the bills issued, and the supply available to do so was simultaneously falling because of the increase in permanent investment. Ultimately, credit would be ‘exhausted’ since there was a ‘well-defined boundary of available capital, which consists in the last resort of the reserve of notes, equivalent to gold, in the banking department of the Bank of England’ (Jevons 1863d; 1884, 29, 31, 32). With the collapse of credit and increased interest rates, speculators would sell commodities, prices would fall and the ‘revulsion’ would begin. Jevons acknowledged that, despite the detailed statistical analysis contained in the 1862 Bank of England Accounts diagram, the precise link between the capital base and credit had not been established.19 Nevertheless, he argued that a general explanation for the variations in available capital and interest rates, which marked the turning points of the great f luctuations, could be found in the key component of the food supply: The bountiful or scarce supplies of food with which Providence favours us in the several seasons, strongly contribute to hasten or retard the several periods of abundant capital and investment, and again those of scarcity and revulsion. The current of human business is ever ready to break into a ripple. A good or bad season marks it with a crest or a trough, and the f luctuation multiplies and continues itself. Yet, according to a known principle, it insensibly falls into place with the f luctuations of nature, which it may obey but cannot rule. ( Jevons 1863d; 1884, 48) The complexity of the analysis was indicated by Jevons’ comment in the 1862 BAAS paper that, despite the ‘long and laborious nature of the calculations,’ he hoped to extend the graphical treatment of quarterly variations to include ‘the various funds and stocks, amounts of traffic, shipping, export and import trade, the prices of commodities, and especially the stocks of commodities as far as they are ascertainable’ (Jevons [1862] 1884, 8). This was evidently to be based on materials in the Atlas. Although much of that information no longer exists, the Atlas manuscript does provide two indicators of an extended analysis. The first is Plate XXI, which contained a quarterly analysis of variations, for 1840–1861, in prices of key food items and the extent of pauperism. The drafts for the plate suggest also that Jevons intended to use aggregate population figures (from Plate I) to calculate variations in expenditure on pauperism per head of the population. The second indicator is Plate X and the accompanying essay where Jevons used statistics for the “principal” export and import prices to argue that their maxima corresponded with the maxima of bank bill circulation, followed by changes in the discount rate.20 That discussion was continued and extended in SFG. Allowing for most temporary price changes due to variations in supply (the effects of which were ‘destroyed’ by ‘the drawing of… averages’), Jevons used the statistics of price variations to show the demand-induced temporary variations in prices following changes in credit availability and investment expenditure (Jevons 1863d; 1884, 31, 35, 47).

W. S. Jevons: Riders on the storm 91

One further objective of the analysis was to identify forward indicators of a crisis. Jevons told his brother in 1861 that ‘the number of Acts of Parliament, the number of patents, and the number of bricks manufactured are the best indications of an approaching panic… It is truly curious how the curve of bricks produced shows this’ (PC 2:427). The information on patents was apparently drawn from Plate V in the Atlas and bricks from Plate XIX. Jevons modified this analysis in SFG, producing a table, for the years 1821–1857, of prices of bar-iron and quantities of bricks and imported timber, arguing that if the ‘numbers were drawn out in a curve, its form would be found to correspond closely with the curve representing the numbers of bankruptcies during the same years’ ( Jevons 1863d; 1884, 30; also PC 6:123).21 Some idea of what the curves might have looked like can be glimpsed from two stylised diagrams of the paths of statistical indicators over a cycle. The first, which was unpublished and is incomplete, depicts a trough-to-trough cycle with four phases identified as ‘depression,’ ‘(?) briskness,’ ‘spec(ulation),’ ‘collapse’ (Figure 3.2). The commodities represented are bricks and timber; metals; railway capital; coal; shipping (crossed out); unlabelled (but cyclical); country banks; country notes; bankruptcies; notes of banks; rate of discount; coinage; pauperism; bills; unlabelled (but slightly cyclical); bullion; reserve of notes; securities. Given the early importance Jevons attached to the relation of bricks, timber and bankruptcies and that bricks and timber do not appear in his later stylised cycle diagram, it seems reasonable to conclude that this diagram was an early attempt to present a stylised picture of a cycle drawing on the Atlas and SFG.22 In 1867, Jevons prepared a more careful diagram of stylised indicators (Figure 3.3) to accompany a paper on credit cycles by the Manchester banker John Mills (Mills 1868, 8–9).23 Both diagrams evidently had their genesis in the Atlas project.24 Jevons’ analysis thus attempted to explain and quantify the interaction between changes in capital, credit, interest rates, prices, expectations, quantities of outputs and pauperism. Pivoting on ‘the varying abundance and scarcity of loanable capital’ (Jevons 1863e, 1041), the distinction between capital in its ‘free’ form, when compared with its ‘temporary’ or ‘permanent’ investment, enabled Jevons to link a statistical treatment of changes in credit and money markets with changes in prices and the output of ‘real’ variables. With wheat as the most important form of temporary capital, changes in wheat supplies and prices would affect the amount of available free capital and thus provide the trigger for both quarterly variations and the great commercial storms which Jevons hoped the Atlas would be able to explain. The importance of wheat/ corn in Jevons’ preferred model for the storms was indicated in the 1862 wheat and bankruptcies diagram where he outlined the ‘usual course’ of events: A low price of corn, low rate of interest, with few bankruptcies, and a high price of the funds, lead to the employment of capital in vast undertakings at home and abroad. Capital gradually becomes less abundant compared with the demand, and in the revolution of the seasons, the scarcity is suddenly increased by a failure of the harvest, and a rise in the

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Figure 3.2 Jevons’ early representation of a Commercial Cycle. Source: Jevons Archive, John Rylands University Library of Manchester, JA 6/7/1.

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Figure 3.3 Jevons’ 1867 Credit Cycle Diagram. Source: Mills 1868, unpaginated between pp.8 and 9.

price of corn. The rapid ascent of the rate of interest is necessarily followed by a sudden f lood of bankruptcy, and a general revulsion of credit, which brings incalculable loss and disappointment upon all classes. ( Jevons 1862d, xiv) The reference to the ‘usual course’ of events suggests a degree of regularity in the commercial storms. Indeed, in SFG, Jevons assumed a decennial cycle when he referred to the ‘great commercial f luctuations, completing their course in some ten years… familiar to all who attend to mercantile matters,’ followed by the observation that ‘a failure of the harvest… usually occurs in every decade’ (Jevons 1863d; 1884, 27, 100). It was evident to T.E. Cliffe Leslie, writing critically and pseudonymously in the Economist, that the calculation of the base period for the price index in SFG assumed a decennial cycle.25 Yet Jevons was also careful to refer to the commercial storms as nonperiodic in the 1862 BAAS paper, and some of his later comments almost seem to suggest it was not possible to produce a systematic explanation for

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them (Jevons 1863e, 1042; 1866; 1884, 181). The ambivalence was evident in a January 1865 letter to J.E. Cairnes, who, Jevons thought, was the critic in the Economist referred to above. Having noted that he agreed with the critic about the ‘common fallacy of looking for uniformity’ in explaining the storms and acknowledging he was not ‘quite free’ of the fallacy in SFG, Jevons nevertheless expected a ‘collapse… of serious magnitude not far from 10 years after 1857’ because ‘there is some tendency to a periodical recurrence of excessive fixed investment & consequent scarcity of capital.’ This was accompanied by a reference to the preferred trigger mechanism: ‘a fall in the price of cotton if it should coincide by chance with a rise in the price of corn, & renewed & intensified pressure in the money market must occasion a reverse’ (PC 3:64–65). Two reasons can be suggested for Jevons’ backing and filling. The first, mentioned in the letter to Cairnes, was that the storms did not fit a simple decennial pattern. Political factors, for example, could affect the path of the economy, as with the Crimean War’s effect on particular prices or when the US Civil War produced the Manchester cotton famine. Indeed, ‘Commercial f luctuations are never so familiar or well marked that we can discover exactly corresponding points in each. Since 1851, too, they have been much interrupted by wars’ ( Jevons 1863d; 1884, 26–27, 29, 48, 35).26 Nevertheless, since Jevons still thought that a decennial cycle was a useful approximation, he appears to have regarded this problem as simply a qualification to the analysis. The second problem, however, while related to the first, created a substantive difficulty. This was to obtain the requisite periodicity in wheat prices and other data for the general storm model. In the 1862 BAAS paper, Jevons was able to relate variations in wheat prices to the quarterly analysis of f luctuations for at least part of the 19th century. He was unable to do so, however, for the longer run of statistics, beginning in the 18th century, used in the Atlas (Plate VI) and the 1862 wheat and bankruptcies diagram. As the notes to the diagram acknowledged, f luctuations in the 18th century, indicated by the price of consols, seemed to be driven by wars and the associated fear of increases in the National Debt rather than by ‘commercial causes’ ( Jevons 1862d, xiii–xiv).27 By implication, the effects of wheat prices were thereby obscured. That the lack of periodicity in the wheat price data constituted the principal problem was indicated in the first sunspot paper of 1875. Jevons argued that there was ‘no interval of time less suitable than the last hundred years for the detection of variations (in grain prices) due solely to meteorological conditions’ since their effects were masked by ‘all kinds of political and social events,’ including wars, inventions, ‘great industrial discoveries’ and inf lation at the turn of the century. He then suggested that a grain price series for 1259–1400, produced by Thorold Rogers, would not be subject to that problem and hence would be ‘suitable for testing the effects of the sun-spot variation on human affairs’ (Jevons [1875] 1884, 195–196). Jevons subsequently realised that this was also unsatisfactory which, coupled with his failure to ‘discover a regular periodicity in the price of corn in Europe,’ led to the formulation of the

W. S. Jevons: Riders on the storm 95

sunspot argument in terms of Asian export demand (Jevons 1878b; 1884, 207, 216). It should be emphasised, however, that Jevons’ 1875 sunspot analysis was meant to solve the problem that had bedevilled his analysis of f luctuations from the early 1860s—identifying a periodic (‘natural’) explanation for the great commercial storms. That would underpin the meteorological data in Jevons’ initial discussion. In the Atlas, for example, the diagram of quarterly bank bill and note issues (Plate IX) was related to changes in temperature and rainfall statistics (see the remnant of the plate reproduced here as Figure 3.4), while the quarterly variations in food prices and pauperism were also to be related to changes in temperature (Plate XXI drafts). The trigger for the basic ‘model’ was dependent on meteorological variables. Meteorological metaphors were by no means unknown, although they played a limited role in analyses of commercial crises prior to the early 1860s.28 Jevons’ analysis, however, was quite different in drawing on his extensive work in meteorology which began in Australia and continued after he returned to England in 1859.

3.3 Weathering the storm In his Principles of Science, Jevons referred to ‘the gradual reaction which has taken place in recent times against the purely empirical or Baconian theory of induction’ which amounted to the ‘blind accumulation of facts.’ While an ‘inductive investigation cannot be guided by any system of precise and infallible rules,’ a key role was played by the formulation of hypotheses which, in turn, depended on the use of analogies or metaphors. Drawing on ‘the whole body of science previously accumulated,’ metaphors made it possible to ‘connect whole branches of science in a parallel manner, and enable us to infer of one class of phenomena what we know of the other’ ( Jevons 1874, 131, 134–135, 137, 288). Consistent with this, Jevons argued in his 1862 BAAS paper that it ‘seems necessary … that all commercial f luctuations should be investigated according to the same scientific methods with which we are familiar in other complicated sciences, such especially as meteorology and terrestrial magnetism’ ( Jevons [1862] 1884, 4). An examination of his work in meteorology can clarify the meaning of the ‘same scientific methods.’

Figure 3.4 ‘Clearing House.’ Remaining section of Statistical Atlas Plate IX.

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Figure 3.5 Jevons’ first empire meteorological report. Sydney Magazine of Science and Art Source: Empire, 3 September 1856, 4.

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Jevons began making meteorological observations in early 1855, three months after arriving in Sydney. The first of his weekly weather reports was published by the Empire newspaper in 1856, continuing until mid-1858. (Monthly reports were also published by the Sydney Magazine of Science and Art in 1857–1858 (Figure 3.5)). They contained diurnal records of barometric pressure, temperature, dew point, rain, cloud cover and wind direction. Jevons also published papers on a design for an actinometer, the semidiurnal oscillation of the barometer and, showing his training and work in chemistry, experiments to simulate cloud formation, culminating in the explanation of thunderstorms.29 These experiments, weather records and suggestions for improving measuring instruments were part of his more general project to analyse the Australian climate, focussing on the south east of the continent (Nicholls 1998). A particular concern, consistent with the cloud simulations, was the explanation of the ‘monsoon-like winds’ that produced ‘both the hotwinds and the great thunderstorms of this climate’ ( Jevons 1857a). These were crucial in explaining alternating periods of damaging f loods and droughts (accompanied by bushfires). In his more detailed analysis of the climate, drawing on a remarkably diverse set of historical resources from the colony, Jevons dismissed J.R. McCulloch’s claim that Australia was ‘marked by (wet and dry) periods or cycles of 10 or 12 years each’ (McCulloch 1854, 1:224) as careful statistical examination showed no such periodicity ( Jevons 1859, 76–82). As he had previously remarked, ‘One great peculiarity of the climate of Australia is its extraordinary non-periodicity … we are almost as far as ever from the real cause, which must reside in the great currents of the atmosphere’ ( Jevons 1857a). Nevertheless, Jevons also noted that ‘we have an implicit trust in the cyclone-theory of winds’ ( Jevons 1857b), and his terminology and references indicate that the frame for his meteorological work drew on responses within the British Empire to the damage wrought by violent storms on shipping and terrestrial structures. In the US, William Redfield had argued that storms such as hurricanes could be explained by a ‘rotary theory in which winds blew around a centre of high pressure … ascribed to centrifugal forces within the rotating mass of air’ (Burton 1986, 148). They were thus analogous to ‘whirlwinds rotating around a centre of low pressure, which moved forward on curved tracks’ (Naylor 2015, 781). At the British Admiralty, William Reid, collaborating with Redfield, instituted a program of collecting, mapping and charting wind and weather data. Plotting ship movements with the records from log books providing information on the direction and form of winds, the objective was to empirically develop the still rather crude ‘purely mechanical’ theory of revolving storms, enabling ships to either avoid or to tack away from the centre of storms (Burton 1986, 147–148; Naylor 2015, 772, 789). At the Board of Trade’s Meteorological Department, Admiral Robert Fitzroy instituted a similar program in the 1850s utilising log books from mercantile and war ships. Fitzroy was particularly impressed by the work of the Prussian meteorologist Heinrich Dove, arranging for the translation of the first edition

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of his Law of Storms in 1858. Dove argued that atmospheric changes depended on the alternation of polar and equatorial air currents which could explain both the trade winds and circulatory storms in the ‘middle latitudes’ which were the result of conf licting ‘alternating northerly and southerly windf lows’ (Burton 1986, 155, 157). While Jevons’ familiarity with the rotary wind theory and the work of Dove and Reid is evident from his writing on the climate of Australia ( Jevons 1857a, 1859), he also attempted to produce statistical information to show how that theory could be developed in Australian conditions. One of the first indications that he was working with the rotary theory was in 1855 when he recorded that he had been ‘busily engaged copying out a Register on the weather’ from the passenger ship Maid of Judah (PC 2:203). By the time he left Australia, he was sufficiently proficient to keep the Board of Trade meteorological log book on the ship to South America. Unable to keep the log, the captain was apparently amused by his passenger’s compiling ‘a mass of figures,’ although Jevons hoped it would provide ‘Captain Fitzroy’ with some ‘enlightenment’ (PC 2:386). A more direct link with the imperial project was evident in 1856 when Jevons wrote to the meteorologist Henry Piddington at Calcutta, referring to the latter’s Sailor’s Horn-book for the Law of Storms (1848). Piddington’s text, which endorsed the work of Reid, introduced the word ‘cyclone’ and contained a diagram on a translucent sheet that could be placed on a map to enable ships to tack away from cyclones. Jevons enclosed statistics on barometric pressure, temperature and wind speeds from a ‘violent Hotwind’ over two days in New South Wales, suggesting that the wind changes ‘were in agreement with M. Dove’s Law of Veering.’ Jevons wanted to relate his observations to ‘the complete theory of Rotary Storms so as to prove these hot-winds take the nature of true Cyclones.’30 As he later explained when analysing global wind systems and their effects on the Australian climate, ‘a climate depends entirely on winds which have a world-wide extension, and which bear moisture from pole to pole’ ( Jevons 1859, 79n, 91–96). Figure 3.4 shows how Jevons divided a sheet of paper into squares to facilitate the construction of curves in the Atlas project. Inspection of the originals of a number of his graphs in the Jevons Archive indicates that he marked data points with a pinprick from which a curve could be drawn. This method was first developed in Australia as Jevons noted in 1861 when referring to the initial diagrams in the Atlas: ‘I hit upon a mode of dividing a sheet of paper into 1/10 inch & then pricking off curves through it when in Sydney, and the square was readily at hand’ (PC 1, 180). This appears to be a reference to his meteorological work. In 1856, he was ‘copying out, correcting and calculating my two daily observations’ which began in January the previous year. It was ‘a work of forty or fifty thousand figures, independent of continual calculations, drawing of means, and other work.’ While the recalculations were tedious, ‘one is rewarded by getting out the results and putting them in the form of curves’ (PC 2:240, 2:245). Some results were later shown at a meeting of the Philosophical Society of New South Wales where Jevons

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exhibited ‘Diagrams shewing the Temperature of the Air at Sydney, for the year 1856.’31 Jevons initially referred to meteorology as a ‘half-science’ (PC 1:82). Compared with some other sciences, climate work relied on the relatively rudimentary rotary theory, the development of which depended on detailed statistical observation and the construction of tables, graphs and charts to explicate the analysis and identify new questions. It was that method he referred to when characterising the commercial f luctuations analysis as ‘inductive,’ using the same ‘scientific method’ as meteorology. When he returned to London, Jevons was well practised in the art of compiling large data sets from diverse sources, calculating averages and graphing the results. As Stigler (1982, 356) suggested, Jevons’ two large published diagrams in 1862 ‘would seem to be the analogues of meteorological charts.’ The work of James Wilson then provided the rudimentary theory for the analysis of commercial f luctuations, analogous to the rotary theory in meteorology (Section 3.4). At the same time, Jevons’ continuing work in meteorology was directly relevant in formulating his explanation for the decennial storms. Jevons was commissioned to write eight detailed articles between January and August 1861 for the Dictionary of Chemistry and The Allied Branches of Other Sciences, the most relevant 32 of which here were ‘Barometer’ ( Jevons 1863b), ‘Clouds’ ( Jevons 1863c), ‘Hydrometer’ ( Jevons 1865a), ‘Hygrometer’ ( Jevons 1865b) and ‘Thermometer’ ( Jevons 1868a). The experimental work also continued with his analysis of a measurement problem with rain gauges, showing it was due to the disturbance of wind f low by the gauge, the effect depending on wind speed and the height of the gauge from the ground ( Jevons 1861b; Parker 2009). He also consulted meteorological treatises when constructing the graphs for the Statistical Atlas. For example, an appendix by Leon Lalanne to L.F. Kaemtz’s A Complete Course in Meteorology (1845) was regarded as noteworthy for the discussion of ‘the construction of curves and surfaces representing numerical laws. Laws of three variables are represented by lines of equal intensity, or contour lines. Method invented by du Carla of Geneva in 1771. Good paper. Proposes also to employ graphical representation in calculation solution of equations, etc.’ ( JA 6/23/50).33 Jevons also referred to Luke Howard’s Barometrographia (1847) whose pioneering analysis of clouds had been crucial for his Australian work (Maas 2005, ch. 4). Jevons’ reference to meteorology and terrestrial magnetism was also relevant for two contemporary issues. The first was the controversy about weather forecasts by Fitzroy at the Board of Trade (Anderson 2005, 105–130). The importance of forecasting had been given particular pertinence by the sinking of the Royal Charter, with the loss of more than 450 lives, during a violent storm in late 1859. In that context, Jevons’ first publication on his return to London was a review of W.H. Baddeley’s Whirlwinds and DustStorms of India. An Investigation into the Law of Wind and Revolving Storms at Sea (1860) (Peterson 1976). Although Baddeley suggested the cause of whirlwind cycles could be linked to sunspots, he also argued the immediate cause was

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electrical, rather than convective, currents. Consistent with views expressed during his Antipodean interlude, Jevons regarded this as a ‘wild and futile’ theory. Nevertheless, he concluded by emphasising the importance of the subject matter: Whirlwinds are a beautiful instance of those movements of air, a careful and profound study of which will some day elucidate the winds, clouds, storms, and the dynamical condition of the atmosphere generally, now so obscurely understood. It is plain that such knowledge has a direct bearing on the safety and speed of navigation. ( Jevons 1860, 1452–1453) Far more impressive was the second edition of Dove’s Law of Storms, the translation of which, in 1862, had been arranged by Fitzroy. Jevons’ laudatory review noted that Dove had presented ‘a whole system of the winds traced out in accordance with mechanical principles,’ a ‘proof and development of what has long been known as Dove’s law of the veering of the wind’ (Jevons 1862g, 1185). The relevance of the work of Piddington and Dove was also clear in Jevons’ hymn of praise to Fitzroy whose forecasts were coming under sustained criticism. Noting that Fitzroy had ‘thoroughly studied and somewhat developed the laws of the circular movement of winds’ given by Reid, Piddington and Dove, Jevons emphasised that the forecasts, while ‘founded on strict scientific principles,’ did not ‘possess any certainty.’ They were deliberately ‘given with great vagueness’ because they applied ‘to large districts of the country’ and could not allow for ‘every interference and complication which may arise’ in specific local conditions. Although forecasting was in its ‘infancy,’ Who shall number the vessels freighted with human life and wealth which may be saved from storm and wreck, or the harvest sheaves which may be gathered riper and drier than would otherwise be possible, when our predictions of the weather attain something of the certainty and precision of which they are capable? ( Jevons 1862f, 1020–1021) Since Jevons referred to the crises of 1793, 1815, 1826, 1839, 1847 and 1857 as ‘great commercial storms’ for which he attempted to statistically identify leading indicators, it is not difficult to see the analogy he could have drawn with the difficulties Fitzroy faced with forecasting the weather, distinguishing between general rules and the specifics of each case. If Jevons could draw on his knowledge of the analysis of storms and wind formation more generally in understanding Fitzroy’s difficulties, that work was also relevant in the second contemporary issue with which he was concerned. Nearly two months before the sinking of the Royal Charter, telegraph systems across Europe and the US were disrupted as brilliant aurorae appeared in both the northern and southern hemispheres (Clark 2007, ch. 1). With

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the extensive work that had been carried out on terrestrial magnetism in the preceding decades, the disruption was linked with sunspots, although there was dispute as to whether the length of the cycle was 10 or 11 years. The chemical explanation of solar activity was then transformed with the work on spectroscopy by Gustav Kirchoff and Robert Bunsen at Heidelberg. Jevons’ cousin, Henry Roscoe, had been a student of Bunsen’s before his appointment to the chair of chemistry at Owens College in 1857, although he continued to work with Bunsen until the 1860s. Widespread attention was given to Bunsen and Kirchoff ’s results, with Roscoe prominent in the process, issuing translations, lectures and articles. It was through his correspondence and consultation with Roscoe that Jevons also began writing on spectroscopy, producing two review articles ( Jevons 1861a, 1862a), two reviews ( Jevons 1862e, 1864b) and a brief historical overview (1862b). Spectroscopy raised more general questions such as the unity of laws and matter and atomic theory (Stanley 2011). Those issues and references to conservation principles were ref lected in Jevons’ publications and letters to Roscoe (White 2004a, 246–247). While much of the review articles was concerned with explaining Bunsen and Kirchoff ’s results (with due attention to the work of his cousin), Jevons was particularly interested in the ramifications of spectroscopy for explaining sunspots. This was not a new question for him. In Australia, he had observed sunspots when reporting an eclipse, referring to their ‘ill-understood and indeed mysterious nature’ ( Jevons 1857c). In London, when reporting his own observations of sunspots, he metaphorically linked them with the analysis of hurricanes and cyclones: these spots are supposed to be vast hurricanes in the sun’s luminous atmosphere; and, like the hurricanes in the earth’s atmosphere, they are seen to occur in the tropical regions on either side of the equator. The vast red clouds, again seen during eclipses, are reasonably believed to be masses of vaporous matter from the lower regions of the atmosphere thrown up by the hurricanes. ( Jevons 1861c) Jevons was, however, highly critical of Kirchoff ’s explanation for sunspots ( Jevons 1862a, 98–100), noting in March 1862 that I hold to my opinion of the sun-spot theory, although unable to explain why the spots are dark. At one time I imagined the sun spots to be great descending currents of cold vapour from the exterior part of the sun’s atmosphere which break through & cool the luminous layer of clouds. I still think this is probable, & am quite sure that the photosphere is a vast layer in a consistent state of condensation.34 In August 1860, an article in the London Review and Weekly Journal of Politics noted that the ‘present year has been very remarkable for the prolific

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development of the solar spots.’ While the Review, a journal read by Jevons, carried a significant number of learned pieces on the subject over the next two years, the 1860 article noted: Some astronomers have … supposed that coincident with the maximum period of the development of solar spots there was a period of minimum atmospheric temperature on our globe; and (in 1801) William Herschel constructed a curious table, based upon the mean prices of the hectolitre of wheat. Others have considered, however, that there was an unusual equivalent period of heat at such times, and additional observations on this topic would therefore be very desirable … Sunspots may be the cause of a sympathetic connection in the thermal and meteorological conditions of our atmosphere. (London Review 1860, 109) In the same year, Sir John Herschel was reported to have linked solar activity and the weather, predicting cold weather and f loods in the coming winter.35 In 1863, Richard Carrington, referring to the work of Herschel père, also investigated a possible relation between the periodicity of sunspots and wheat prices. Like Jevons, however, he concluded that no relation could be shown graphically because wheat prices were buffeted by ‘social and political causes’ (Carrington 1863, 248, Plate 166; also Jevons [1875] 1884, 195n).36 If it was not possible to show that sunspot periodicity was linked to meteorological variations and wheat prices, it is feasible to suggest that Jevons was thinking of linking commercial f luctuations and sunspots in the early 1860s. In this regard, account should be taken of comments appended to the SFG printing in the Investigations. In 1863, after referring to the ‘great commercial storms, completing their course in some ten years,’ Jevons added that the ‘remote cause of these commercial tides has not been so well ascertained.’ In the 1884 printing, he added that the ‘inquiry into this remote cause was resumed’ in the sunspot papers ( Jevons 1884, 27n). Again, when he initially referred to how the ‘current of human business… according to a known principle… insensibly falls into pace with the f luctuations of nature, which it may obey but cannot rule,’ he added, in Investigations, it was that ‘idea which I subsequently endeavoured to work out’ in 1875 ( Jevons 1884, 48n). ‘Resumed’ suggests that he was thinking about sunspots as the ultimate driver of f luctuations in 1863. Yet, if that was the case, why was there no mention of it? A possible explanation is that, if Jevons could not correlate wheat prices with the large commercial f luctuations, any suggestion that sunspots drove those prices would only invite derision.37 Jevons’ understanding of sunspots was, however, facilitated by his move to Manchester. From the early 1860s, Joseph Baxendell presented papers to the Manchester Literary and Philosophical Society on sunspot variability and terrestrial temperature (Gooday 2007). That work impressed Balfour Stewart who became professor of natural philosophy at Owens College in

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1870. Stewart had previously worked on the analysis of sunspots, terrestrial magnetism and meteorology as director of the Kew Observatory. From the mid-1860s, with collaborators such as Warren De la Rue, he argued that sunspots could be explained by the changing position of planets relative to the sun. As planets moved through a luminiferous ‘ether,’ they drew energy from the sun, resulting in magnetic effects that produced sunspots. The shortening of the orbit of Encke’s comet was important in the story since it was presented as proof of the existence of the resistant effects of the ether. In late 1871, Jevons argued that claim was no proof of the ‘imaginary resisting medium’ because, assuming the conservation of energy, the shortening of the orbit could be explained by the development of electricity produced by the comet’s motion as it approached the sun. While he did not ‘deny that the resisting medium may exist,’ Jevons appeared sceptical about its existence. 38 His comment, however, that if, ‘as is generally believed, the sunspot periods depend on the motions of the planets’ ( Jevons 1872, 33, 34), was more positive. In his 1875 sunspots paper, Jevons noted ‘Professor Balfour Stewart has shown much reason for believing that the sun-spot period is connected with the configuration of the planets.’ If that was the case, ‘the configurations of the planets may prove to be the remote causes of the greatest commercial disasters.’ When the paper was printed in Investigations, however, Jevons drew back. On rereading Stewart, he was ‘inclined to think that the relation of the planets and solar variations is of a more remote nature than he believes’ ( Jevons [1875] 1884, 205n). 39 If the explanation of sunspots remained elusive, Jevons was nevertheless convinced that they drove commercial f luctuations.

3.4 Mr. Wilson or Mr. Mills? Discussing the Statistical Atlas in April 1861, Jevons observed to his brother that ‘The mode of exhibiting numbers by curves & lines, has of course (been) practiced more or less any time on this side of the deluge.’ However, after referring to Playfair’s Atlas, he claimed that ‘in statistics the method never much used has fallen almost entirely into disuse’ (PC 2:427). This looks odd if only because the references for Jevons’ Atlas show he was well aware of the use of graphs in political economy. For example, he utilised used Van Sommer’s Tables which showed f luctuations in Consols and rates of interest on other government loans. The Tables has been cited as an example of the ‘price charts’ which were the ‘big innovation’ in visualising financial market data during the 1830s (Preda 2001, 225; Van Sommers 1834). It has also been noted that, by the 1860s, we encounter relatively sophisticated price charts, published… in France and England mainly… (showing) the movement of stock prices, interest rates, and price movements for various commodities (e.g., grain, cotton, or gold). Some of them were published as fold-outs… Some others were

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published as large plates to be hung in public offices (like those of accountants or brokers). Some were in colour, while others were in black and white. (Preda 2001, 226) If the extent of this should not be exaggerated,40 the chart of bar-iron prices produced by the family firm that Jevons used in SFG (above) indicates the significance of graphing for and by mercantile and financial firms. It is possible that Jevons’ remark about ‘disuse’ cited above simply ref lected that work on the Atlas was in its early stages. It is also possible, however, that his specific mention of statistics was a reference to the Journal of the London Statistical Society where the appearance of graphs, as compared with tables, was unusual. One exception was J.T. Danson’s 1847 paper, supporting the Banking School’s criticism of the 1844 Bank Act, which depicted changes in wheat prices compared with bank securities, bullion, deposits and reserves at the Bank of England between 1844 and 1846 (Danson 1847, facing p. 143). While Jevons praised Danson’s work,41 the Atlas also utilised Charles Babbage’s 1856 paper, published in the Journal, which analysed the bank Clearing House accounts for 1839. Jevons was deeply impressed by Babbage’s averaging procedures to remove the effects of ‘disturbing causes.’ He subsequently described the article as ‘a model research … probably the earliest paper in which complicated statistical f luctuations were carefully analysed’ ( Jevons 1871b, 29; also Jevons [1862] 1884, 4–5). Although Babbage had drawn graphs for his paper, Jevons did not refer to them as they were ‘too large for engraving… (and hence) are preserved in the library of the Society’ (Babbage 1856, 28n). Printing costs would thus help explain the absence of graphs in the Journal. While the notion of decennial periodicity had become more common, though by no means universally accepted, by political economists in the early 1860s (Besomi 2010), Jevons’ theoretical explanation for commercial f luctuations drew on work from the 1840s. Referring to SFG in 1863, he noted: It is familiarly known to all who observe the course of trade, that it is disturbed with long-dated f luctuations. Such f luctuations were thought to arise from a vicious currency, but it was pointed out by the founder of the ECONOMIST, during the great storm which broke in 1847, that the fundamental cause of the disturbance was the varying abundance and scarcity of loanable capital. ( Jevons 1863e, 1041) The reference here was to James Wilson’s Capital, Currency, and Banking, originally published in 1847 with a second edition 12 years later (Wilson 1859). Writing before the onset of the 1847 crisis, Wilson followed the Classical categories of circulating and fixed capital in distinguishing between ‘f loating capital,’ used to produce ‘commodities for every day consumption,’

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and fixed capital used for constructing machinery, railways, docks and ‘improving land.’ While the first was returned in a year, thereby ‘continually circulating and reproducing itself,’ the second returned a ‘rent or dividend’ over a period of time (Wilson 1859, 90–91, 96). The problem was that excessive funds had been diverted into fixed capital expenditure, particularly for railway construction. With the diversion of labour from production in the primary sector, the output of consumption goods and raw materials would fall and their prices increase. Output would then contract in the fixed capital sector and, with increasing corn imports, interest rates would rise, leading to further contractions in fixed capital expenditure. The result would be a prolonged period of generalised unemployment. Although the problems of 1847 were due to ‘extravagant’ railway expenditure, Wilson also noted that ‘the present difficulties have been hastened by the failure of the harvest last year.’42 Indeed, he argued a deficient harvest would have a similar effect to excessive fixed investment in producing a crisis by decreasing f loating capital (Wilson 1859, 105–106, 110, 115). Though it was rather limited, I suggest it was this analysis, with its focus on the reasons for the ‘varying abundance and scarcity of capital,’ that Jevons reworked in the early 1860s for his explanation of commercial f luctuations.43 Wilson’s text thus played an analogous role to the theory of rotary storms in meteorology. It should also be noted that Jevons’ story that changes in the price of wheat led to changes in capital, interest rates and the overexpansion of manufacturing productive capacity investment with speculation could be found in Wilson’s earlier Fluctuations of Currency, Commerce, and Manufactures (Wilson 1840, 28–30, 92–95). Jevons was also to refer to that text, noting Wilson argued commercial f luctuations were due ‘to the huge f luctuations in the amount of … (the country’s) means, which, from time to time, have been required to pay for the necessary subsistence of life; or, in other words, to the f luctuations of the price of food.’ The idea may have been a novel one forty years ago. ( Jevons 1878b; 1884, 217; citing Wilson 1840, 10) This does not mean that Jevons simply replicated Wilson’s analysis. There was, for example, no suggestion of decennial periodicity in Wilson and, unlike Wilson, Jevons did not initially assume full employment. Nor did Jevons use a saving-investment mechanism which was prominent in Wilson’s story.44 Similarly to Wilson, however, he paid little attention to the foreign exchanges with regard to corn imports. This was apparently because, in the context of commercial f luctuations, he saw no difference between the effects of external and internal ‘drains’ ( Jevons 1863d, 1884, 33). The Atlas also referred to John Stuart Mill’s Principles of Political Economy with its discussion of credit and crises (Mill 1965, Book III, ch. 12) and relied extensively on Tooke and Newmarch’s History of Prices which echoed a number of Wilson’s arguments. In explaining Jevons’ analysis,

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however, historians have since attributed a good deal of significance to the discussion of f luctuations by the Manchester bankers William Langton and John Mills. In the midst of the 1857 financial crisis, the Bank Charter Act (1844) was suspended in November. At the close of the year, William Langton presented a paper to the Manchester Statistical Society analysing recent British financial crises and the role of the Bank of England. Presenting a table and graph derived from the Bank’s accounts since 1844, Langton focussed on what was, in effect, the net credit advanced to the private sector by the Bank. He argued there were three ‘waves’ of financial disturbance that could be identified. While the first was ‘superficial,’ the second, which was most pronounced in the third quarter of each year, depended on differences in timing between seasonal payments and receipts. It was the pressure in this quarter that enabled the ‘bursting’ of the third wave in ‘periodical storms,’ which had a decennial period. As indicated above, Jevons was to make a similar, although far more detailed, argument in 1862. Langton suggested that the third wave was in part due to ‘moral causes,’ by which he meant ‘trade inconsistent with prudence,’ ‘reckless adventure’ and speculation. However, like Thomas Tooke (Smith 2011, 196–197), he argued that the fundamental underpinning of the ‘inordinate use of Credit’ was the 1844 Act, which enabled the Bank’s banking department to issue credit not fully backed by gold. That made the Bank ‘the ultimate resource, if not the feeder of imprudent commercial enterprise’ (Langton 1858, 10–11, 12–13, 15–18).45 In April 1866, amplifying his 1862 BAAS discussion, Jevons presented a paper on the ‘autumnal pressure in the money market’ to the Statistical Society of London, paying tribute to Langton, whose paper he had recently read ( Jevons 1866; 1884, 164–165). This was less than a month before the collapse of the Overend Gurney discount house and the subsequent financial crisis of that year. In October, John Mills presented a defence of the Bank Charter Act in a paper read to the National Social Science Association which explained the basic reason for any ‘commercial panic’: So long as men are deficient in self-control—lacking caution in prosperous, and courage in critical times, it is scarcely likely that we can avoid occasional accesses (sic) of depression and fear. Least of all is it likely for Anglo-Saxon nations. An irrepressible energy makes Englishmen invest not only their money, but their brain and muscle in every quarter of the globe; and to this force of character may be traced their tendency to push trading speculations to their utmost limit, straining and sometimes overstraining the resources of legitimate credit, and running reserves to a dangerous degree of tenuity. Though this force may sometimes be moderated by painful experience, there is always a latent abundance of it, waiting for the first temptation. (Mills 1866, 4)

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Mills made no mention of the periodicity of financial crises. However, his subsequent contact with Jevons resulted in the presentation of a paper, ‘On Credit Cycles and the Origin of Commercial Panics,’ to the Manchester Statistical Society in December of the following year. This was the paper to which Jevons contributed the stylised credit cycle diagram discussed above. Mills now referred to Langton, announcing his agreement that financial crises had a decennial periodicity based on the provision of credit, ‘in the generation of which moral causes have no doubt an important share’ (Langton 1858, 11). Making no mention of Langton’s critique of the Bank Act, Mills claimed that, ‘yoked to nothing in the steady sequences of the material world,’ the source of the problem was the behaviour of both the lenders and borrowers of credit (Mills 1868, 13). It was the same argument he had made the year before. The language used to characterise behaviour was also the same as Langton’s, drawing on Victorian references to ‘character’ (Collini 1993, Ch. 3). Within that framework, credit was, for Mills, ‘a thing of moral essence,’ the stages of the cycle were reducible to changes in ‘mental mood,’ the result of a ‘normal tendency of the human mind’ which was explained by ‘the science of the mind.’ Yet there was no clear discussion of that science with a tendency to rely instead on trite analogies. There was, however, more (albeit rather brief ) information in the discussion of changes in the provision of credit during the cycle’s four phases (panic, post-panic, revival and speculation), which referred to both behavioural and institutional factors (Mills 1868, 18–31). The upturn in the post-panic stage, for example, depended on the entry of new firms that had no experience or memory of the panic, coupled with the behaviour of older survivor firms who, ‘though less eager and more wary are wishful to utilize the costly apparatus they are compelled to keep up.’ Behaviour in the revival stage was driven by the assumption that the future would look like the present and so, as prices increased, ‘the habit of contemplating a huge scale of profits makes men look over old-fashioned modes of investment to others which promise better things.’ This meant that the speculative stage of the cycle was marked by an ‘absence of adequate foresight and self-control.’ With credit ‘inf lated out of proportion to the reserves of loanable Capital,’ the result was general over-production (‘an oppressive glut’) and falling prices with the onset of the crisis (Mills 1868, 24–26).46 Although Mills declared the decennial cycle was ‘a fact,’ he was uninterested in explaining it. Nor was there was any ‘scientific interest … (in explaining why) these revulsions usually occur in the Autumnal quarter’ (Mills 1868, 14, 17, 29). His 1871 paper on the ‘post-panic’ stage added nothing of substance to the explanation of cycles but did contain a long description of events, using information from the Bank of England and Clearing House accounts (Mills 1871, 88–10). ( Jevons (1867) had discussed the relevance of the latter for understanding commercial f luctuations when a summary was first released in 1867.) If Mills had no explanation for why

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the ‘mental moods’ which drove the cycle should recur on a decennial basis, any apparent precision in his story relied to a significant extent on the cycles diagram Jevons had produced for him. Historians of economics have, however, attributed a greater significance to Mills’ work for Jevons, although with no clear discussion of what that ‘inf luence’ entailed.47 In that regard, the most detailed claim has been made by Sandra Peart with an argument presented in three steps. The first is that Jevons’ early research ‘focused on seasonal f luctuations and nominal price variations, and touched on the business cycle only peripherally’ (Peart 1991, 244; 1996a, 42).48 Until his 1865 letter to Cairnes (Section 3.2), ‘the cycle was not his main concern… (and) he failed to specify the causes of “overinvestment”’ (Peart 1991, 247; 1996a, 48). In 1863 and 1865, he ‘posit(ed) unexplained alterations in investment and credit markets’ (Peart 1991, 260; 1996a, 59), so that, in SFG, the ‘role of agriculture appears as a disturbance, which multiplies already existing (but unexplained) cyclical forces at play’ (Peart 1991, 249; 1996a, 49).49 The second step is to argue that, after 1866, Jevons ‘searched for a reason for the altered expectations that led bankers’ to alter the amount of available credit and it was Mills who provided ‘(m)uch of the groundwork for Jevons’s explanation’ (Peart 1991, 249n, 244). Specifically, ‘Jevons followed Mills’s characterization of the cycle, entailing a common cause explanation and common features of f luctuations, as well as his focus on commercial moods’ (Peart 1996b, 145). He ‘reiterated’ Mills’ argument that, ‘while f luctuations were characterized by normal features, some variations would occur from cycle to cycle’ (Peart 1996b, 140n). Jevons also ‘freely used Mills’s descriptive phases for the cycle and he relied on Mills’s characterization of the common features of f luctuations’ (1996b, 136, 143).50 The debts extended to Mills’ argument that ‘currency could not be the ultimate cause of cycles … Jevons would take up this argument’ (Peart 1996a, 47; 1996b, 143). The third step is that ‘it was not until 1875’ that Jevons ‘turned his full attention to (decennial) f luctuations’ with the sunspot analysis (Peart 1996b, 44). He added to Mills’ ‘characterization of the cycle’ by locating a cause for changing expectations in harvest f luctuations: ‘the notion of a real investment cycle with no underlying cyclical cause disappeared from Jevons’s analysis, and the crop cycle no longer impinged upon already existing cyclical investment forces, but instead took precedence in the analysis’ (Peart 1991, 251; 1996a, 51). Nevertheless, Jevons ‘continued to attribute much of the analysis to Mills, departing only by the addition of the causes for mood alteration’ via sunspots (Peart 1996b, 145). I suggest that Section 3.2 has shown that all three steps depicting Jevons’ arguments are incorrect. Indeed, so far as the characterisation of the cycle is concerned, Jevons had nothing to learn from Mills. He was, however, evidently attracted by Mills’ perspective on changing credit patterns and

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behaviour, a matter to which he had not given detailed attention in his previously published papers. With their agreement that there was a decennial cycle in which credit played a key role, Jevons would also have appreciated Mills’ defence of the decennial cycle against contemporary critics.51 This was clear in his praise for Mill’s discussion of ‘credit cycles,’ although, in that context, Jevons also expressed his admiration for Langton’s work.52 If Mills’ analysis complemented Jevons’ basic framework with a more detailed analysis of credit provision over the cycle and Mills acknowledged Jevons’ ‘substantial help’ in writing both his papers (Mills 1871, 82), he was nevertheless dismissive of the sunspots argument and had a marked tendency to overstate his own contribution (I. P. Mills 1899, 331, 333). In his first sunspots paper of 1875, Jevons summarised his approach to Mills’ analysis: Mr. John Mills, in his very excellent papers on Credit Cycles … has shown that these periodic collapses are really mental in their nature … But it seems to me very probable that these moods of commercial mind, while constituting the principal part of the phenomena, may be controlled by outward events, especially the condition of the harvests. ( Jevons [1875] 1884, 203–204) Although Jevons regarded crises as driven by sunspots, they were ‘really mental in their nature,’ with switches in ‘moods constituting the principal part of the phenomena.’ The language here is confusing, but there seems no reason to conclude that Jevons ever changed his opinion that meteorological events were the trigger for cycles. He was, however, unable to demonstrate, at least to his own satisfaction, that was the case before the mid-to-late 1870s. Perhaps it was his diffidence on that matter, when coupled with Mills’ impression of his own achievements, that helps explain why, when commenting on Mills’ papers before 1875, Jevons did not suggest he thought that such ‘mental moods may be controlled by outward events.’

3.5 Conclusions Jevons’ first sunspots paper of 1875 was an attempt to solve a problem that became evident in his initial work on commercial f luctuations in the early 1860s. That project, beginning with the Statistical Atlas, sought to explain (roughly) decennial ‘commercial storms’ with a complex statistical analysis of financial and ‘real’ variables, where the trigger for turning points in a cycle was changes in wheat prices. These, in turn, were driven by variables such as temperature and rainfall ref lecting, in company with Jevons’ more general statistical analysis, his extensive work in meteorology. It now also seems likely that Jevons initially intended to explain f luctuations in the meteorological

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variables by sunspots. In retrospect, the project might be regarded as disabled from the outset as ‘1860 was probably the last time that the state of the domestic harvest had a monetary effect upon the economy’ (Cottrell 1988, 66). Nevertheless, with its complex blend of theory, statistics and graphing, coupled with attempts to find leading indicators for a cycle, the analysis was far in advance of any contemporaneous work, such as that of Clément Juglar (cf. Besomi 2011; see also Chapter 2 in this volume). The project was, however, bedevilled by wheat prices being driven by political and other factors, so that any early references to sunspots would have invited derision. By 1875, Jevons claimed that this problem could be overcome with the use of a medieval wheat price series, allowing him to explicitly introduce sunspots as the trigger for his story. When Jevons referred to the commercial f luctuations analysis as inductive, this does not mean that it was built on the ‘blind accumulations of facts.’ Rather, with the metaphorical reference to the ‘scientific method’ of meteorology, it entailed formulating ‘hypotheses’ with the aid of a (relatively) rudimentary theory, coupled with a detailed statistical investigation to identify and explore the ramifications of the argument. Initially ref lecting his ‘rotary’ explanation of the Australian climate, the argument took a new turn with the introduction of sunspots to drive climatic conditions. It would, however, be misleading to characterise this as a type of ‘random shock’ explanation of business cycles as used in the following century. This is not simply because the trigger for the cycles was not a random untheorised event. It is also because Jevons regarded the meteorological trigger as part of a ‘natural’ explanation, the basic mechanical principles of which could also be utilised in explaining other aspects of the economy. The marginalist account in the Theory of Political Economy ( Jevons 1871a), for example, depended on the use of mechanical metaphors, such as the balance and principle of virtual velocities which were used to structure and to defend the analysis of equilibrium in exchange (Maas 2005, ch. 10; White 2004b). Although Jevons referred to the two projects as inductive and deductive, this should not obscure their similarities in that both used theory and statistics. The difference, on the one hand, was that the marginalist analysis could draw on a well-established corpus of theory in both mechanics and political economy (however much Jevons disagreed with the latter). The commercial f luctuations analysis, however, drew on a relatively thin theory, the explication of which required detailed statistical investigation.

Acknowledgement While the usual caveat on responsibility for the final product applies, I thank Daniele Besomi, Robert Dixon and Harro Maas for helpful comments and suggestions.

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Notes 1 For Proctor as the author, White 2003. 2 The manuscript breaks off here. Jevons Archive, University Library of Manchester, JA 6/21/14; 6/30/18; 6/21/56; 6/21/33. 3 The drafts seem to be for a letter published in April by the Times ( Jevons 1879). 4 For Jevons’ Australian publications, White 2010. 5 These will hereinafter be referred to as the ‘1862 Bank of England diagram’ and the ‘1862 wheat and bankruptcies diagram.’ 6 Jevons 1972, 180. The published Jevons Papers and Correspondence ( Jevons 1972, 1973, 1977a–1977d, 1981) will hereinafter be cited as PC, followed by the relevant volume and pages. 7 All italics or bolding in quotations appear in the original material. 8 W. Stanley Jevons to Thomas E. Jevons, January 4, 1861, Seton Jevons Collection, Seton Hall University. 9 The data are for 1845 (4) – 1847 (1). 10 Maas 2005, 224–230. For Jevons’ notes on Playfair’s publications, JA 6/23/49; JA 6/23/51. 11 Copy held by the Royal Statistical Society London. Reprinted, with silent abbreviations, in PC 2:425n–426n. 12 One possible explanation for Newmarch’s response is that his extensive statistical work contained detailed tables, but no diagrams or graphs. As noted above, Jevons initially used Newmarch’s 1851 paper, and he had drawn extensively on Thomas Tooke and Newmarch’s History of Prices (1857, Vol. 5) in the Atlas. Moreover, his approach in SFG was consistent with the Banking School (below), although he supported the 1844 Bank Charter Act. 13 JA 6/23/21. This consists of 30 pages of notes, headed ‘Commercial Stat. of last 20 years,’ which contain some indications of the Merchants’ Atlas contents. 14 Most of the remaining manuscript is located at JA 6/6/97–155. 15 It has been suggested that ‘cyclical unemployment did not figure in Jevons’s analysis of f luctuations’ (Peart 1996a, 56). In that regard, it should at least be noted that when he discussed ‘credit cycles’ in his Political Economy primer, for example, Jevons wrote that ‘the working-classes are often much injured; many are thrown out of employment’ ( Jevons 1878a, 121). It would, however, be anachronistic to expect Jevons to have discussed ‘unemployment’ of any type. That word only began to be more widely used after his death and there were no published general unemployment statistics before that time. The clue to understanding Jevons’ approach was also in the primer where, having again referred to ‘workpeople … thrown out of employment’ as the crisis spread, he added that ‘many people find themselves paupers’ ( Jevons 1878a, 118–119). Changes in the number of paupers recorded under the Poor Law provided one, albeit unsatisfactory, indication of those ‘thrown out of employment’ by crises and Jevons referred to those statistics in the Atlas and his commercial cycle diagrams (below). 16 Updated graphs for this part of the analysis were published in the Investigations ( Jevons 1884, 182–193) printing of Jevons 1866. 17 Over a longer time period, the demand could change due to ‘changes in fashion, taste, or habit’ ( Jevons 1863d; 1884, 27). 18 In 1976, following a communication from Milton Friedman, the editor of The Times, William Rees-Mogg, referred to Jevons’ statement in SFG, cited above, that ‘an expansion of the currency occurs one or two years previous to a rise in prices.’ Without further citation or clarification of Jevons’ argument, it was claimed that it was the first statement of Friedman’s monetarist position that higher prices

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19 20 21

22

23 24 25 26 27 28 29 30 31

Michael V. White would ‘normally’ follow an increase in the money supply with a two year lag (Rees-Mogg 1976; see also Friedman 1976). In April the next year, a Times leader repeated the claim: ‘Professor Friedman independently discovered or rediscovered the time lag postulated by Jevons’ (Times 1977). An exasperated reader noted that Rees-Mogg had previously quoted Jevons as referring ‘specifically to ‘an expansion of the currency.’ The two concepts are not the same. ‘Money Supply’ in its modern usage (M1 and M3) is predominantly bank deposits, and currency is only a minor part of it’ (Hardcastle 1977). For Rees-Mogg’s subsequent adventures in economics, Beckett 2018. The ‘knotty point remains unexplained—that is to say, the exact relation of gold as a commodity on sale to gold as the most perfect form of free capital on hire’ ( Jevons 1863d; 1884, 108). Based on statistics submitted by G.J. Hubbard to the 1857 Select Committee on Bank Acts (1857, Part II, 290–291). Jevons noted that the bar-iron prices were taken from ‘a circular of an old Liverpool iron-exporting firm ( Jevons and Sons)’ (1863d, 30n). In May 1861, he wrote to his brother: ‘Please remember to thank Fred for sending the diagram of prices of iron which was just what I wanted & will be used’ (W. Stanley Jevons to Thomas E. Jevons, 26 May 1861. Seton Jevons Collection). ‘Fred’ was presumably their iron merchant cousin, Frederick Jevons (1834–1916). He had sent a printed chart, issued by ‘Jevons & Co., Iron Merchants, Liverpool,’ titled ‘Price of Merchant Bar-Iron at Liverpool’ for 1805–1857 ( JA 6/13/79). Figure 3.2 has a line through it, indicating that it was, in typical Jevons manner, subject to paper economising. The obverse has a later list, titled ‘Dates of establishment of private banks of Eng & Wales existing in 1868. Bankers Almanac,’ although the last date given is 1862. The rough nature of the diagram and the references to timber and bricks suggest that it was produced between 1863 and 1867. While Jevons labelled the phases of the cycle as ‘excitement, collapse, depression, activity,’ Mills referred to ‘speculation, panic, post-panic, revival.’ Mills’ discussion of the diagrams was brief (Mills 1868, 30–31). For Jevons and Mills, Section 3.4. In March 1873, Jevons sent R.H.I. Palgrave a copy of the 1867 diagram, noting its connection with the 1862 Bank of England diagram (PC 4:12). He also referred his students to the 1867 diagram in his 1876 Owens College lectures (PC 6:130–131). See the two articles, signed ‘A Political Economist’ (1864a, 1864b), with the same title of ‘Alleged Commercial Decades or Cycles’ in the Economist. For their attribution to Leslie, Besomi 2010, 101. In the notes for the 1862 wheat and bankruptcies diagram, Jevons acknowledged that the ‘revulsion’ of 1857 did not fit his general model and that there were also some difficulties with the crisis of 1839–1840 ( Jevons 1862d, xiv). The price of consuls was used as a barometer of the state of business confidence because there was no series for interest or discount rates before the 19th century. Besomi 2014. For a further example from an article that Jevons utilised in the Atlas, Babbage 1856, 37. For an excellent discussion of the cloud simulation experiments, Maas 2005, ch. 4. Jevons to H. Piddington, April 29, 1856 ( JA 6/2/418). Piddington’s reply is at JA 6/2/308. Sydney Magazine of Science and Art 1858, 253–254. It is possible that the graphing method also derived from his cloud simulation experiments (above) where one of the glass plates enclosing the solutions was engraved with inch squares to detect movements in the liquids and to facilitate recording the experiment with photographs, from which etchings were made for publication ( Jevons 1858a, 164; 1858b, 255). Cf. Maas 2005, ch. 4.

W. S. Jevons: Riders on the storm 113 32 Less relevant here: Jevons 1863a, 1864a and 1868b. 33 Lalanne 1845. The discussion of three variables, with one dependent, is at pp. 507–512. 34 Jevons to Henry Roscoe, March 15, 1862. Uncatalogued letter in the Jevons Archive, University of Manchester. Although Roscoe was unimpressed by the criticism of Kirchoff, Jevons’ explanation of sunspots was consistent with that of Balfour Stewart (below) (Gooday 2004, 122, 124). 35 Herschel was less than pleased by the reports (Anderson 2005, 49, 51; Naylor 2015, 792–793). 36 For the rather tragic figure of Carrington, Clarke 2007. 37 As the London Review (above) indicated, whether the maxima of terrestrial temperatures were associated with sunspot maxima or minima was unclear. Proctor’s criticisms of Jevons (above) indicated this was still a problem in 1879. 38 For Jevons’ subsequent commentary on the Encke paper, see Jevons (1874, 212– 214; 1877, 570–573). The latter reference indicates there had been discussion with Balfour Stewart on the topic. 39 Carrington’s 1863 graph of sunspots and wheat prices (above) also showed ‘the variations of the distance from the Sun of the planet Jupiter,’ although he concluded any connection was dubious (Carrington 1863, 247–248). 40 The production of charts was so widespread that, in 1863–1864, Jevons ‘earned his living by drawing highly sophisticated price and money market charts that were sold to offices in London’ (Preda 2001, 226). The remunerative failure of Jevons’ enterprise, however, explains, in large part, why he went to Owens College in 1863. 41 In some notes for the Atlas, Jevons referred to Danson’s 1847 paper: ‘The f luctuations are shown by three curve plates in lithography—(paper good) but against the bank Act’ ( JA 6/48/58). John Towne Danson (1817–1898) contributed ‘all the figures’ in volume IV of Tooke’s History of Prices and ‘a very considerable portion of those’ in the two succeeding volumes (Welton 1898, 372). 42 For Wilson’s 1847 summary of the increase in grain imports following the British crop failure and the Irish famine, Wilson 1859, 131–132. 43 In the 1850s, Karl Marx read and reworked Wilson’s account quite differently from Jevons. However, he also began by assuming that either the expansion of fixed investment or harvest deficiencies triggered f luctuations, although he soon rejected the harvest possibility (Mori 2018, 210–213; 2019, 95–97). 44 For Wilson’s assumption of full employment (a phrase he used), Boot 1983, 576– 577; cf. Wilson 1840, 117. For the saving-investment mechanism, Boot 1983, 578–579. 45 For Langton, Williams Deacon’s Bank 1971, 114–138. 46 Mills’ reference to a ‘glut’ was possibly a careless reference to J.S. Mill’s Principles (Mill 1965, 574–575). Mills also referred to Tooke and Newmarch’s History of Prices for discussion of ‘the Railway discredit in 1849’ (Mills 1868, 28n; Tooke and Newmarch 1857, Part III). 47 Ashton [1934] 1977, 79; Chaloner 1972, 81. In an interesting analysis, Cottrell (1988, 41) also suggested that the ‘work of Langton and Mills was taken up by Jevons.’ 48 While Keynes concluded that, in the early 1860s, ‘Jevons was primarily interested in the discovery and elimination of seasonal f luctuations,’ he also argued that, in SFG, Jevons’ ‘observations on the underlying causes of the trade cycle, though merely obiter dicta, strike deeper … than those which he popularised later’ (Keynes [1936] 1972, 119, 121–122). 49 Although Laidler argued that, in SFG, ‘the cycle is caused by regular (albeit unexplained) f luctuations in the rate of what we now call fixed investment,’ he

114 Michael V. White also concluded that, while sunspots were not mentioned, ‘just about every other ingredient of Jevons’s analysis of the cycle was, in what remains perhaps his best articulated account of the monetary aspects of the phenomenon’ (Laidler 1982, 340–341). 50 It had previously been claimed that Mills’ ‘conception of a (four phase) normal cycle … was new’ (Ashton [1934] 1977, 75). See also Besomi 2011, 102. 51 See the criticism of a decennial cycle in (unsigned) commentaries on Mills’ first credit cycle paper: ‘The Nature and Law of Commercial Crises,’ Economist, February 1, 1868, 117–118; Daily News, August 4, 1868, 4. Convinced that the latter was written by Cliffe Leslie (I.P. Mills 1899, 331), Mills responded with ‘Credit Cycles,’ Daily News, August 26, 1868, 6. Thanks to Daniele Besomi for copies of the Daily News references. 52 Jevons 1873; 1878a, 115, 120; 1878c; 1884, 224. In an article for Nature, while praising Mills, Jevons described Langton’s 1857 paper as ‘one of the most luminous inquiries concerning commercial f luctuations anywhere to be found’ ( Jevons 1878c; 1884, 224).

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Laidler, David. 1982. ‘Jevons on money.’ The Manchester School 50 (4): 326–353. Lalanne, Léon. 1845. ‘Appendix. On the principles employed for the construction of figures in the Appendix.’ Translated by Charles Vincent Walker. In a complete course in meteorology, edited by Ludwig Friedrich Kämtz, 505–515. London: Hippolyte Baillère. Langton, William. 1858. ‘Observations on a table shewing the balance of account between the mercantile public and the Bank of England.’ Transactions of the Manchester Statistical Society 1858–59: 9–22. Le Maux, Laurent. 2020. ‘The classical monetary theory on bank liquidity and finance.’ Oxford Economic Papers 72 (3): 692–709. https://doi.org/10.1093/oep/gpz051 Leslie, Thomas Edward Cliffe (pseud. A Political Economist). 1864a. ‘Alleged Commercial Decades or Cycles.’ The Economist 22 (1108) (November 19): 1428–1429. ———. 1864b. ‘Alleged commercial decades or cycles.’ The Economist 22 (1113) (December 24): 1577–1578. London Review and Weekly Journal of Politics, Society, Literature, Art, and Science. 1860. ‘The spots on the sun.’ 1 (5) August 4: 107–109. Maas, Harro. 2005. William Stanley Jevons and the making of modern economics. New York: Cambridge University Press. McCulloch, John Ramsay. 1854. A dictionary, geographical, statistical, and historical, of the various countries, places, and principal natural objects of the world. London: Longman, Brown, Green and Longmans. Mill, John Stuart. 1965. Principles of political economy, with some of their application to social philosophy. Edited by John M. Robson. Vol. 3 of The collected works of John Stuart Mill. London: Routledge and Kegan Paul. Mills, John. 1866. The Bank Charter Act and the late panic. A paper read before the economic section of the National Social Science Association, at Manchester, October 5th, 1866, with notes added. London: Simpkin Marshall. ———. 1868. ‘On credit cycles and the origin of commercial panics.’ Transactions of the Manchester Statistical Society 1867–68: 5–40. ———. 1871. ‘On the post-panic period, 1866–70.’ Transactions of the Manchester Statistical Society 1870–71: 81–104. Mills, Isabel Petrie. 1899. From Tinder-box to the ‘larger’ light. Threads from the life of John Mills, Banker. Manchester: Sherratt & Hughes. Mori, Kenji. 2018. ‘Karl Marx’s books of crisis and the concept of double crisis: a Ricardian legacy.’ In Marx’s Capital: An unfinishable project?, edited by Marcel van der Linden and Gerald Hubmann, 206–227. Leiden: Brill. https://doi. org/10.1163/9789004367159_011 ———. 2019. ‘Karl Marx’s books of crisis and the production theory of crisis.’ Schriften des Vereins für Sozialpolitik 115 (34): 82–110. Naylor, Simon. 2015. ‘Log books and the law of storms: Maritime meteorology and the British Admiralty in the nineteenth century.’ Isis 106 (4): 771–797. Newmarch, William. 1851. ‘An attempt to ascertain the magnitude and f luctuations of the amount of bills of exchange (inland and foreign) in circulation at one time in Great Britain, in England, in Scotland, in Lancashire, in Cheshire, respectively, during each of the twenty years 1828–1847, both inclusive, and also embracing in the Inquiry Bills drawing upon foreign countries.’ Journal of the Statistical Society of London 14 (2): 143–183. Nicholls, Neville. 1998. ‘William Stanley Jevons and the climate of Australia.’ Australian Meteorological Magazine 47 (4): 285–293.

W. S. Jevons: Riders on the storm 119 Parker, Wendy. 2009. ‘Distinguishing real results from instrumental artifacts: the case of the missing rain.’ In Going amiss in experimental research, edited by Giora Hon, Jutta Schickore and Friedrich Steinle, 161–177. Dordrecht: Springer. https:// doi.org/10.1007/978-1-4020-8893-3_10 Peart, Sandra. 1991. ‘Sunspots and expectations: W. S. Jevons’s theory of economic f luctuations.’ Journal of the History of Economic Thought 13 (2): 243–265. ———. 1996a. The economics of W. S. Jevons. London: Routledge. https://doi. org/10.4324/9780203022498 ———. 1996b. ‘Ignorant speculation and immoral risks: Macheaths, Turpins and the commercial classes in nineteenth-century theories of economic f luctuations.’ The Manchester School 64 (2): 135–152. https://doi.org/10.1111/j.1467-9957.1996. tb00477.x Peterson, Richard. 1976. ‘In pursuit of dust devils.’ Weatherwise 29 (4): 184–189. https://doi.org/10.1080/00431672.1976.10544153 Piddington, Henry. 1848. The Sailor’s Horn-Book for the Law of Storms: Being a practical exposition of the theory of the Law of Storms, and its uses to mariners of all classes in all parts of the world, shewn by Transparent Storm Cards and useful Lessons. London; New-York: Smith, Elder and Co; Wiley and Putnam. Preda, Alex. 2001. ‘The rise of the popular investor: Financial knowledge and investing in England and France, 1840–1880.’ The Sociological Quarterly 42 (2): 205–232. https://doi.org/10.1111/j.1533-8525.2001.tb00031.x Proctor, R. A. 1879. ‘Sunspots and commercial panics.’ The Times. January 14, 1879: 4. Rees-Mogg, William. 1976. ‘Monetarism: Established principles we cannot ignore.’ The Times. August 23, 1976: 10. Select Committee on Bank Acts. 1857. Report together with proceedings of the committee, minutes of evidence, appendix and index, Vol. X. London: House of Commons. Smith, Matthew. 2011. Thomas Tooke and the monetary thought of classical economics. London: Routledge. Stanley, Matthew. 2011. ‘Spectroscopy—so what?’ Journal of Astronomical History and Heritage 13 (2): 105–111. Stigler, Stephen. 1982. ‘Jevons as statistician.’ The Manchester School 50 (4): 354–365. Sydney Magazine of Science and Art. 1858. ‘The Philosophical Society of New South Wales.’ 1 (12) May: 253–254. The Times. 1977. ‘Editorial, A disease of money.’ April 7, 1977: 17. Tooke, Thomas, and William Newmarch. 1857. A history of prices and the state of circulation, during the nine years 1848–1865. London: Longman, Brown, Green, Longmans, & Roberts. Van Sommer, James. 1834. Tables exhibiting the various fluctuations in three per cent consols, in every month during each year from 1789 to 1833 inclusive: To which are annexed the amounts, and rates of interest of all the loans contracted since 1788: And the amount of navy, victualling, and exchequer bills funded. London: Printed for the author. Welton, Thomas. 1898. ‘Mr. John Towne Danson.’ Journal of the Royal Statistical Society 61 (2): 372–374. White, Michael V. 2003. ‘Some difficulties with sunspots and Mr. Macleod: Adding to the bibliography of W. S. Jevons.’ History of Economic Review 38 (1): 33–52. https://doi.org/10.1080/18386318.2003.11682095 ———. 2004a. ‘In the lobby of the energy hotel: W. S. Jevons’ formulation of the post-classical economic problem.’ History of Political Economy 36 (2): 227–271.

120 Michael V. White ———. 2004b. ‘A grin without a cat: W.S. Jevons’ elusive equilibrium.’ In History of political economy. Essays in honour of P. D. Groenewegen, edited by Tony Aspromourgos and John Lodewijks, 97–117. London: Routledge. https://doi.org/10.4324/9780203390658 ———. 2010. ‘A revised bibliography of publications by W. Stanley Jevons.’ History of Economics Review 51 (1): 106–128. https://doi.org/10.1080/18386318.2010.11682159 William Deacon’s Bank. 1971. Wiliams Deacon’s 1771–1970. Manchester: William Deacon’s Bank. Wilson, James. 1840. Fluctuations of currency, commerce, and manufactures; referable to the Corn Laws. London: Longman, Orme, Brown, Green, and Longmans. ———. 1859. Capital, currency, and banking. 2nd ed. London: D. M. Aird, Economist Office.

Part II

Business cycles

4

Stitching things together. Marshall on the economy as an ‘organic whole’ Harro Maas

In 1975, Ronald Coase published a little gem in The Journal of Law and Economics that paid tribute to Marshall’s views on method. Coase quotes from a letter of Marshall to W.A.S. Hewins, first director of LSE—written, as Coase acutely remarks, only nine years after the publication of Marshall’s Principles (1890). Marshall expressed his surprise having been asked to write something about pure theory. He writes: It seems strange to me to be asked my views as to the study of pure economic theory; as tho’ that were a subject on wh[ich] I were fit to speak. For indeed I was never a partisan of it; and for more than a quarter of a century I have set my face away from it. As early as 1873 (I think it was the year) Walras pressed me to write a thing about it; & I declined with emphasis. The fact is I am the dull mean man, who holds Economics to be an organic whole, & has little respect for pure theory (otherwise than as a branch of mathematics or the science of numbers), as for that crude collection & interpretation of facts without the aid of high analysis which sometimes claims to be a part of economic history.1 In this chapter, I would like to take the above quotation as a cue to discuss Marshall’s use of metaphors in his understanding of cyclical movements and crises in the economy. Much of course has already been written on Marshall’s use of especially biological metaphors in his economic writing, a use which culminates, as is well known, in Marshall’s dictum in the preface to the fifth edition of his Principles that ‘the Mecca of economics is in biology.’ With the exception of Tiziano Raffaelli’s examination of Marshall’s use of metaphors on method, much of this literature has focused on the substantive significance of Marshall’s metaphors for the theories he developed and in particular on their meaning in an evolutionary, Darwinian perspective. And on this issue, as noted by Raffaelli, the verdict has been mixed. On the one hand, there are those who consider that Marshall’s references to Darwin’s evolutionary theory were largely rhetorical (Schabas) or even a cover-up for his adherence to mechanical explanations based in physics (Mirowski). On the other hand, there are those like Neil Niman, Geoffrey Hodgson, Brian Loasby, and again

DOI: 10.4324/9781003144601-7

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Raffaelli, who argue that Marshall’s use of biological metaphors may not have been perfect, but at least it led him to an evolutionary theory of complex economic systems, especially an evolutionary understanding of the theory of the firm.2 To this second strand should be added the wonderful article by Camille Limoges and Claude Ménard in Natural Images in Economic Thought: Markets Read in Tooth and Claw (1994), edited by Phil Mirowski, in which they examine Marshall’s use of and interest in the organicist evolutionary theory of Ernst Haeckel (Limoges and Ménard 1994). Those who do not think much of Marshall’s use of biological metaphors mostly emphasize the mechanical metaphors used in book V of Marshall’s Principles, in which Marshall develops what is still the workhorse of contemporary mainstream economics, the Marshallian cross, with its static rendering of market equilibria. Those who think more favorably about Marshall’s use of biological metaphors mostly point to book IV of the Principles in which Marshall develops his theory of industrial organization. For both camps, however, to think about Marshall’s views on cycles and crises in terms of an organic metaphor would be a nonstarter. Why? For those in the first camp, insofar as Marshall gave any trace of theorizing cycles, he gave us in Book V the straightforward mechanistic metaphor of the pendulum (even though the focus was on long-term equilibrium and not on the cyclical movement per se)3; for those in the second, Marshall’s reference to the biological Mecca of economists explicitly excluded economic dynamics. Indeed, it seems that all that Marshall had to say on business cycles was captured in the pendulum metaphor which he nowhere further developed.4 It may be that one of the reasons Marshall did not develop a theory of economic cycles was because he lacked the proper mathematical tools to capture their dynamics, but it may also be true that Marshall was not so much interested in developing an understanding of cycles and crises in that direction. After all, Marshall does not provide us with similar kinds of elaborate statistical analyses of cyclical movements as Jevons or other contemporaries such as Roger W. Babson, who rooted their understanding of economic cycles in explicit mechanical metaphors. But this does not mean Marshall was not interested in cycles or crises. As I will argue in this essay, Marshall only favored a different method of understanding than the kind of efforts by Jevons discussed in this volume by Michael White (Chapter 3). Marshall showed no interest in isolating the physical mechanism that propagates itself in the economic realm, or in developing the physical analog (such as the pendulum) that can be used to understand cyclical movements in the economy. Instead, Marshall relied on his organicist understanding of the economy as a complex interconnected whole. For his understanding of business cycles, this did not mean that Marshall attempted to understand cycles by an explicit transfer of concepts from the realm of biology to economics, a strategy highlighted by some of the contributions to this volume (see Chapter 5), but that Marshall searched for a method that would do justice to the complexity and interconnectedness of phenomena that the realm of economics shared with biology. Indeed, as argued by Limoges and

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Ménard (2004, 343), Marshall was conscious that ‘economics is not biology,’ but this only increased the level of complexity, as human societies were not only ‘responsive to [their] environment’ but shaped the environment as well. Coase’s account of Marshall helps us understand how Marshall attempted to work out the idea of the economy as an ‘organic whole’ on a methodological level. He quotes from Marshall’s comments on John Neville Keynes’s essay on the method of political economy, as well as from his conversations with Neville Keynes about the essay, showing both Marshall’s reluctance to embrace notions like ‘theory,’ ‘induction,’ or ‘deduction’ and his emphasis on the importance of a thorough knowledge of empirical facts, but not without the ‘high analysis’ which, according to Marshall, was wrongfully scorned by economic historians. Such a ‘high analysis’ could not be separated from the study of facts but evolved in a process in which the economist continuously went back and forth between theoretical concepts and empirical facts. This was Marshall’s method to get grip on, as he wrote in one of his letters to Neville Keynes, ‘The One in the Many and the Many in the One.’ Marshall’s metaphor of the economy as an organic whole did not point in the direction of an evolutionary theory, even though this was not excluded, but it pointed in the direction of a way of studying the economy as an interconnected whole. The question then is how Marshall stitched things together in his investigation of cycles and crises. The chapter is structured as follows. First, I will discuss received ideas about Marshall’s ‘theory’ of economic cycles to show that it is difficult to speak of a ‘theory’ and even more difficult to localize such a theory in Marshall’s works. This did not mean an analysis of cycles was absent from Marshall’s work. Following Marshall’s preference for ‘analysis’ over ‘theory,’ I will explore how Marshall fitted his approach to cyclical movements in the economy to his methodological commitment to study the economy as an organic whole. Instead of isolating cycles in order to discover their governing principles, this meant that Marshall parceled out the movements and crises in economic activity in a kind of writing that Marshall conceived himself neither as pure theory, nor as pure economic history. Good examples of such writing can be found in Marshall’s Industry and Trade of (1919), the fist-thick volume Marshall produced instead of his long-promised second volume of the Principles. Thinking of the economy as an organic whole entailed an attitude and a way of working in which the economist sought to unify analysis and observation to understand the complexity of the daily business of ordinary life. My aim in this contribution is to show how Marshall integrated economic phenomena of cycles and crises in this way of working.

4.1 Is there a theory of commercial cycles in Marshall’s work? In the centennial volume to commemorate the publication of the first edition of Marshall’s Principles of Economics, David Laidler examines Marshall’s work on monetary theory, work that after many hesitations and changes of plan in

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1923 was published as Money Credit and Commerce. Laidler observes that the old Marshall no longer had the acuteness of mind and writing that could be found in his Principles of Economics, but as a sympathetic reader he is able to see many valuable contributions that establish or foreshadow later developments. Laidler mentions Marshall’s early monetary writings in which he ‘clearly’ established the ‘Cambridge cash-balance approach,’ and many modifications of earlier classical thought which, if interpreted correctly, were not just repetitions of earlier thoughts and ideas but extensions that sometimes led to a ‘radical revision of doctrine,’ as in the case of Marshall’s ‘“correction” of Classical economics’ overemphasis on cost of production’ with respect to the value of money (Laidler 1990, 52, 56). Laidler sees similar improvements in the ‘Classical theory of the cycle,’ which ‘to modern eyes’ was ‘incomplete in at least two respects,’ first in its account of speculation and second in its lack of integrating real variables in the analysis. Marshall hinted at the importance of sticky wages which, it needs no comment, became overwhelmingly important in all discussions of Keynesian economics. Laidler also sees the nucleus of the real balance effect in a contribution of Marshall in the Contemporary Review in 1887 in which he discussed the ‘behaviour of the demand for money’ (Laidler 1990, 60; Laidler referred to Marshall 1887). It is of course natural that a volume that celebrates the centennial of one of the founding texts of modern economics lays emphasis on Marshall’s accomplishments instead of his limitations, but one nevertheless wonders if Laidler is not overdoing his case. Introducing Marshall’s theory of cycles, Laidler refers to Marshall’s quotation from Lord Overstone which ‘aptly summarized’ the characteristics of a cycle. ‘First we find … a state of quiescence, –next, –improvement, –growing confidence, –prosperity, –excitement, –over-trading, –convulsion, –pressure, –stagnation, –distress, –ending again in quiescence.’ Laidler took this quotation from The Economics of Industry, published by Alfred and Mary Paley-Marshall in (1879), a book that grew out of Mary Paley’s promise to write an economics primer for the Extension Lectures, and then was published in their joint name. Lord Overstone disappeared from Marshall’s rewritten and extended version of The Economics of Industry, i.e., from his Elements of Economics of Industry (1898), which was promised as the first volume of Elements of Economics and then reappears in Money Credit and Commerce, but with the note that the text on commercial f luctuations was largely taken from The Economics of Industry. Laidler’s note following Marshall’s Overstone quotation in fact says the same, but Laidler adds that also parts of the Contemporary Review paper on money demand repeated parts of Marshall’s account of the cycle verbatim (Laidler 1990, 59). If we look at Whitaker’s detailed description of the ‘thorny path’ to Marshall’s publications after the Principles (Whitaker 1990), we see that ‘Trade Fluctuations’ appears as the title of Book IX in the table of contents of its envisaged second volume, in a note of October 1887 but then becomes ‘Credit Fluctuations (including second stages of Currency and International Trade)’ by 1903; just after, Marshall abandoned

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the idea of completing his Principles with a second volume. ‘Trade f luctuations’ disappeared from further envisioned publications but then reappears in Money Credit and Commerce (1923). As noted, Marshall there provides the same reference to Lord Overstone, but the time markers and specific examples of The Economics of Industry are suppressed and instead of reading like an account of commercial f luctuations in a specific timeframe, the 19th century, Marshall now presented cycles more generally as a phenomenon that became more prominent with the rise of a credit economy and that then follows the general pattern as articulated by Lord Overstone. Credit clearly plays a central role in Marshall’s understanding of cycles and crises. Lord Overstone published his ref lections on commercial f luctuations in 1837. In a thorough investigation of Overstone’s ref lections and contemporary reactions and criticisms of it, Daniele Besomi argues that Overstone’s account of a commercial cycle might count as descriptive but does not spell out a theory of a cycle, as it lacks the causal connections that would provide an understanding of how the different phases of a cycle are connected and how they causally succeed through time (Besomi 2011). When Marshall in other places refers to commercial f luctuations or periods of commercial distress, he naturally brings in medical and weather analogies that can be found in the work of Classical authors (ebb and f low of commerce, commercial storms, an illness that requires a cure), but it is doubtful if the more general account of cycles that Marshall provides in Money Credit and Commerce would pass Besomi’s test of what counts as a theory of the cycle. It is equally difficult to see how the snippets of evidence Laidler finds about sticky wages and money demand add up to the coherent ‘prototype for any number of pre-Keynesian analyses of the business cycle, not least that of Irving Fisher,’ that Laidler reads into them (Laidler 1990, 61). Instead, it seems that Marshall never got much further than Lord Overstone, while in the process dropping the specific characteristics of the description of commercial cycles he and Mary Paley provided in The Economics of Industry. Despite Laidler’s positive assessment of Marshall’s work on business cycles, a coherent theory of the cycle seems to be conspicuously absent from his published work.

4.2 Marshall’s reading into commercial cycles This does not mean Marshall showed no interest in the phenomenon of commercial cycles. After all, there is a section on commercial f luctuations in Money Credit and Commerce, even though this was largely based on a similar section in The Economics of Industry. Also the Marshall archives bear witness to the fact that Marshall took notes on commercial cycles and f luctuations on a regular basis. Most of the remaining notes are from the period 1906– 1913, when Marshall had dropped the idea of publishing a second volume of Principles but kept working on projects that would mainly end up in Industry and Trade and Money Credit and Commerce.5 Most of Marshall’s notes take the form of reading comments on other authors.

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In 1909, he commented, for example, on W.T. Layton’s statistical investigations on wages. Layton had commenced these studies for the Board of Trade in 1903 while studying history at University College, London. They would eventually become part of the book for which he is best known, An Introduction to the Study of Prices (Layton 1912).6 Even though Marshall was clearly pleased with the quality of Layton’s statistical work, he did not discuss the statistics themselves in detail but stepped back to comment in more general terms on how wage f luctuations in the coal industry worked their way through the economy depending on conditions of supply and demand not only in the coal industry, but also in other sectors, leading to a ‘great fall’ in wages ‘when bad times come.’7 Marshall was reading various other authors as well: the Principles of Political Economy of his old student Joseph Shield Nicholson, with whom relations had turned sour after Nicholson’s vote for Foxwell as Marshall’s successor in Cambridge; Roger W. Babson’s books on his business barometer and on commerce; and much later, in 1920, Dennis H. Robertson’s book on industrial f luctuations (Robertson 1915), which gave him secondhand access to Albert Aftalion’s theory of the business cycle. Marshall used this literature as a source of data and—as in the case of Robertson—suggested explanations. He also considered the inf luence of inelasticities of supply and demand on the strength of cyclical movements, and of changes in capital investments on price changes and employment. This all confirms Laidler’s observation that Marshall expressed not only many different, promising ideas about commercial f luctuations, but also the fact that they remained in that scattered, underdeveloped stage. Marshall praised Babson’s books as a great source of data on the American economy, but he was less enthusiastic about the ‘crude’ straight lines Babson had drawn through the cyclical movements as if these represented ‘real facts.’ Marshall also considered Babson ‘ignorant’ about British literature on the explanation of commercial cycles, and negligent about historical changes in ‘normal’ price levels. But it is not clear what Marshall meant by the straight lines in Babson’s diagrams being ‘real.’ Babson used his straight lines to distinguish the different phases of the business cycle to, thus, make forecasts on future developments—they were, therefore, essential tools in Babson’s use of his diagrams as a barometer: showing the current state of the economy and forecasting the future. They were, as Walter Friedman recently brilliantly explained, essential tools in ‘predicting and shaping’ the phenomenon of the business cycle to ‘solve the ancient problem of future uncertainty’ (Friedman 2013, xi). Systematic prediction was not on Marshall’s research agenda, and shaping was on it only to a limited extent, if by shaping is meant a visual representation of the cycle phenomenon. One example that gets close is when Marshall comments on Robertson’s book on fluctuations, and more precisely on supply and demand conditions that in Marshall’s opinion tend to round off price fluctuations in the average. To visualize his meaning, he added the following small image, almost a doodle, that showed the movement of prices ‘in a broad view’ (see Figure 4.1).

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Figure 4.1 Marshall’s drawing of a price curve ‘in a broad view.’ Marshall made this little drawing in a reading note on Robertson’s book on f luctuations, in which he also referred to Aftalion’s cycle theory. Marshall Archives 5/18, note of August 13, 1920. Reproduced by kind permission of the Marshall Librarian, Marshall Library of Economics, University of Cambridge.

Typically, we do not find such diagrams in the later published writings of Marshall, but there is a spectacular example that Marshall used when teaching his classes, one of the large plates Jevons had published at his own expense (see Figure 4.2). The chart originally was part of the ambitious statistical atlas project Jevons had started in the early 1860s (discussed in detail in Chapter 3). It showed graphs of English funds, the price of wheat, bankruptcies, and the discount rate, and it was designed in Jevons’s typical meticulous fashion. Jevons had made sure the ordinates of the data were correct by first putting a pin on the right spot and then marking the hole with a pencil. Instead, Marshall followed the towering Cambridge philosopher and scientist William Whewell, whose History (1837) and then Philosophy of the Inductive Sciences (1840) had made its mark on the philosophy behind and practice of the scientific method at Cambridge. In the last book, Whewell had recommended the method of curves for bringing out a movement that was ‘more true’ than the individual data themselves (Whewell 1840, 399). Almost in an act of vandalism, Marshall drew, as Whewell had suggested, ‘with a bold but careful hand’ a curve that showed the movement of the data ‘broadly conceived.’8 He added three horizontal lines that roughly indicated the upper, average, and lower band of the movement. Marshall, in short, was not interested in the specific details of f luctuations in the economy, but in their generic characteristics. But he tried to f lesh out these characteristics almost intuitively, not by calculation. We find a less intuitive instance of such a search for the generic characteristics of commercial cycles in a note of February 1908, to which Marshall returned three years afterwards (see Figure 4.3). In that note, Marshall combined a table in which he aligned changes in credit, interest, and prices with different phases of a (the) commercial cycle. The diagram and the table went beyond a stylized visualization of a commercial cycle by providing a classification of its different phases and their connections. Marshall added different capital letters to the curve which indicated different phases of the cycle. He provided an explanation of their

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Figure 4.2 Marshall’s drawing of stylized graphs on Stanley Jevons’s original diagram for his Statistical Atlas project. Jevons published the diagram at his own expense in 1862. Marshall used the diagram for class teaching at University College, Bristol in 1881–82, but probably also back in Cambridge. Marshall Archives 7/3/1. Reproduced by kind permission of the librarian of the Marshall Library of Economics, University of Cambridge.

Figure 4.3 Marshall’s stylized cycle curve and table explaining the different phases of the cycle with the changes in and connections between credit, interest, and prices. Marshall Archives 5/18, note of June 20, 1908. Reproduced by kind permission of the librarian of the Marshall Library of Economics, University of Cambridge.9

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meaning in the accompanying table. Marshall did not indicate what the cycle itself showed, but it is most likely a stylized depiction of price movements, in the style of Marshall’s ‘broad view’ of statistical change. From the stylized curve, we can see that Marshall conceived of commercial f luctuations as a cyclical phenomenon that runs through several recurring phases. This was of course also clear from Marshall’s reference to Lord Overstone, but in contrast to Overstone’s sequence that focused uniquely on the sentiments in the market that were deemed characteristic of different phases of the cycle, Marshall’s table tries to correlate sentiments in the market with different economic variables: supply and demand in the money market, interest on loans, and prices of commodities. In additional comments, Marshall provided a sketch of the relations between these different phases. Starting at the top of the cycle, Marshall wrote that the part of the initial downturn at F-H on the curve means that the level of prices has been raised by overproduction of credit above the level at which it can be maintaind: & that therefore he who buys things today, without urgent need, will be sorry for it tomorrow. Among ‘things’ are included labour. Consequently there is unemployment till the virus Of hig overhigh prices has been squeezed out.10 Marshall did not further explain how the ‘virus’ of ‘overhigh’ prices would be ‘squeezed out,’ thus providing something that can be seen as a ‘proto-theory’ at best. In two subsequent notes, Marshall commented that the prices of means of production at A exceeded ‘any reasonable price,’ leading to an excess supply. This situation was caused, amongst others, by a lack of credit leading to a gradual lowering of price, which at B would lead to substantial unemployment and lack of income to buy consumer goods. Marshall then summed up the whole cyclical movement as a process of overconfidence leading to an imbalance (my word) between production and monetary exchange for which the ‘only remedy’ would be a ‘scaling down of prices’ and not an ‘increased issue of currency,’ which would be ‘a remedy like punch for a gouty patient.’ Marshall added that only an increase in production following ‘confidence’ that prices have hit bottom could incite the upswing and warned against government interventions in the labor market which might ‘hinder the healthy recovery.’ The medical metaphors (virus, healthy recovery) used by Marshall suggest an understanding of the interconnections of these different actors within the economy as a body that can be in a healthy or unhealthy state and on which the Government can make benign or counterproductive interventions. The comparison of a stimulating monetary politics with ‘punch for a gouty patient’ fits this image, and even when largely serving rhetorical purposes, the underlying image of the economy as a body that can be in a healthy or ill state is of deeper consequence for Marshall’s understanding of the relations between the different parts of an economy to form an interconnected whole.

132 Harro Maas Table 4.1 (taken from Figure 4.3). The Table Parcels Out the Different Phases of a Commercial Cycle with its Changes in the Credit Market, Interest, and Prices

A

B C D E F G

H I, J

Credit

Interest on Short Loans

Prices

Stagnant: lenders in excess of trustworthy borrowers Recovering: many lenders Lenders many & eager Credit wavering Lenders cautious Credit restricted. No one very willing to lend Credit broken Very bad: scarcely any lenders except bank of England Few lenders & few borrowers Still oppressed: but less painfully

Low

Very low

Rising

Rising

Rising fast

Rising fast

Rising fast

Some rising Others wavering All Falling

Rising to panic level Still at panic level High

Falling fast Still unequally falling

Falling

Very low

Falling

Very low

4.3 The Red Book and Marshall’s empirical diagrams One can see in Marshall’s notes the nucleus of a theory of commercial cycles based on the quantity theory of money, but they also help clarify why Marshall preferred to speak of a process of ‘analysis’ instead of developing a theory. Marshall clearly shows familiarity with economic data that are not stated but implied. He draws a stylized image on their basis, on which he then reasons to get grip on a process that evolves in real time and in which market expectations and the actions of different agents in the economy interact: producers, consumers, workers, labor unions, the Bank of England (even when crossed out in one of the notes), and the British Government. Marshall focused on specific economic variables, credit in particular, which he brings into a causal story in which these different actors play out their roles that translate into changes in these economic variables. He worried about companies that might ‘cook’ prices, so as to make them unfit as a ‘barometer for general f luct[uations].’11 In short, Marshall’s notes show him going through a process of abstraction, isolation, and inference that he refused to fit into the straightjacket of induction and deduction, labels Marshall considered too restrictive for the work of an economist. But Marshall is also expanding his understanding of cyclical movements toward other parts of the economy.

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It is, therefore, no coincidence that Marshall did not develop his notes into something that can be considered as a full-f ledged theory of the business cycle. In his published work, the reference to Lord Overstone seems almost as far as Marshall wanted to go. Further accounts of business cycle phenomena are weaved through his texts, as becomes in fact also clear from David Laidler’s account of Marshall’s work. While Laidler understandably uses the nowadays common expression theory, I would like to insist on Marshall’s resistance to the word and to his preference for analysis over theory. Already in his 1885 contribution to the jubilee issue of the Journal of the London (now Royal) Statistical Society, Marshall gave a glimpse of how he perceived this process of analysis by using the logo of the Statistical Society, a bounded wheatsheaf adorned with the words (that had been suggested by Charles Babbage) aliis exterendum—to be threshed out by others. Marshall’s paper was concerned with the graphical or ‘curvilinear’ method. In contrast with the analytical diagrams of the Principles, here one should think of graphs drawn from statistical data. William Playfair had famously argued for the use of graphs because of their ability to make visible at one stroke the movement in statistical data which was not so visible from their rendering in tabular form, an argument that was also voiced by Stanley Jevons in his comments on the paper on the tabular method William Guy read to the London Statistical Society ( Jevons 1879). But this was not the reason highlighted by Marshall to embrace the method of curves as an ‘engine of discovery.’ Ignoring the motto on the Society’s logo (aliis exterendum), Marshall compared the different stacks in the wheatsheaf with different graphs that were kept together in one book. The true merit of the graphical method would come from the possibility of comparing different graphs that were concerned with different phenomena so as to be able to see their joint or contrasting movements. Thus, one would be able to infer to the common causes in their movements giving rise to a general understanding of the structure and movements of the economy (Marshall 1885). Elsewhere, I have explained at length that Marshall referred in his paper for the Statistical Society to his famous Red Book or Red Curves Book, a folio-sized book of graphs he started to collect in the 1870s and which took on additional pace after he returned from his travels to the United States in 1875 (Chao and Maas 2017; Maas 2019). Marshall also included a graph of this book in his article for the London Statistical Society. Marshall had designed the Red Book on a grandiose scale, starting from the Chinese and Mogul Empires millennia before Christ, to the economy of his own day, concentrating in particular on statistical data for the United States and Great Britain. In letters and personal notes, he regularly referred to the Red Book as a source of his way of observing the economy, a source he also used in his classes, turning the pages back and forth to see the interconnections between events. The Red Book contains a variety of materials, curves drawn from statistical sources, books excerpted in the form of tables, diagrams in the manner of Joseph Priestley’s famous chart of biography, ready-made tables and graphs

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from other sources glued onto the pages, for example, from Stanley Jevons’s paper on the autumnal pressure in the money market. Strikingly, Marshall used the Red Book to register and draw statistical data in graphical form, but we do not find any mathematical manipulation of these data as typically can be found in the work of Jevons, his student Bowley and many others. This does not mean we do not find efforts to compare and to infer from different graphs, but Marshall seemed to rigidly adhere to the received distinction between the work of the statistician vis-à-vis that of the economist, as expressed most explicitly in Nassau Senior’s presidential address to section F of the British Association for the Advancement of Science (Senior 1860). Statistics was about the collection of materials and economics about its causal interpretation, a view Marshall echoed in later editions of his Principles in which he conceived of the work of the economist as that of ‘constructive imagination,’ an expression that comes closest perhaps to Marshall’s way of capturing how an economist combined observation and theorizing to understand economic structures and processes.12

Figure 4.4 Marshall inserted a complex chart by W.G. Fossick in his Red Book between pages 85 and 86. The chart was drawn by the managing editor of The Statist, Richard Rous Mabson. The various graphs show the growth of the production of iron in the UK, the weight of iron exported (bar diagrams), and the prices of different qualities of iron (differently colored graphs), and stocks of iron (vertical black lines). The note Marshall added below the plate pertains to a comparison of stocks of iron with the price graphs. Marshall Archives 7/7. Reproduced by kind permission of the librarian of the Marshall Library of Economics, University of Cambridge.

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By way of an example, Marshall and his students must have looked intensely at a complex diagram from W.G. Fossick that was compiled and designed by the managing editor of The Statist, Richard Rous Mabson (see Figure 4.4). Marshall notes at the bottom of the diagram that stocks of pig iron ‘always begin to diminish a year or two before a crisis, & go on diminishing for a year or two after. Then pick up again.’13 Though it is not clear in what year he added this note, Marshall copied it on January 30, 1909, in his notes on commercial f luctuations, to which he added in another color (and probably on a later date) ‘appendix F.’14 Though the observation of a time lag between a fall in pig iron stocks and the occurrence of a crisis is interesting in itself (and resonates with Aftalion’s theory of crises), here I would like to emphasize the persistence with which Marshall returned to earlier materials that seemed promising to include in a larger causal story (appendix F—an appendix that to my knowledge never appeared). Marshall also tied movements in statistical data to specific events. He added, for example, events ranging from the return of Napoleon from Elba to a change in the price of British Government bonds (consols). Thus, he moved from a generic explanation of commercial f luctuations to explanations that tied these f luctuations to highly specific events. We can, thus, see that Marshall was at the same time searching for generic patterns (such as a time lag in the movement of different economic variables) as well as for specific explanations that scorned the general. In addition to the Red Book, Marshall used large plates that reproduced graphs of price statistics of Jevons, Sauerbeck, and others which he pinned on the wall to study with his students. A diagram Marshall drew from Jevons and Sauerbeck’s price data was included in his article of 1887 in the Contemporary Review (Figure 4.5). He referred to this diagram in a footnote in Money Credit and Commerce, but Marshall’s discussion was concerned with the merits of mono- or bimetallism to control price f luctuations and only remotely with efforts to explain commercial cycles. Above, I already discussed one of Jevons’s large original diagrams that Marshall discussed in class. All in all, we see that Marshall showed a clear interest in commercial f luctuations but inserted his study of cyclical movements into a panoply of different problems, questions, and observations.

4.4 Marshalling the phenomena One can begin to understand the difficulties Marshall must have experienced in organizing his later writings. In his younger years, Marshall boasted about his facility in rendering economic texts and problems in geometrical form, a language he better mastered (or so he thought) than English. The stellar example is of course Marshall’s initially unpublished work on the ‘pure theory of international trade.’ But already in the early 1870s, if not before, Marshall had become very much aware that the study of the

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Figure 4.5 Graph comparing a composite gold index number-graph of Jevons and Sauerbeck (black) with a bimetallic recalculation by Marshall (red). The green, blue, and yellow curves in the lower part provide the gold-price of silver, the production of gold and the production of gold and silver. Marshall reproduced the upper two graphs in his paper on price regulation in the Contemporary Review for 1889. I thank Hsiang-Ke Chao for sharing this graph and the librarian of the Marshall Library of Economics, University of Cambridge, for his kind permission for reproduction. Marshall Archives Chart III-B-6.

economy asked for something more. Even though Marshall consequentially denounced the label ‘pure theory’ in his letter of October 12, 1899, to Hewins, it is undeniable that large sections of the Principles were, by any standard, pure theory. Marshall was of course well aware of this and did not stop to comment how little was gained by his geometrical exercises. Yet, it would prove an almost insoluble conundrum how to integrate the principles he, thus, derived with the concrete facts of history without losing contact with facts in the concrete (Maas 2019). ‘Tendency laws’ and ‘other things being equal’ might have been solutions Marshall could and did use in his Principles, but even though Marshall in his later work kept referring to the tendencies of economic phenomena to follow a ‘normal’ course, or to use such a normal course of affairs as a benchmark to gauge the specific (think also of his use of the representative firm), Marshall kept trying to find new ways to organize

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the complexity of economic phenomena into one coherent whole. The different organizations of his material in his letters to Palgrave, the different parceling of his work, in a second, then suppressed volume of the Principles, in one, two, three, then one volume on Industry and Trade, and so on, bear witness of his difficulties in marshaling the vast and ever-growing materials at his disposal. The Red Book was probably Marshall’s most spectacular effort to organize the empirical side of his research. Another effort can be found in a chart Marshall constructed and to which he added data until 1903—roughly around the time he gave up on his plans to write a second volume of his Principles and decided to write several volumes on Industry and Trade instead. That chart should be seen as an effort to integrate the concrete events of history into a narrative that should not just be a rendering of events, but an effort to situate them in a general narrative (Figure 4.6). Elsewhere, I have shown how one can trace Marshall’s use of this chart in Industry and Trade, lifting the specific events listed to another level of generality by weaving them into a narrative that modulated between the general and the specific (Maas 2021). Here, I would like to focus on how Marshall represented the phenomena of cycles and crises on this chart. We have already seen how Marshall discussed cycles in terms of a stylized movement on Jevons’s statistical chart (Figure 4.2) or from an imagined graph of statistical data (Figure 4.1). We also saw how Marshall discussed the different phases of a cycle against a generic figure of a cycle to think about the changes in

Figure 4.6 Marshall’s large plate of historical facts and events, running from 1820 to 1903. The full plate measures a rough 17 by 35 inches. Marshall’s last entries are for 1903. Source: Reproduced by kind permission of the Marshall Librarian, Marshall Library of Economics, University of Cambridge. Marshall archives 7-7.

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economic variables (Figure 4.3). But Marshall’s chart that is partly reproduced here as Figure 4.7 gives us none of that. Instead, Marshall composed a chart of several different phenomena, general and specific, which he used as a script to understand the interconnected historical course of events. Marshall listed vertically a series of different categories of events which he grouped together in different—unnamed—classes: Revolutions, wars and Tariffs, followed by English general history, which was placed close to agricultural price-quantity data (the only numerical information on the chart) and agricultural events. Then followed mining, manufacture, and transport. Then, at a slight distance, foreign trade, which was also kept separate from the credit economy: credit and commercial f luctuations. Then followed money, public borrowings, and lastly three categories relating to labor and labor conditions: labor conf licts, factory acts, and other labor legislation. Marshall then carefully wrote down the different events pertaining to each one of these categories, on a timeline that started just after 1820 and that stopped in 1906. Marshall, thus, captured in one view such diverse phenomena as US tariffs shortly before 1825, the July 1830 revolution in France that brought Louis Philippe to the throne, the abolition of slavery in 1833, the Afghan war and Indian famine of the second half of the 1830s. This all combined with large and small harvests, the first telegraph, US railways, depressions and ‘difficulties’ in international trade, building manias, the rise of the Chartists, and crisis, crisis, crisis in credit and commerce. Marshall continued marking and summarizing historic events in this way into the early 20th century. Marshall used this chart in the writing of Industry and Trade, to manage the general and the specific, for example, in a discussion of why, according to Marshall, the repeal of the corn laws did not have the ‘immediate effect’ one might expect on the basis of the ‘laws of supply and demand’ (Maas 2021). A good example pertaining to commercial f luctuations can be found in its Chapter 5, when Marshall explains how the ‘self-complacency’ and ‘overconfidence’ of the British was ‘startled’ by the crisis of 1873. The sequel reads as an explanation of all disturbing causes that contravened its full effect. As with the repeal of the corn laws, he stitched these disturbances together into a reasoned, explanatory, sequential order. The ‘immediate causes’ of the weaknesses that became evident in Britain after the crisis, or rather the commercial depression of 1873, were largely to be found elsewhere, that is, in the United States and Austria, where the ‘inf lation of credit’ had been ‘reckless.’ But it was the long duration of the depression, and its spread all over the Western world, the overconfidence of Germany because of its ‘successes of the war’ with France, and the ‘inf lux’ of French ‘indemnity’ that had ‘thrown’ the German speculative classes ‘off their balance,’ and continuously falling prices that finally led to a ‘feeling of disquiet’ among the British that was voiced by the ‘able Commission on the Depression of Trade in 1885–6’ which reported on the ‘increasing severity of competition’ in the colonies and in Britain itself, especially as caused by the accelerating production of German enterprises.

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Figure 4.7 Fragment of Marshall’s large plate of historical facts and events, running from 1820 to 1903. Source: Reproduced by kind permission of the Marshall Librarian, Marshall Library of Economics, University of Cambridge. Marshall archives 7-7.

The events Marshall had noted on his chart clearly informed his text (see Figure 4.7). Marshall had noted the ‘U.S. Railway Mania’ and, in smaller letters, the ‘N. Pacific railway crash,’ in early 1870, and the ‘Austrian & US panics’ a little bit later in time. Under ‘Crisis,’ he listed ‘Vienna, N.Y., Germy.’ He noted gold that had been sent to ‘Hanse towns’ in Germany, the gold holdings of the Bank of England and a sequence of depression-activity-depression, with an ‘American Boom’ around 1880, but in Britain a ‘trade depression’ and ‘want of work.’ We have seen how Marshall followed Lord Overstone (and others)

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in emphasizing mental factors on a macroscale (overconfidence, feelings of fear, panic) which he mixed with the events mentioned. The information on falling prices cannot be found on the chart, but in support Marshall may well have used his composite graph of Jevons and Sauerbeck which he also used in his article in the Contemporary Review of 1887. Thus, we see that Marshall’s account of crises and commercial cycles did not reduce to a singular mechanism but consists of an integration of different elements, partly pertaining to historical events, partly to man’s motives for action. The difficulty of the work of the economist was to stitch these different elements together. We see that Marshall in Industry and Trade did not choose a reductive approach but tried to find an encompassing mode of inference and explanation, a mode that he himself preferred to refer to as analysis. Marshall developed different tools that enabled him to pursue such an analysis. These were not the tools we now associate with those of an economist: mathematical modeling and statistical inferential tools, but a book of graphs and tables, large maps and diagrams, a chart of historical events.

4.5 Conclusion: inferring an organic whole from a composite portrait In this chapter, I have examined the methodological meaning of Marshall’s metaphor of the economy as an ‘organic whole.’ I have examined, in particular, what this metaphor could mean for Marshall’s analysis of commercial cycles and crises. We have seen that Marshall preferred to speak of the work of an economist as one of analysis instead of theorizing. Coase rightly situated this preference of Marshall in his reluctance to wholeheartedly embrace the methodological precepts of John Neville Keynes. Too strong on the distinction between the inductive and deductive method, it seems that what Marshall was aiming at is in contemporary terms better captured as a process of inference. In a very different context, Mary Morgan has examined a similar problem faced by Phyllis Dean. When she was asked to draw the National Accounts of then Rhodesia, just after the end of the Second World War, she found herself with bits and pieces that did not match and that she nevertheless had to bring into one unified whole.15 Closer to Marshall’s own era, Judy Klein examined the composite portraits that were made by Marshall’s contemporary Francis Galton, to capture the normal characteristics of madmen, criminals, and college students (Klein 1997). Klein’s study was in the history of statistics and her study has recently been taken up by Marcel Boumans to situate Galton’s practice in a larger history of statistical inference (Boumans 2021). Marshall’s reluctance to embrace mathematical statistics, a reluctance he expressed repeatedly in his correspondence with Arthur Bowley, shows why the inferential work of the economist in his view could not be conceived as statistical.

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Marshall attempted to infer from different bits and pieces of evidence to the economy as an ‘organic whole.’ For this, he mobilized several different tools, tables, graphs, diagrams, notes on texts, conversations with workmen, visits to factories, and, perhaps most importantly, the ‘constructive imagination’ of the economist. One can see precisely this constructive imagination at work in the development of tools that help to infer to the whole from its different parts. The chart of historical events I discussed in the previous section may serve as a good example. From this chart, combined with others such as diagrams in the Red Book, I have examined how Marshall constructed a composite image of the commercial depression and crisis of 1873—that is, how Marshall composed a text that combined these different parts into an analysis of that specific time period. The different composite materials of his integrative approach resulted in an explanatory text that was grounded in historical materials, yet it also showed generic principles at work. This is the meaning of the organic metaphor Marshall put to work in his later writings and that I have tried to clarify in this contribution.

Acknowledgment This paper benefited greatly from help and support of Daniele Besomi, Hsiang-Ke Chao, Marco Dardi, Mike White, and Marius Kuster. A great word of thanks should also go to Simon Frost and Clair Trowell of the Marshall Library in Cambridge. I would also like to thank the Swiss Science Foundation for financially supporting this research (grant no. 100018_169900).

Notes 1 (Coase 1975, 29, quoting Marshall) The full letter is reprinted in (Marshall 1996, 256–259). According to Whitaker, there is no record of any contact between Marshall and Walras before 1883. I would like to thank Rafael Lazega for pointing me to Coase’s article and Mike White for directing me to Whitaker’s comments. 2 (Hodgson 1993; Loasby 1989, 2001; Mirowski 1988, 1989; Mirowski (ed.) 1994; Raffaelli 1994, 2003; Schabas 1994). 3 In Book V Marshall ([1890] 1920) wrote, Just as, if a stone hanging by a string is displaced from its equilibrium position, the force of gravity will at once tend to bring it back to its equilibrium position. If the stone is allowed to fall freely it will move back to its equilibrium position, pass through it, return again through it, and after several rhythmical oscillations be gradually reduced to rest by the resistance of the air. The oscillations of the scale of production about its position of equilibrium will be of a somewhat similar kind. If all the general conditions of the market, other than the original disturbance, the effects of which we are tracing, remain unchanged sufficiently long, it will brought to rest in its position of equilibrium by the friction which its surroundings oppose to its continued movement; and meanwhile the price of the commodity will have been oscillating in like

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4 There is one other instance in the  Principles  in which Marshall’s uses the pendulum metaphor, which Besomi and Scott in their contribution to this volume (Chapter  9) as the pendulum-in-the-stream metaphor. See Marshall [1890] 1920, 404–405. 5 Marshall’s notes are preserved in the Marshall archives under call marks 5/17 and 5/18. I would like to thank Marco Dardi for drawing my attention to this part of the Marshall archives. 6 By 1909, Layton had become a university lecturer in economics at Cambridge and a fellow of Gonville and Caius College. 7 Marshall archives, 5/18, note of October 4, 1909. 8 Historians of economics tend to focus on John Stuart Mill’s Logic when it comes to methodological discussions. The importance of Whewell for Victorian discussions on method cannot be underestimated, however. For a good discussion, see (Snyder 2006). For an extensive discussion of Whewell’s views on the method of political economy, see (Maas 2005, esp. Chapter 3). The importance of William Whewell’s views on the scientific method for Marshall’s work has also been examined in (Dardi 2019). 9 In a somewhat adjusted form, this image was reproduced on the dust jacket of the two issues of the discontinued Italian journal Quaderni di storia dell’economia politica published in 1991–1992 that resulted from the 1990 conference in Florence devoted to Marshall’s Principles. I would like to thank Marco Dardi for providing me with this information. 10 Marshall archives 5/18, note of June 20, 1908. 11 Marshall archives, 5/18, note of January 31, 1906. 12 It is, therefore, not the case that Marshall conceived of the work of the statistician as that of observing and that of the economist as theorizing, as one might think from Senior’s address. Rather, observation and theorizing go hand in hand, as in its classical Greek meaning. See also (Maas 2011). 13 Marshall Archives, Red Book 7/7, plate inserted at pp. 85–86. 14 I have been unable to trace this quote in any appendix F Marshall published. 15 See especially (Morgan 2011).

References Besomi, Daniele. 2011. ‘Graphical representations of Overstone’s cycle of trade.’ In Classical political economy and modern theory. Essays in honour of Heinz Kurz, edited by Christian Gehrke, Neri Salvadori, Ian Steedman and Richard Sturn, 289–312. London: Routledge. https://doi.org/10.4324/9780203804261 Boumans, Marcel. 2021. ‘Pictorial statistics.’ In Exploring the history of statistical inference, edited by Jeff Biddle and Marcel Boumans. Special Issue, History of Political Economy 53 (6). https://doi.org/10.2139/ssrn.3710659 Chao, Hsiang-Ke, and Harro Maas. 2017. ‘Engines of discovery: Jevons and Marshall on the methods of graphs and diagrams.’ In Research in history of economic thought and methodology, edited by Luca Fiorito, Scott Scheall and Carlos Eduardo Suprinyak, Vol. 35A, 35–61. Bingley: Emerald Publishing Limited. https://doi.org/10.1108/ s0743-41542017000035a003 Coase, Ronald Harry. 1975. ‘Marshall on method.’ The Journal of Law and Economics 18 (1): 25–31. https://doi.org/10.1086/466805

Alfred Marshall’s ‘organic whole’ 143 Dardi, Marco. 2019. ‘The Pattern/Invention scheme in Marshallian economics.’ History of Economic Ideas 27 (1): 161–175. https://doi.org/10.19272/201906101009 Friedman, Walter. 2013. Fortune tellers: The story of America’s first economic forecasters. Princeton, NJ: Princeton University Press. https://doi.org/10.1515/9781400849864 Hodgson, Geoffrey M. 1993. ‘The Mecca of Alfred Marshall.’ The Economic Journal 103 (417): 406–415. https://doi.org/10.2307/2234779 Jevons, William Stanley. 1879. ‘Discussion on Dr. W. Guy’s paper « On tabular analysis ».’ Journal of the Statistical Society of London 42 (3): 656–660. https://doi. org/10.2307/2339052 Klein, Judy. 1997. Statistical visions in time: A history of time series analysis, 1662–1938. Cambridge: Cambridge University Press. Laidler, David. 1990. ‘Alfred Marshall and the development of monetary economics.’ In Centenary essays on Alfred Marshall, edited by John K. Whitaker, 44–78. Cambridge: Cambridge University Press. Layton, Walter. 1912. An introduction to the study of prices, with special reference to the history of the nineteenth century. London: Macmillan. Limoges, Camille, and Claude Ménard. 1994. ‘Organization and the division of labor: Biological metaphors at work in Alfred Marshall’s Principles of Economics.’ In Natural images in economic thought: Markets read in tooth and claw, edited by Philip Mirowski Historical Perspectives on Modern Economics, 336–359. Cambridge: Cambridge University Press. https://doi.org/10.1017/CBO9780511572128.013 Loasby, Brian. 1989. The mind and method of the economist: A critical appraisal of major economists in the 20th century. Aldershot: Edward Elgar Publishing. ———. 2001. ‘Time, knowledge and evolutionary dynamics: Why connections matter.’ Journal of Evolutionary Economics 11 (4): 393–412. https://doi.org/10.1007/ PL00003867 Maas, Harro. 2005. William Stanley Jevons and the making of modern economics. Cambridge: Cambridge University Press. ———. 2011. ‘Sorting things out: The economist as an armchair observer.’ In Histories of scientific observation, edited by Lorraine Daston and Elizabeth Lunbeck, 206–229. Chicago, IL: University of Chicago Press. https://doi. org/10.7208/9780226136790-012 ———. 2019. ‘“A wanderer in the land of dry facts” : Marshall’s struggles with history in the concrete.’ History of Economic Ideas 27 (3): 129–154. https://doi. org/10.19272/201906103007 ———. 2021. ‘Jevons and Marshall as Humboldtian Scientists.’ In Marshall and the Marshallian heritage: essays in honour of Tiziano Raffaelli, edited by Katia Caldari, Marco Dardi and Steven G. Medema, 121–147. Cham: Springer International Publishing. https://doi.org/10.1007/10.1007/978-3-030-53032-7_6 Marshall, Alfred. Marshall Archives, Marshall Library of Economics, University of Cambridge. ———. 1885. ‘On the graphic method of statistics.’ Journal of the Statistical Society of London 48 (2): 251–260. ———. 1887. ‘Remedies for f luctuations of general prices.’ The Contemporary Review 51 (March): 355–375. ———. [1890] 1920. Principles of economics. London: Macmillan. ———. 1898. Elements of economics of industry: Being the first volume of elements of economics. London/ New York: Macmillan.

144 Harro Maas ———. 1919. Industry and trade: A study of industrial technique and business organization. London: Macmillan. ———. 1923. Money, credit and commerce. London: Macmillan. ———. 1996. The correspondence of Alfred Marshall, economist. Edited by John K. Whitaker. Vol. 2: At the summit (1891–1902). Cambridge: Cambridge University Press. https://doi.org/10.1017/CBO9780511664779 Marshall, Alfred, and Mary Paley Marshall. 1879. The economics of industry. London: Macmillan. Mirowski, Philip. 1988. Against mechanism: Protecting economics from science. Totowa: Rowman & Littlefield Publishers. ———. 1989. More heat than light: Economics as social physics: Physics as nature’s economics. Cambridge: Cambridge University Press. https://doi.org/10.1017/ cbo9780511559990 ———, ed. 1994. Natural images in economic thought: Markets read in tooth and claw. Cambridge: Cambridge University Press. https://doi.org/10.1017/ CBO9780511572128.013 Morgan, Mary. 2011. ‘Seeking parts, looking for wholes.’ In Histories ofscientific observation, edited by Lorraine Daston and Elizabeth Lunbeck, 303–325. Chicago, IL: University of Chicago Press. https://doi.org/10.7208/chicago/9780226136790.001.0001 Raffaelli, Tiziano. 1994. ‘Marshall on “machinery and life”.’ Marshall Studies Bulletin 4: 9–22. ———. 2003. Marshall’s evolutionary economics. London: Routledge. https://doi. org/10.4324/9780203117286 Robertson, Dennis Holme. 1915. A study of industrial fluctuation: An enquiry into the character and causes of the so–called cyclical movements of trade. London: P. S. King and Son. Schabas, Margaret. 1994. ‘The greyhound and the mastiff: Darwinian themes in Mill and Marshall.’ In Natural images in economic thought: Markets read in tooth and claw, edited by Philip Mirowski Historical Perspectives on Modern Economics, 322–335. Cambridge: Cambridge University Press. https://doi.org/10.1017/ CBO9780511572128.012 Senior, Nassau W. 1860. ‘Opening address of Nassau W. Senior, Esq., as president of section F (Economic Science and Statistics), at the meeting of the British Association, at Oxford, 28th June, 1860.’ Journal of the Statistical Society of London 23 (3): 357–361. https://doi.org/10.2307/2338502 Snyder, Laura. 2006. Reforming philosophy: A Victorian debate on science and society. Chicago, IL: University of Chicago Press. https://doi.org/10.7208/ chicago/9780226767352.001.0001 Whewell, William. 1837. History of the inductive sciences: from the earliest times to the present. London: J. W. Parker. https://doi.org/10.1017/CBO9780511734342.002 ———. 1840. The philosophy of the inductive sciences: Founded upon their history. London: J. W. Parker. https://doi.org/10.1017/CBO9781139644662 Whitaker, John K. 1990. ‘What happened to the second volume of the Principles? The thorny path to Marshall’s last.’ In Centenary essays on Alfred Marshall, edited by John K. Whitaker, 193–222. Cambridge: Cambridge University Press.

5

Differentiation, integration, and the great variety of organisms Biological origins of Werner Sombart’s business cycle theory Marius Kuster

5.1 Introduction The German economist Werner Sombart (1863–1941) is mostly known for his distinction between early, high, and late capitalism put forward in his magnum opus Modern Capitalism (1902–1927). Each of these epochs had their particular characteristics which needed to be worked out in order to understand the laws of economic life. A particularity of high capitalism was the business cycle. It emerged in the 1820s, was most noticeable in the second half of the 19th century and faded out after 1914 (Sombart 1903a, 81–102; 1927a, 563–586). Sombart argued that the cycle was caused by different speeds of production between organic and inorganic industries. The organic industries, defined as those industries that processed organic material like wood and cotton, could not expand without limits, because the rhythm of the natural world could not keep up with the ever-increasing speed and expansion of capitalist production. In contrast, the inorganic industries, those that processed inorganic material like coal and iron, could expand without being hampered by the slower pace of organic nature. The root cause of the different rhythms of organic and inorganic industries lay in the growing dominance of the high capitalist form of economic organization: the factory. With the help of technology, the factory had emancipated itself from the organic and brought to life ‘dead bodies’ by ‘artificial force’ (Sombart 1902, 1:48). Sombart’s business cycle theory1 has, on the one hand, been described as a ‘concession to Marxist and other disproportionality theories’ (Schumpeter 1927, 361) and portrayed as being ‘[i]nspired by Marx’ (Hagemann 1999, 108). On the other hand, the theory has been discarded as ‘a desperate venture into mineralogy’ (Luxemburg 1903, 10) and suspected to be the result of Sombart’s ‘anti-capitalist worldview critical of civilization’ (Appel 1992, 214). Sombart did indeed draw much inspiration from Marx and from Mikhail Tugan-Baranowsky’s disproportionality theory.2 Likewise, it is true that Sombart in his later years turned into a conservative critic of capitalism who promoted the revitalization of agriculture.3 In my view, however, the core of Sombart’s business cycle theory, consisting in the idea that organic and inorganic industries have different rhythms, DOI: 10.4324/9781003144601-8

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stemmed neither from Marx nor from a conservative anti-capitalist stance. I argue that Sombart developed his business cycle theory based on insights derived from the use of a biological metaphor: the principle of differentiation and integration popularized by the biologist Ernst Haeckel (1834–1919).4 My aim is to show how this principle allowed Sombart to explain economic organization in a novel way apart from technological progress. As a result, technology became a separate object of analysis and was interpreted in a new manner. The question elaborated here is how the insights gained from applying the principle translated into the main constituents of Sombart’s business cycle theory. As Sombart was one of the most inf luential economists in early 20th century Germany, there exists a vast literature on him and his work. In a rich portrayal, vom Brocke (1992, 115) argued that with Sombart, ‘[t]heory and history, empirical observation and a systematic approach reached a characteristic and fruitful combination.’ The wide variety of Sombart’s research interests is displayed in a three-volume collection of essays on specific topics treated by Sombart (Backhaus 1996).5 Peukert (2010) and Herf (1984, 130–151) discussed how the interaction between technology and the economy had played a dominant role throughout Sombart’s career. That the biological principle of differentiation and integration allowed for a new perspective on economic organization and technology, however, has not yet been a subject of inquiry. Likewise, the studies on Sombart’s business cycle theory (Backhaus 1989a; Brück 2009; Hagemann 1999) do not unravel its origins, let alone the constructive role of biological metaphors in the theory’s formation. Only Hutter (1994) refers to biological metaphors in Sombart’s work but denies their heuristic value. For my investigation, I concentrate on Sombart’s publications from 1896 to 1904.6 During these early years of his career, Sombart took a benevolent attitude toward technology and modernity. The early years were also formative for his business cycle theory first formulated in 1903 and refined in 1927.7 The chapter is structured as follows. In Section 5.2, I introduce Sombart’s business cycle theory and the circumstances of its development at the turn of the century. I will clarify that Sombart’s theory was not the result of a conservative anti-modernism. I then show in Section 5.3 how Sombart’s theory deviated substantially from Tugan-Baranowsky’s disproportionality theory and from Marx’s description of price f luctuations in the third volume of Capital. This suggests that the origins of Sombart’s disproportionality theory lie elsewhere. In Section 5.4, I will trace Sombart’s business cycle theory back to 1896 and show that its origins can be found in his use of the biological principle of differentiation and integration. The principle allowed Sombart to describe economic organization in a novel way and to separate it from technological progress. In Section 5.5, I will show how this separation of two previously combined research objects allowed for new insights about technology and enabled Sombart to articulate his business cycle theory. Section 5.6 concludes.

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5.2 Sombart’s business cycle theory Werner Sombart never devoted a book to business cycles and he is rarely mentioned as a business cycle analyst. Early in his career, however, he developed a business cycle theory to which he adhered throughout his life. In the first half of the 20th century, Sombart’s theory was widely discussed as one of several competing theories of the cycle and found its way into treatises on business cycles by Mitchell (1913, 1927), Spiethoff (1925), Lederer (1925), and Hansen (1927).8 Schumpeter did not think favorably of Sombart’s treatment of the cycle, as his discussion of the third volume of Modern Capitalism shows (Schumpeter 1927). This might explain why Sombart’s theory was not included in Schumpeter’s Business Cycles (1939).9 Sombart first expressed his views on the cycle at the closing of an unprecedented upswing in the German economy. After the ‘excellent development of industry, trade and traffic, which began in 1894,’ the upswing came to a halt in 1900 (Conrad 1900, 497). The subsequent turnaround manifested itself by a decrease in the prices of iron, coal, and cotton and a substantial fall in leading industrial shares that had reached new heights during the previous upswing. In the stock market, however, there was no panic, but rather an ‘almost unnoticeable’ economic downturn (Conrad 1900, 510). Nevertheless, the downturn was substantial enough to become the subject of the 1903 meeting of the Verein für Socialpolitik in Hamburg. Sombart was the first presenter on what were called ‘disturbances’ in the economy. According to Sombart (1904a, 122–127), the downturn was an expansionary crisis, a phenomenon only occurring during the stage of high capitalism and the only ‘object worthy of theoretical treatment’ (Sombart 1904b, 18).10 In keeping with his commitment to expand crisis theory to a business cycle theory, Sombart started to explore the downturn by first investigating the preceding upswing. Economic expansion was initiated by increased gold production that stimulated the demand for commodities and bonds, resulting in rising prices and production. The turnaround happened when prices stopped rising and the demand faltered due to the end of speculation. As a result, lending, production, and consumption decreased and threatened to ‘bring the whole structure to the point of collapse’ (Sombart 1904a, 128). The question remained, though: What caused prices to stop rising? According to Sombart, a shortage of money due to increasing discount rates of the Reichsbank did not suffice as an explanation of stagnating or falling prices. Sombart (1904a, 129) argued that one would expect the expansion of the economy to be checked by the money supply, but not to ‘contract like it has since 1900.’ Sombart sought to causally link the different phases of the cycle so that each phase grew out of the preceding one and gave rise to the following.11 As a shortage of money was not sufficient to causally link the upswing to the downturn, Sombart (1904a, 129) suggested that the answer might lie in the sphere of production. Here, he diagnosed a disproportionality between different sectors of production. He, thus, took up the core idea of Mikhail

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Tugan-Baranowsky’s business cycle theory that placed the cause of the cycle in the overproduction of the means of production (machines, tools, buildings). At the turn of the century, Tugan-Baranowsky’s theory was considered a new frontier in research, because it provided not only a nonmonetary explanation of the cycle, but also an alternative to the ‘outdated’ (antiquiert) idea of general overproduction.12 Although Sombart considered Tugan-Baranowsky’s emphasis on the means of production ‘the highest form of crisis theory at the moment,’ he suggested that the theory needed ‘some corrections’ (1904a, 129–130). Sombart agreed that the sectors experiencing overproduction in the late 19th century were ‘the iron industry, the electro technical industry and (partly) construction’ but disagreed with Tugan-Baranowsky’s assumption that these sectors only produced means of production. The three industries also produced ‘lighting installations in cities, telephones, residential housing, passenger ships and bicycles.’ Such products could hardly be considered means of production and, therefore, Tugan-Baranowsky’s theory could not explain their overproduction (Sombart 1904a, 131). Instead, suggested Sombart, a disproportionality developed between the organic and inorganic industries. The rapidly growing iron industry, electrotechnical industry, and construction industry were inorganic industries, as they worked with inorganic material. In contrast, the organic industries exemplified by the textile industry did not keep up with the growth of the inorganic industries, because the former required organic material to produce. Sombart’s theory, thus, stated that the business cycle was caused by different rhythms between the organic and the inorganic industries. Industries depending on inorganic material like coal, steel, and iron, the ‘inorganic industries,’ could expand rapidly and profit from new technological advances without being hampered by the scarcity of raw materials. In comparison, ‘organic industries,’ which process organic material like leather, cotton, and wood, always depended precariously upon nature’s rhythm (harvests and natural limits to growth). During the upswing, when demand for commodities and investment increased, organic industries would quickly reach a limit of expansion, because of their dependency on organic material. The slower rhythm of the ‘organic world’ acted like a ‘barrier’ and led to a scarcity of organic raw material. Scarcity manifested itself in increased prices of organic material that, in turn, hampered the growth of organic industries (Sombart 1904a, 131–132). As a consequence, accumulated capital was rather invested in inorganic industries that during the upswing could expand without limits (Sombart 1927a, 575–576).13 Investments in the inorganic sector further raised the demand for inorganic means of production (construction material, machines) and led to the construction of new industries of such production. The upswing only reached its limit when available free capital was exhausted, resulting in a decreased demand for the means of production. The machines and buildings used to create those means, however,

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had already been built and continued to produce. This process led to a partial overproduction of the means of production, a fall in their prices, and finally, a fall in all prices due to the interconnection of different branches (Sombart 1927a, 581–582).14 Sombart’s emphasis on gold production as the initiator of the upswing, on the different rhythms between organic and inorganic industries as the cause of the disproportionality in production, and on the overproduction of the means of production as the cause of the downturn, indicates that he did not content himself with a mono-causal explanation of the cycle. Such a multicausal approach is even more pronounced in Sombart’s later treatment of the business cycle. In later years, Sombart (1927a, 563–586) stressed that the behavior of entrepreneurs, market conditions, and harvests were all important factors in bringing about the upswing. Furthermore, he offered additional causes of the overinvestment in the inorganic industries.15 But beneath the expansions to the theory, the distinction between inorganic and organic industries always remained at the core. To substantiate his business cycle theory, Sombart presented the results of a survey on different industries conducted under his lead to clarify in what industries overproduction occurred. According to Sombart, the survey that included the textile, iron, machine, electrotechnical, paper, and shipping industries showed that ‘in the organic industries, the cycle is dominated by harvests; [whereas] in the inorganic [industries] it is dominated by raw materials.’16 Therefore, ‘the speed and the rhythm of production is different in the organic world than in the inorganic one’ (Sombart 1904a, 132). Sombart’s emphasis on the inorganic industries and the positive reception of Tugan-Baranowsky’s theory in Germany are hardly surprising when considering the unprecedented upswing in German industry in the late 19th century. After 1870, the iron and machine industries rose sharply and outstripped their British counterparts at the turn of the century (Landes 1969, 263). Urbanization and eroding agricultural traditions were an ‘unpleasant introduction to the problem of technological civilization’ (Ringer 1969, 1). The resulting sense of change and instability among German academics found its expression in skepticism against the machine age.17 Sombart repeatedly emphasized the destructive force of capitalism, and his lengthy invectives against modernism became particularly strong after 1910. He subsequently paired this emphasis with a disdain for technology, a call for the revitalization of agriculture, and his notorious sympathy for fascism. Therefore, Sombart has been aptly described as a ‘reactionary modernist’ (Herf 1984), an ‘exponent of the conservative revolution’ and ‘anti-capitalist’ (Hock 1960, 25) with ‘aversions against modernity’ (Appel 1992, 176). Appel (1992, 214) further argued that Sombart based his business cycle theory on the antagonism between the organic and inorganic world, because it fitted well his ‘anticapitalistic […] worldview critical of civilization.’ Following the same reasoning, Appel tried to advance the idea that Sombart played down the ‘efficiency and importance of industrial capitalism’ by emphasizing the role of raw material.

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However, Appel’s claims do not stand up to closer examination. Sombart outlined his business cycle theory at an early stage of his career when his views on technology were more ambivalent. As a convinced Marxist, he unequivocally criticized the effect of capitalist production on the laborer. But equally prominent, Sombart emphasized that science and technology served the ‘welfare of mankind’ (Sombart 1901, 24) and he took his stand ‘with the forces of modernity’ (Lebovics 1969, 60).18 Furthermore, Sombart rather accentuated than downplayed the efficiency of capitalist production and praised the capitalist factories for their higher production quality due to their technological and organizational advantages (Sombart 1902, 2:440–442). By equating industry with speed and nature with inertia, Sombart not only expressed his approval of technology but also deviated substantially from Tugan-Baranowsky’s business cycle theory.

5.3 The antagonism of the organic and the inorganic Both Sombart’s and Tugan-Baranowsky’s business cycle theories emphasized the disproportionality in industry. Both theories could also be underpinned with the same empirical data. Lacking detailed production statistics, the empirical proof of the two business cycle theories relied on capital investment data as an indicator of changes in production.19 The statistician Franz Eulenburg (1867–1943) showed on the basis of share emissions of different industries between 1896 and 1900, which he equaled with new investments, that Tugan-Baranowsky’s theory applied to the case of Germany (Eulenburg 1902, 349–351). The increased investment in the iron (metal and machines), electrotechnical, and construction industries was proof that industries that produced the means of production were growing. The slow-growing textile industry, however, was primarily producing consumption goods. Therefore, the statistics delivered the empirical proof of Tugan-Baranowsky’s disproportionality theory (Eulenburg 1902, 354). Yet, Sombart took the very same statistics by Eulenburg to underpin his own theory of the cycle with data.20 The three rapidly growing industries processed inorganic substances (coal, iron, stone, chemicals) and could expand without being hampered by organic barriers. The textile industry was bound to organic material (cotton, linen) and grew much slower in comparison. From this statistical point of view, Sombart’s theory seemed only to be based on a different classification. Instead of distinguishing between consumer goods and the means of production, Sombart emphasized the difference between organic and inorganic substances. Therefore, Arthur Spiethoff, an outstanding critique of Sombart’s theory, did not attach great value to Sombart’s distinction between organic and inorganic industries. To him, Sombart was merely an ‘artistic creator’ (künstlerischer Münzer) of new terms (Spiethoff 1904, 224). Similarly, Schumpeter (1927, 361) saw only a terminological difference between Sombart’s ‘inorganic durable goods’ and Spiethoff ’s definition of capital goods (Ertragsgüter), and he characterized

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Sombart’s theory as a mere ‘concession to Marxist and other disproportionality theories.’21 In my view, however, Sombart’s alternative classification was based on ideas that differed substantially from Tugan-Baranowsky’s disproportionality theory. The latter hinged on the idea that the means of production (machinery, shipbuilding, factories) are not produced continuously, but stepwise. This rigidity of industry stood in stark contrast to the continuous aggregation of loanable capital (Tugan-Baranowsky 1901, 240, 249–250). In contrast, Sombart emphasized that industrial production and expansion had become so fast due to its automated machinery that nature could not keep up with its speed. As a result, it was nature, and not industry, that was too rigid and represented a barrier to expansion. The different rhythms of the organic and the inorganic world had already been highlighted by Marx.22 In the third volume of Capital, Marx observed that It is the nature of things that vegetable and animal substances whose growth and production are subject to certain organic laws and bound up with definite natural time periods, cannot be suddenly augmented in the same degree as, for instance, machines and other fixed capital, or coal, ore, etc., whose augmentation can, provided the natural conditions do not change, be rapidly accomplished in an industrially developed country. (Marx [1894] 1998, 119–120)23 Marx’s explanation implied that the difference between the organic and the inorganic world only manifested itself because of the specific type of industrial production involved in processing organic and inorganic substances. In the same way, Sombart considered the factory and its specific production process a precondition for the different rhythms of organic and inorganic industries.24 Marx’s explanation, thus, comes very close to Sombart’s theory. However, if we believe Sombart (1927a, 579), he did not derive his theory from the quoted passage by Marx. Indeed, a closer inspection reveals substantial differences. First, Marx did not develop the difference between the organic and the inorganic world into a business cycle theory and only argued that this difference had an effect on cotton price f luctuations. Second, Marx focused only on the cotton industry in the above paragraph, which led to different insights than Sombart’s investigation of the whole industry.25 In Marx’s ([1894] 1998, 120) account, the possibility of quickly augmenting the means of production led to overinvestment in the (organic) cotton industry. Quite to the contrary, Sombart (1904a, 132) argued that investments would rather accumulate in the inorganic industries, because of their ability to expand without limits. Third, Sombart emphasized that the business cycle only came into existence once every organic source of energy (human labor, animals, wood)

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involved in the production process was replaced by inorganic substances. The iron industry could only expand rapidly once it switched to coking (Koksverfahren) and became ‘completely inorganic’ (anorganisiert). As long as the iron industry ‘was tied to the organic world by charcoal’ (Holzkohlefeuerung), a rapid expansion would not have been possible (Sombart 1904a, 132–133). As we will see in the next two sections, these integral parts of his business cycle theory Sombart developed by his new approach to economic organization.

5.4 The principle of differentiation and integration Sombart’s search for a new description of economic organization arose out of his dissatisfaction with existing stages theories of economic development (Sombart 1899, 368–386).26 He thought that a promising path was provided by the theories of Rodbertus, Marx, Engels, Schmoller, and Bücher, because they emphasized ‘the manner of production’ (Art der Produktion): the distinction between stages based on the division of labor in the production process. Still, their theories were ‘one-sided,’ or ‘incomplete’ (Sombart 1899, 385). For Sombart, the best treatment of the manner of production was to be found in the fourth part of the first volume of Capital, where Marx followed the treatment of the ‘machine problem’ by Charles Babbage (1791–1871) and Andrew Ure (1778–1857). In particular, Sombart (1899, 7–13) appreciated how Marx emphasized that different types of organization (handicraft, manufacture, and factory) led to specific ‘production orders.’27 Marx, thus, provided the starting point of what Sombart called ‘industrial development’ (gewerbliche Entwicklung)—the investigation of economic organization in different stages of the economy. Despite his admiration for Marx, Sombart objected to the latter’s treatment of industrial development both on theoretical and empirical grounds. On a theoretical level, Sombart (1899, 379–382) felt that a clear-cut distinction, a ‘principium divisionis,’ was missing in Marx’s explanation of economic stages. According to Sombart, Marx analyzed the manner of production (Art der Produktion) only within different modes of production (Produktionsweisen) of each stage. The mode of production, as Marx ([1894] 1998, 864) defined it, was determined by the ‘production relations’ (Produktionsverhältnisse) as well as by ‘productive forces’ (Produktivkräfte), which included tools and machinery and, thus, technology.28 The mode of production was, therefore, defined by a set of different characteristics like technology, social relations, and the division of labor. In the eyes of Sombart (1899, 379–381), Marx thus confounded ‘heterogeneous methods of distinction’ in his analysis of the mode of production in different epochs.29 On the one hand, Marx emphasized technology, i.e., instruments, when he stated that it is ‘not the articles made, but how they are made, and by what instruments, that enables us to distinguish different economic epochs’ (Marx [1867] 1996, 190). On the other hand, he used the degree of the division of labor to distinguish between pre-capitalism and capitalism. In Marx’s view, the division of labor was responsible for the

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particular type of cooperation that dominated the transition from handicraft to manufacture.30 As a result, manufacture transformed human beings into specialized laborers—a process during which also tools became increasingly specialized.31 For Marx ([1867] 1996, 346), therefore, manufacture was not only a new form of cooperation based on the division of labor; it was also ‘characterised by the differentiation of the instruments of labour.’ Sombart (1899, 316, 379–383) concluded that Marx evoked both the division of labor and technology to explain industrial development but neither was followed up in detail. Technology was especially considered by Sombart to be unsuited for distinguishing between different modes of production.32 Just as Sombart disagreed with Marx on a theoretical basis, he considered Marx’s elaborations on industrial development unsupported by new empirical evidence. A large-scale study by the Verein für Socialpolitik on handicraft and its competition from large-scale enterprises confirmed to Sombart that Marx’s concentration theory was outdated (Sombart 1896, 635–636).33 Sombart accepted that there existed a tendency toward the concentration of capital, but depicting the concentration as a lawlike process, during which small handicraft businesses were swept away by large enterprises, contradicted empirical evidence.34 Sombart (1902, 2:430) argued that competition did not occur between small businesses and large-scale enterprises, but between handicraft and capitalist enterprises. Marx’s tendency to equate capitalist enterprises with largescale enterprises (Großbetrieb) blurred this detail (Sombart 1899, 316–317). Furthermore, the process from handicraft to the large-scale factory was not as teleological as Marx suggested. Marx’s assertion that manufactures were ‘constantly passing into the factory system, and handicrafts into manufactures’ (Marx [1867] 1996, 493; Sombart 1899, 358–362) did not hold true in light of the highly differentiated porcelain and furniture manufactures. These manufactures could not strongly rely on technological advancements but were, nevertheless, much more productive than the older handicraft. Manufactures maintained their relevance next to factories, and they were not a necessary condition for the development into factories. Instead of a linear progress from handicraft to factory, the study by the Verein für Socialpolitik revealed to Sombart (1896, 636–639) the ‘great variety of developments’ (Mannig faltigkeit der Entwicklungsreihen) among companies—developments that were invisible to the ‘rough instrument’ of statistics that classified businesses by size only. A theory, however, that captured these developments was missing. Three years later, Sombart delivered a theory of industrial development that, he believed, would overcome Marx’s shortcomings and fitted the new empirical material. The theory was based on a biological metaphor that proved to be central to Sombart’s understanding of economic organization. From his reading of the biologist Ernst Haeckel’s (1869) popular essay on the division of labor in nature and human life, Sombart (1899, 335) proposed to investigate economic organization by the biological principle of ‘differentiation’ and ‘integration.’35 The principle implied that with increased division

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of labor within the organization (differentiation or specialization), the interdependence of its different parts grew, necessitating increased cooperation (integration). The degree of differentiation, therefore, determined the degree of integration. Since ‘the beginning of the organization of human work,’ stated Sombart, man has thought of nothing else but of specialization and cooperation—‘the principles of organization.’36 Even though Sombart did not directly refer to Haeckel when introducing the principle, the biologist’s inf luence becomes clear from the context. Sombart (1899, 14) was fascinated by what Haeckel was able to explain only from the division of labor, which ‘dazzles in a thousand colors!.’ Moreover, Sombart (1899, 391) explained that he borrowed the principle from the natural sciences and referred to Haeckel when explaining how competition (in quality and price) can be interpreted as the struggle for existence (Kampf ums Dasein) between firms (Sombart 1902, 2:424–425). Haeckel (1869, 17–34) used the principle of differentiation and integration in his explanation of how complex organisms developed as a result of the struggle for existence. Of particular relevance in his explanation were ‘colonial organisms’ like the siphonophore, a marine invertebrate composed of thousands of polyps (see Figure 5.1). The polyps, the siphonophore’s constituent parts, are able to survive apart from the composite whole but are usually found assembled in a colony. Within this colony, the different polyps divide their labor and specialize in form and function—the differentiation.37 Differentiation results in increased mutual dependency, because the different parts depend upon others’ tasks they can no longer fulfill themselves. Haeckel, therefore, emphasized the importance of an ‘intimate connection’ (inniger Zusammenhang) (Haeckel 1869, 22) of the single polyps and the necessity of ‘cooperation’ (Zusammenwirken) between them (Haeckel 1869, 27).38 The more differentiated and integrated an organism was, the higher was its rank (Ordnung) and its performance (Leistungsfähigkeit) (Haeckel 1866, 289–290). Just as Haeckel ascribed a better performance to highly differentiated and integrated organisms, Sombart argued that more differentiated and integrated firms possessed higher productivity. As a result, the principle offered to Sombart a theory that could deal with his theoretical and empirical objections to Marx’s theory of industrial development. Based on the principle, Sombart was able to rank different types of firms according to their productivity without having to refer to technological development, and he could simultaneously account for the great variety of the different type of firms. In the same way as the principle led to a great variety of ‘organic forms’ (Haeckel 1873, 24), it was responsible for a great variety of ‘types of business organizations’ (Betriebsformen) in the economy (Sombart 1899, 335–337). Sombart (1899, 338–343) identified eight types of organizations of different degrees of differentiation and integration. ‘Individual’ firms like the single company (Alleinbetrieb) or the family company (Familienbetrieb) showed low levels of differentiation and integration, whereas ‘societal’

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firms like the manufacture (Manufaktur) and the factory (Fabrik) were highly differentiated and integrated. Between these two extremes, Sombart situated the types of firms that were unaccounted for by Marx, like the large individual (Individualbetrieb im Großen) and the small societal company (gesellschaftlicher Betrieb im Kleinen).39 The latter type comprised, for example, highly differentiated but small textile and shoe manufacturers (Konfektionsbetriebe) that surpassed the productivity of handicraft even without technological superiority (Sombart 1899, 352). Sombart (1899, 387), therefore, argued that it was ‘the particularities of economic organization,’ which he defined as the specialization within the firm and the resulting dependencies between the individuals involved in the production process, that best classified types of firms by productivity. The ‘real secret of the increased productivity of the capitalist enterprise’ did not lie in technology, but in the ‘process of differentiation’ (Sombart 1902, 2:442).40 Because specialization and integration also took place between and not only within firms, the biological principle could be used to describe the development of the economy as a whole. Again, the principle ran parallel with productivity and consequently could be used as a measure for economic development. For Sombart (1899, 389–394), it was even the only phenomenon that could account for the increasing productivity without incorporating technology. Based on the principle, Sombart distinguished between three increasingly differentiated and integrated economic stages: the undifferentiated individual economy (Individualwirtschaft), the partly differentiated transitional economy (Uebergangswirtschaft), and finally the differentiated and ‘inseparable’ societal economy (Gesellschaftswirtschaft).41 Sombart (1901, 7–10) further clarified that the economy, defined as human beings organizing their ‘provision of subsistence,’ became more interconnected over time, because a growing number of people connected themselves to others in order to ‘produce the desired economic success.’ The farmer, dominant in the individual economy, was self-sufficient, as he extracted and created everything by himself and was ‘economically free.’ The modern ‘cultural man’ (Kulturmensch) of the societal economy was dependent on others, as he did not produce most of what he consumed and was ‘economically unfree and tied [gebunden] to others.’ In conclusion, ‘all economic development is dominated by an increasingly differentiated and integrated function of the individual’ (Sombart 1901, 10). As the principle allowed Sombart to describe both organization and economic development, it laid the foundation of the ‘economic systems’ Sombart fully developed in the 1920s.42 What I am concerned with here, however, is what the transfer from biology—the principle of differentiation and integration—changed with respect to prior descriptions of organization and economic development. That the division of labor and cooperation play an important role in economic organization is clearly not an insight only enabled by the principle.43 On the contrary, as Sombart (1899, 14) also remarked, the principle, widely applied in biology, was rooted in economics.

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Figure 5.1 A siphonophore consisting of (among others): a specialized bubble polyp on top, several bell-shaped swim polyps below, surrounded by feeding polyps with tentacles (Haeckel 1869).

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Haeckel (1869, 4, 22), for example, described developing organisms in analogy to the division of labor, the specialization of tools, and the resulting ‘intimate connection’ (inniger Zusammenhang). In consequence, the ‘positive analogy,’ the properties of biological organisms Sombart could ascribe to economic organizations, was plainly detectable: both organisms and organizations were dominated by specialization and cooperation.44 What Sombart now needed was to figure out what to do with the elements picked up and lost on the detour via biology. These elements can be considered ‘negative’ or ‘neutral’ properties of the analogy as they were present in biology, but not in previous descriptions of economic organization (Hesse 1966, 8). First, via biology, the division of labor allowed early sociologists like Herbert Spencer (1820–1903) and Albert Schäff le (1831–1903) to describe social phenomena that went beyond economic organization (like the formation of groups and collectives).45 However, Sombart (1899, 13–14) disagreed with the application of the division of labor and cooperation to the development of society and restricted the use of the principle to economic phenomena only.46 Second, Haeckel added the ‘struggle for existence’ as the driving force behind the division of labor and cooperation. Again, Sombart restricted the effect of the struggle for existence, interpreted as competition between firms, and saw it at work in capitalism only. Competition was not an eternal law and was nonexistent during stable pre-capitalism with local monopolies.47 Haeckel’s (and Darwin’s) role in adding competition to the division of labor and cooperation has already been highlighted by Limoges and Ménard (1994, 352–354). They explained how Alfred Marshall’s use of the principle of differentiation and integration resulted in the insight that competition led to a monopolist position of the largest and most differentiated firm that drove out small-sized businesses—the essence of Marx’s concentration theory. Sombart rather argued that economic development led to what Haeckel called a ‘great variety’ (Mannig faltigkeit) of organisms. Third, therefore, through the eyes of Haeckel’s biology, the idea of a great variety of coexisting types of firms became a guiding theme. Despite the tendency toward increasingly differentiated and integrated firms, handicraft and small-sized businesses were not completely eliminated (Sombart 1903a, 325; 1927b, 32).48 Whereas the three previous examples show how Sombart dealt with additional elements to the division of labor and cooperation, one element was lost on the way back from biology to economics: technology. By using the principle, Sombart could describe both the different types of organizations and the development of the whole economy without reference to technology. Only to account for the transition from the manufacture to the factory did he resort to technology again. Sombart’s new perspective differed not only from that of Marx ([1867] 1996, 346) but also from that of Haeckel (1869, 4), for whom the explanation of the division of labor was closely tied to the specialization of tools.

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5.5 The emancipation from the organic The principle of differentiation and integration opened a new path for Sombart by turning technology into a separate object of analysis. Detached from the context of economic organization, technology comprised much more than the specialization of tools, and it allowed Sombart (1899, 9–10) to incorporate recent works on the essence of technology by Franz Reuleaux (1829–1905), Ernst Kapp (1808–1896), and especially Emanuel Herrmann (1839–1902). Based on a short chapter by Herrmann (1891, 468–470), Sombart claimed that technology was the ‘emancipation from organic nature.’49 Each invention made ‘to control the elements and shape the materials of nature’ emancipated man from the organic barriers. Technology freed humans from the ties of place and time. Information and commodities travelled faster; human needs could be satisfied without having to rely on ‘nature’s organizing process.’ With steel and steam, waiting for the tree or the animal to grow belonged to the past (Sombart 1901, 8–9). Breaking through the organic barrier also meant that processing organic material like leather—a process that used to take more than a year—could now be accomplished in days (Sombart 1902, 2:75). Sombart (1901, 10–11), thus, concluded that the development of technology was progress toward ‘material liberty,’ defined by the increasing ability of man to dominate nature with tools. In consequence, Sombart (1901, 8) explained that it was not adequate to account for the development of the economy and technology in the same way, as they were governed by different ‘principles of development’ (Entwickelungsprinzipien). While the economy became more ‘interconnected’ (gebunden) over time due to differentiation and integration, technology increasingly developed toward freedom (Sombart 1901, 8–10). Especially in conjunction with the highly differentiated organization of manufacture, technology could develop its full potential once it was applied in the factory system. Like Marx, Sombart (1901, 12–15) considered manufacture’s high degree of specialization and integration one essential precondition for the application of mechanized technology. The work process had to be divided up into specialized tasks before machines could take over.50 Automated machinery then gave rise to the ‘most consequential implementation of the principle of social production’ (Sombart 1902, 1:49). Whereas Marx ([1867] 1996, 487) emphasized how the automated machinery of the factory emancipated the workman and converted him ‘into a living appendage of the machine,’ Sombart’s perspective moved away from the interaction between worker and machine and brought the emancipation from all organic life to the fore.51 Sombart explained that the cotton spinning process, for example, was entirely taken over by automated machinery in the late 18th century. Once every single part of the production process was ‘beyond the scope of human involvement,’ it was worthwhile to extend the power source (Sombart 1899, 38). For Sombart, the decisive step from the manufacture to the factory

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occurred when the source of power became inorganic. Coal, gas, steam, chemicals, and electricity replaced wood, animals, and human workers. Only with inorganic sources could the production process fully emancipate itself from the organic and develop into a prospering inorganic industry (Sombart 1904a, 132–133). Sombart’s business cycle theory was, therefore, a direct consequence of his investigations of economic organization and technology. With coal, the iron industries turned into upswing industries and could expand beyond those industries that still depended on organic material. Only when the factories of inorganic industries were fully emancipated from the organic by switching from wood to coal could the business cycle become possible (Sombart 1904a, 132–134). But Sombart’s assessment of the possibilities of technology was not confined to those technologies that replaced the human worker with machines, coal, and steam. Any technological innovation that emancipated the production process from its organic boundaries was able to expand rapidly and turn into an upswing industry. As Sombart (1899, 24–25) explained, such a new perspective on technology was gained by diverting attention from the ‘never ending view on the “division of labor”’ and the specialization of tools it gave rise to. Sombart turned his attention to technological innovations for ordering and sorting material that were decisive for factories relying on chemical processes and not necessarily involved in the division of labor. The factory was, therefore, not only a ‘system of machinery’ (Marx [1867] 1996, 397–398), but rather a ‘system of lifeless bodies […] filled with life by an artificial force’ (Sombart 1902, 1:47–48). Next to the iron and machine industry, Sombart could, thus, fit the electrotechnical industry and part of the construction industry into the category of inorganic upswing industry.52 The whole stage of high capitalism was dominated by automated production processes that included inorganic substances (ores, coal, stones, gases, chemicals) and inorganic forces (steam, electricity). The only remaining organic part was the human being guiding the production process (Sombart 1927b, 19–20). High capitalism was dominated by accelerating speed and a victory over time in every aspect of economic life (Sombart 1902, 2:73–87). Capitalist enterprises that depended on the factory system became dominant in areas previously occupied by handicraft. The business cycle even helped to assert the former’s dominance. When the cycle turned for the worse, it annihilated the older types of organizations (Sombart 1902, 2:8). While Sombart (1913, 462–464) doubted that the business cycle and its destructive forces could be tamed in high capitalism, he was convinced that the cycle was weakening in late capitalism after 1914. The tamed business cycle, however, did not result from harmonizing the rhythms of the organic and inorganic world. Rather, the cycle became less threatening because of the tendency of late capitalism to smooth out strong f luctuations.53 The detachment of industry from the organic world, however, intensified. Late capitalism was dominated by the emancipation from the living and its ‘replacement by the abstract’: the purpose of economic activity was not the personal gain of the

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entrepreneur, but the assets on the balance sheet. The whole business became like an ‘undead machine’ as the means became the end and aimed at ‘the lowest prices, the fastest f low of goods, the highest technology, the greatest wealth’ (Sombart 1925, 5–8).

5.6 Conclusion In this chapter, I have explored the origins of Werner Sombart’s business cycle theory. I have suggested that the unprecedented upswing in German industry induced Sombart to search for an explanation of the cycle in industrial production. Sombart explained that the cycle resulted from different rhythms between organic and inorganic industries. The latter could expand rapidly without being hampered by organic barriers and led to an overproduction of inorganic commodities and (inorganic) means of production. It has been argued that Sombart’s theory was mainly a terminological modification of existing theories by Tugan-Baranowsky and allowed Sombart to fit business cycle theory to his anti-modernist convictions. However, Sombart did not wholeheartedly take up an anti-modernist stance against industrialization. His characterization of capitalist production as the transition from organic handicraft to the factory was rather marked by fascination than contempt. Deviating from previous research, I have argued that the origins of Sombart’s business cycle theory are to be found in his investigation of the different types of economic organizations. Acknowledging the vital inf luence of Tugan-Baranowsky and Marx, I tried to clarify that Sombart’s main insights resulted from a novel approach to describing economic organization. By making use of the principle of differentiation and integration that he found in the work of the biologist Ernst Haeckel, Sombart was able to account for a great variety of evolving economic organizations and treat technological progress separately. The economy tended to become more interconnected, while technology increasingly liberated capitalist production from its organic barriers. As soon as the production process was fueled or carried out by inorganic substances, the resulting energy and speed surpassed the rhythm of the organic world and gave rise to the business cycle. The principle of differentiation and integration had a heuristic value in that it restructured Marx’s explanation of industrial development by allowing for a treatment of economic organization separate from technology. Detached from economic organization, technology was ruled by its own principle of development—an insight that opened further research paths and eventually led to a novel theory of the business cycle. My investigation of Sombart’s application of the principle not only provides further evidence for the value of biological metaphors in economics but also displays the versatility of the principle. Instead of leading to the ‘unbearable consequence’ (Limoges and Ménard 1994, 354) of economic monopolies in the case of Marshall, Sombart could explain the observed great variety of different types of firms by the

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principle. As a result, the principle was of lasting value in Sombart’s research and can still be found in two (BI and BVI) of twelve dimensions of the ‘economic system’ he fully developed in the 1920s (Sombart 1927b). Sombart’s aspiration to develop a multidimensional explanation of specific stages of capitalism by means of the economic system also showed itself in his search for the cause of the business cycle. By 1927, Sombart’s elaborations on the business cycle comprised a wide range of factors that were responsible for triggering the upswing. The different rhythms of organic and inorganic industries, however, always remained at its core.

Acknowledgment I would like to thank the participants of the 2019 conference on ‘The usage of metaphors in the theorization of crises, cycles and equilibrium’ for stimulating feedback. In particular, I am grateful for a variety of helpful comments by François Allisson, Daniele Besomi, Harro Maas, and Kenji Mori on an earlier draft of this contribution. I would also like to thank the Swiss Science Foundation for financially supporting this research (grant no. 100018_169900).

Notes 1 I refer to Sombart’s explanation of the business cycle as a theory, because Sombart himself used the term specifically when referring to all crisis and cycle research. Sombart identified his own investigations into economic organization and economic systems as a theoretical exercise. As I will show in this contribution, his explanation of the business cycle was a direct consequence of such theoretical research and might, therefore, also be regarded as theory. Sombart’s contemporaries, i.e., Potthoff (1903b, 151), understood his elaborations on the business cycle as theory and a deviation from nontheoretical investigations of the German Historical School. Despite the adherence to theory, Sombart (1902, 1:XXIX) saw himself following and expanding the ‘historical method’ of his teacher, Gustav Schmoller (1838–1917). 2 Sombart (1902, 1:XXIX) emphasized that his work was most inf luenced by Marx and his teacher, Schmoller. Moreover, Sombart (1904a) acknowledged the inf luence of the Russian economist Mikhail Tugan-Baranowsky (1865–1919) on his business cycle theory. 3 Herf (1984 130–151) suggests that Sombart contributed to the ‘reactionary modernist tradition’ by his anti-capitalist, anti-modernist publications after 1910. Vom Brocke (1992) provides a summary of Sombart’s ideas to revitalize agriculture in the 1930s. See also the somewhat polemical writing by Krause (1962), who traces Sombart’s transition ‘from a socialist of the chair to a fascist.’ 4 Following Limoges and Ménard (1994), I will use the expression ‘biological metaphor’ and not ‘organic,’ ‘organicist,’ or ‘organismic’ metaphor, in order to emphasize the biological origin of the principle. 5 See also Backhaus (1989b, 604–609) for an overview of the vast topics covered already in Sombart’s Modern Capitalism (1902, 1927). 6 When referring to Sombart’s work, I am always drawing from the German originals. All translations are, therefore, mine, unless indicated otherwise. This is

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Marius Kuster mainly due to the fact that the most important literature covered here has not been translated into English. For other languages, however, this does not hold. Almost all of Sombart’s works have been translated into Italian (vom Brocke 1992, 117). His main works have also been translated into Russian (Zweynert and Riniker 2004). A thorough discussion of Sombart’s theory in 1927 and his explanation of the dampening of the cycle would require knowledge of the analytical tool Sombart called ‘economic systems’ (Wirtschaftssysteme), of which I can only give an outline here. For a short description of business cycle research in the German interwar period, see the German economist Günter Schmölders’ (1903–1991) insightful depiction of the ‘six or seven different’ business cycle theories discussed among established German economists (Schmölders 1990, 111–114). Sombart, feared by younger scholars for his harsh judgment, could not refrain from insisting on the distinction between organic and inorganic industries when Schmölders, who avoided any theory of the cycle out of precaution, presented his research. Sombart is also completely ignored in the inf luential treatise on business cycles by Gottfried Haberler (1900–1995). Instead of giving credit to Sombart, Haberler (1937, 72) ascribed the focus on production ‘independent of organic growth’ to Arthur Spiethoff (1873–1957). Sombart distinguished between two types of economic crises. First, there existed ‘sales crises’ (einfache Absatzkrisen) that were caused by the interruption of the circulation of commodities. Such crises could occur in any epoch and were not a particularity of capitalism. Moreover, a theory of sales crises would be as useless as a ‘theory of the common cold,’ because there were a myriad of different causes triggering such crises (Sombart 1904b, 16–17). A second type of crises were the ‘capital crises’ (Kapitalkrisen), either as primary or secondary capital crises which only occurred during the capitalist epoch. The ‘expansionary crisis’ (Expansionskrise) he invoked during his speech had the characteristics of a primary capital crisis. Such a crisis arose ‘directly from the process of the capitalist economy as such’ in high capitalism only. Sombart argued that the primary capital crisis should be analyzed starting with the expansion before the crisis and thus turn crisis research into business cycle research (Sombart 1904b, 13, 21). Sombart (1904b, 18–21) argued that the cycle was the ‘normal’ state of a high capitalist economy and that the downturn followed the upswing by necessity. More prominently, Sombart (1927a, 563–586) emphasized that each phase of the cycle has to grow out of the preceding one. Therefore, using Besomi’s (2011) classification of the two different understandings of the cycle, Sombart’s business cycle theory can be considered a ‘modern theory.’ Tugan-Baranowsky’s business cycle theory, which he published in 1894 in Russian, was quickly noticed in Germany (Bergmann 1895, 438). The German edition (Tugan-Baranowsky 1901) was well known amongst business cycle economists and had a profound impact on German economic thought (Beckmann 2005). Especially Sombart’s compatriots Franz Eulenburg (1867–1943) and Arthur Spiethoff (1873–1957) were inspired by the theory and conducted research along Tugan-Baranowsky’s line. Tugan-Baranowsky (1901, 34) considered credit only to be an amplifier of the effect of crises. Their deepest cause was ‘rooted in production.’ He also emphasized that ‘the f luctuations in the discount rate reveal deeper changes in the capitalist economy on the surface of the money market’ (Tugan-Baranowsky 1901, 242). In his presentation to the Verein für Socialpolitik in 1903, Sombart (1904a, 131) initially put emphasis on the increased demand during the upswing for durable goods (consisting of inorganic material) and then explained why inorganic industries could expand without limits. The explanation of why inorganic industries attracted more capital than the organic industries was only clearly elaborated in Sombart (1927a, 563–586).

Werner Sombart’s business cycle theory 163 14 Sombart’s explanation of how the economy transitioned from the upswing to the downturn via the means of production strongly resembled Tugan-Baranowsky’s (1901, 249–250) theory and was only elucidated in 1927. 15 Next to the possibility of expanding limitlessly, the inorganic industries attracted investments because of their size, reputation, and legal status as joint stock companies (Sombart 1927a, 574–577). Sombart’s concessions to a multicausal approach have been described as an ‘eclectic collection of multiple elements’ (Backhaus 1989a, 89). Similarly, Rosa Luxemburg (1903, 9) dismissed Sombart’s theory as a ‘tasteless mixture of a gold and protein theory.’ 16 Sombart’s conclusion to the survey generalized the results. Of the three studies on the textile industry, only the one on the linen industry pointed toward the harvest as one of many factors that caused disturbances (Potthoff 1903a, 112). The second study (on the cotton industry) concluded that the crisis must have been due to the power of judgment that ‘in good and bad times leans toward exaggeration and creates real crises out of imminent ones’ (Sybel 1903, 145). The last one (on the wool industry) saw the change in the cycle as a cause of the losses in the wool market. On top of that, the study concluded that stock prices were not an accurate ‘manometer’ for the real losses (Kuntze 1903, 256–258). Sombart (1903b, XI) mentioned that he was not convinced of the quality of the survey. Similar concerns were voiced by Heinz Potthoff (1903b, 151), the author of the study on the linen industry. 17 Publications like Germany as an Industrial State (Oldenberg 1897), Flip Side of the Industrial State (Wagner 1901), and Germany at the Crossroads (Pohle 1902) were closely tied to fears of irreversible urbanization and industrialization. 18 Lenger (1994, 136–142) and Ebner (2002, 14–15) argued that Sombart changed his attitude toward modern industrial capitalism in 1903. Sieferle (1995, 83–85) even identified a ‘radical change of attitude’ in Sombart (1903a, 509). However, the quoted paragraph by Sieferle rather shows Sombart’s ambivalent stance toward capitalism as it contains both disdain and admiration for capitalism. 19 At the turn of the century, detailed data on German textile production, for example, had not yet been collected on a large scale (Hoffmann 1965, 363–367). 20 Sombart (1904a, 129–130) mentioned that these statistics established a consensus among researchers that overproduction was mainly to be found in the three industries (iron, electrotechnical, construction). Sombart also pointed to overproduction in mining and metallurgy (Montanindustrie), to which Eulenburg did not pay much attention. Eulenburg (1902, 350) explained that the increase in mining and metallurgy was low, because there were already large established industries that most likely expanded their scope without appearing in the emissions statistics. Similarly, the growth of railways was not treated separately but only discussed within the context of the growing iron industry (Eulenburg 1902, 353). Breweries, transport, and stone industry were not treated. The chemical industry, which according to Eulenburg (1902, 350) expanded during the upswing, surprisingly showed not much growth in new invested capital. 21 Similarly, Luxemburg (1903, 8–9) cynically remarked that Sombart could have just as well distinguished between ‘hard and soft, or red and blue, or sour and sweet’ instead of organic and inorganic substances for his business cycle theory. For Sombart’s view on Spiethoff ’s classification, see Sombart (1927a, 573). 22 Before him, Wilhelm Roscher (1817–1894) argued that mechanized production could lead to overproduction in agriculture. However, this tendency was limited due to the slower processes on the farm (Roscher 1849, 3:730). In the same year as Marx, Jevons (1865, 154–155) highlighted the fundamental difference between farming and mining, warning of the finite coal deposits. 23 Marx’s use of the term ‘organic’ in this paragraph he wrote in 1865 is not related to his ‘organic composition of capital’ (Marx [1867] 1996, 608) but foreshadows Sombart’s distinction between organic and inorganic material. By organic

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Marius Kuster substances, Sombart (1899, 20–21) meant those substances that relied on the ‘organizing process of nature’—a classification he took from chemistry. In consequence, inorganic substances were those that could eschew this process. To be clear, Sombart (1903a, 182) observed that coal deposits were ‘the greasy remains of glorious epochs,’ which shows that he was aware that coal was the product of a past organizing process of nature. The term ‘organic’ has even further meanings in Marx’s work, as Bellamy Foster and Paul Burkett (2000, 412–414) argue. The use in this paragraph here would fall into their category ‘dialectical.’ The emphasis on the ‘economic process’ in Sombart’s business cycle theory had already been noted by Mitchell. He classified Sombart’s theory as one of the ‘theories which trace business cycles to physical processes,’ putting it in the same category as theories by William Stanley Jevons, Henry L. Moore, and Ellsworth Huntington. For Sombart, he added the subcategory of ‘a theory intermediate between the groups stressing physical and institutional processes.’ More specifically, the crisis was ‘the result of a clash between the workings of physical and economic processes’ (Mitchell 1927, 16, 50). Therefore, the different rhythm between the organic and inorganic world was only a necessary, but not a sufficient, condition for the emergence of the business cycle. Sombart (1902, 1:47) generally criticized Marx for focusing too much on the cotton industry instead of looking at industry as a whole when building his ideas about the factory. His main concern, which crystallized in 1902, was that instead of ‘different spirits,’ only ‘superficial features’ of stages had been analyzed (Sombart 1902, 1:55). This concern formed the basis of Sombart’s research agenda. For each stage of capitalism (early, high, late), he aimed to find the particular ‘spiritual unity’ (geistige Einheit) consisting of the three characteristics—spirit, order, and technology— that made up the ‘economic system.’ The construction of the economic system was also guided by a metaphor: Sombart (1927b, 7) argued that he aimed to take the idea of the ‘economic organism’ more seriously than previous authors and explain what kind of relationship existed within the economy instead of only vaguely pointing out that different parts of the economy were somehow connected. I take over Engels’ translations in Marx ([1867] 1996): handicraft (Handwerk), manufacture (Manufaktur), and factory (Fabrik). In Sombart’s (1899, 381–389) reading of Marx, and similarly of Engels and Lewis Henry Morgan, using ‘productive forces,’ to distinguish between modes of production meant using technology as a ‘principium divisionis.’ When Sombart spoke about productive forces, he specified ‘material productive forces’ (materielle Produktivkräfte) in order to emphasize the technological advancements that gave rise to more productivity. Likewise, Engels’ and Schmoller’s stages theories, even though they built more systematically on the division of labor, lacked a distinct classification of different organizations (Sombart 1899, 387). According to Marx ([1867] 1996, 339–340), cooperation already existed ‘at the dawn of human development, among races who live by the chase.’ Capitalist cooperation, however, was different from this simple form of cooperation, because it was characterized by the division of labor in manufacture. For independent handicrafts, or peasant agriculture, cooperation in manufacture was a ‘historical form peculiar to, and specifically distinguishing, the capitalist process of production.’ Marx ([1867] 1996, 617) also highlighted that the division of labor led to more labor productivity, defined as ‘the relative extent of the means of production that one laborer, during a given time, with the same tension of labour power, turns into products.’ Evoking Darwin, Marx ([1867] 1996, 344–346) saw the ‘implements of labour’ adapted to the ‘special functions of each detail labourer’ in analogy to the

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variation of ‘natural organs of plants and animals.’ Specialization continued until each function could be taken over by automated machines in the factory. The selection of a certain technological advancement as a criterion to assess productivity, the mode of production, or economic stages was too arbitrary. Furthermore, technology only ref lected the ‘potential’ to produce and was not specific enough to link the type of organization to an economic stage. Technology applied in the factory, for example, could be used in either capitalist or noncapitalist production (Sombart 1899, 315, 381). The ten-volume study published between 1895 and 1897 was titled ‘Investigation of the handicrafts in Germany with special attention to its competitiveness against large-scale industry’ (Untersuchungen über die Lage des Handwerks in Deutschland mit besonderer Rücksicht auf seine Konkurrenzfähigkeit gegenüber der Großindustrie). The study consisted of 97 detailed monographs on enterprises of various branches all over Germany. See Grandke (1897) for a summary of the study. Marx ([1867] 1996, 616–623) argued that the concentration of capital accompanied its accumulation, by which he meant that small capitalists succumb to companies with a large amount of capital at hand. The result was a transformation of many small into a few large companies. Sombart (1902, 2:393–399) admitted that there existed an overall tendency to concentration, but with differences among branches. Commerce (Handelsgewerbe), for example, had not reached a high degree of concentration (Sombart 1902, 2:396), whereas banks already showed strong tendencies toward concentration at the beginning of the 20th century (Sombart 1903a, 213). See also Sombart (1903a, 218, 253, 272, 348). Sombart (1899) used the terms differentiation (Differenzierung) and specialization (Spezialisation, Spezialisierung), as well as cooperation (Kooperation, arbeitsteilige Kooperation) and integration (Integrierung). ‘Alle Organisation menschlicher Arbeit beruht, seitdem die allerersten Anfänge planmäßigen Produzierens überwunden sind, auf nur zwei verschiedenen Prinzipien: auf der Spezialisation und der Kooperation. Nichts anderes vermag der Mensch zu ersinnen, als diese beiden Organisationsprinzipien, die auch der vollendesten Betriebsanordnung, freilich in mannigfacher Kombination, allein zu Grunde liegen’ (Sombart 1899, 335; 1902, 1:23–24). Haeckel (1869, 4) used the term differentiation (Differenzirung) as well as separation (Sonderung), specification (Specification), specialization (Specialisation), and polymorphism (Polymorphismus) as synonyms. The term ‘integration’ (Integration) is less prominent in Haeckel’s writings. Haeckel used the term already in his magnum opus of 1866 when defining the organism as the ‘integration of unequal parts’ (Haeckel 1866, 256). When referring to the increased dependency between individuals due to differentiation, Haeckel (1866, 372) preferred the term ‘centralization’ (Centralisation). Sombart distinguished between the two types not only in terms of size, but also in their level of differentiation and integration. The large individual company like the painting company (Malereibetrieb) showed low levels of differentiation and could be expanded or reduced at will. New employees could be hired or fired without changing the organizational structure. Such a company was ‘not an organic whole, but always only an aggregate’ which could be ‘cut like a sausage’ (Sombart 1899, 350–351). The small societal company, however, could not easily be divided anymore, because its parts were already strongly differentiated and dependent on each other. Sombart (1902, 2:436) explained that the importance of specialization showed itself in the detachment of the production director (Produktionsleiter) from his ‘technical function.’ Apart from the daily production process, the director could be in touch with the market and quickly react to the ever-changing trends. Sombart (1902, 2:442) opposed Grandke’s (1897, 1076) assessment that such advantages over handicraft were ‘imponderables’ (Imponderabilien) and rather argued that the

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advantages result from the ‘inner essence of capitalist organization.’ For similar examples of the advantages of capitalist enterprises over handicraft, see Sombart’s chapters (23–33) dealing with his ‘theory of commercial competition’ (Theorie der gewerblichen Konkurrenz) (Sombart 1902, 2:421–539), and his chapter on industry (Das Gewerbe) (Sombart 1903a, 321–373). See also Sieferle (1995, 80) on Sombart’s examples for increased productivity without technological advantage. Sombart’s choice of the term Gesellschaftswirtschaft was not arbitrary. Sombart used Ferdinand Tönnies’ famous distinction between community (Gemeinschaft) and civil society (Gesellschaft) to emphasize that the principle of differentiation and integration led to new connections next to the community, so that a ‘mechanism takes the place of the former organisms in the economic life’ (Sombart 1899, 393). The difficulty here, as in several other paragraphs in Sombart’s work, is to distinguish between his literal and metaphorical use of the terms ‘organic,’ ‘organism,’ and ‘mechanism.’ Here, the terms ‘mechanism’ and ‘organism’ have to be understood metaphorically. To describe the process from individual to societal firms, Sombart (1927b, 20, 35–38) used the principle in the exact same ways for the dimension ‘individual firm—societal firm’ (Individualbetriebe—gesellschaftliche Betriebe) in his economic systems. In an altered approach, Sombart (1927b, 46–49) used the principle to explain the development of the whole economy. The economy became ‘dissolved’ (aufgelöst) by specialization, only to be ‘combined’ (Kombination) again by the effort by firms to merge. Both these processes only occurred if they helped to increase profits. The emphasis on cooperation as a necessary outcome of the division of labor was already evoked by Adam Smith, and more profoundly by Friedrich List (1841, 222–224). Hesse (1966, 8) used the expression ‘positive analogy’ to describe those elements between two objects that enable the creation of an analogy in the first place. The combination of ‘differentiation and integration’ with respect to biological organisms can be attributed to Herbert Spencer. These terms were also widely applied by the German economist and sociologist Albert Schäff le. Both authors are quoted by Sombart (1899, 1–14) but figure less prominently than Haeckel and not in reference to economic organization. Compared to Spencer and Schäff le, Sombart’s use of the principle in the specific context of economic organization and economic development represented a new approach. Surprisingly, Sombart did not refer to Alfred Marshall’s (1842–1924) application of the principle to economic organization, even though he knew of his work. Sombart (1902, 2:425) even explicitly remarked that ‘Despite Haeckel […] competition is not a natural fact’ (Daß die ‘Konkurrenz’ der Warenverkäufer unter einander keine Naturthatsache ist, ebensowenig wie die der Verkäufer von Arbeitsleistungen, wissen wir heute—trotz Haeckel). A similar statement was made by Max Weber in The Protestant Ethic and the Spirit of Capitalism concerning the validity of natural selection. As individuals were selected depending on their adaption to the peculiarities of capitalism, the concept of selection had limited value for historical explanation (Weber [1930] 1992, 20). However, as Sombart (1927a, 963–966) pointed out, handicraft became dependent on capital, which changed the character of handicraft substantially. Sombart first separated ‘material technology’ (like weapons and measuring instruments) from ‘technology.’ He then narrowed down ‘material technology’ to ‘economic technology’ that served a ‘purposeful processing of material goods for human needs’ (Sombart 1901, 4–7).

Werner Sombart’s business cycle theory 167 50 According to Sombart (1902, 2:525), technology only had an effect on the economy when it was applicable to the differentiated working process and needed itself to be a ‘differentiated technology.’ In a small, undifferentiated handicraft business, motors could not affect productivity. Sieferle (1995, 80–81) pointed out that in making that claim, Sombart opposed Franz Reuleaux (1829–1905) and Werner Siemens (1816–1892), who argued that small machines could help improve handicraft. 51 This is not to say that Marx, or Engels, did not emphasize the destruction of nature (soil, forest, rivers) by capitalist production in other parts of their work. See Schmidt (1993, I–XII). 52 Sombart did not go into the details on what exactly led to the emancipation from the organic in these two industries. The context, however, reveals that he most likely thought of both the inorganic material and the chemical processes in the electrotechnical industry and the suppliers of the construction industry. Petrol, gas, and electricity replaced organic fats and oils in the electrotechnical industry. In the construction industry, steel, linoleum, and artificial colors were used in place of wood, linen, and plant-based colors (Sombart 1899, 21). See also Eulenburg (1902, 356) for details on the construction industry. 53 State intervention, the promotion of rationalization, and forward-looking businessmen, among others, led to the stabilization of the cycle (Sombart 1927a, 701–711).

References Appel, Michael. 1992. Werner Sombart. Historiker und Theoretiker des modernen Kapitalismus. Marburg: Metropolis. Backhaus, Jürgen. 1989a. ‘Werner Sombarts Konjunkturtheorie.’ In Studien zur Entwicklung der ökonomischen Theorie VII, edited by Bertram Schefold, 77–98. Berlin: Duncker & Humblot. ———. 1989b. ‘Sombart’s modern capitalism.’ Kyklos 42 (4): 599–611. ———, ed. 1996. Werner Sombart (1863–1941): social scientist 3vols. Marburg: Metropolis. Beckmann, Ulf. 2005. ‘Der Einf luß von Michail Tugan-Baranovsky auf die deutsche Konjunkturforschung im ersten Drittel des 20. Jahrhunderts.’ In Deutsche und russische Okonomen im Dialog: Wissenstransfer in historischer Perspektive, edited by Joachim Zweynert, 239–279. Marburg: Metropolis. Bergmann, Eugen. 1895. Die Wirtschaftskrisen. Geschichte der Nationalökonomischen Krisentheorieen. Stuttgart: W. Kohlhammer. Besomi, Daniele. 2011. ‘Graphical representations of Overstone’s cycle of trade.’ In Classical political economy and modern theory. Essays in honour of Heinz Kurz, edited by Christian Gehrke, Neri Salvadori, Ian Steedman and Richard Sturn, 289–312. London: Routledge. https://doi.org/10.4324/9780203804261 Brocke, Bernhard vom. 1992. ‘Werner Sombart (1863–1941) Capitalism—Socialism—His Life, works and inf luence since fifty years.’ Economic History Yearbook 33 (1): 115–184. https://doi.org/10.1524/jbwg.1992.33.1.115 Brück, Armin. 2009. Die Konjunktur- und Krisentheorien der Osterreichischen Nationalökonomie und der jüngeren Historischen Schule. Hamburg: Verlag Dr. Kovač. Conrad, Johannes. 1900. Volkswirtschaftliche Chronik für das Jahr 1900. Jena: Gustav Fischer.

168 Marius Kuster Ebner, Alexander. 2002. ‘Nationalökonomie als Kapitalismustheorie: Sombarts Theorie kapitalistischer Entwicklung.’ In Nationalökonomie als Kapitalismustheorie: Ausgewählte Schriften, edited by Alexander Ebner and Helge Peukert, 7–23. Marburg: Metropolis. Eulenburg, Franz. 1902. ‘Die gegenwärtige Wirtschaftskrise. Symptome und Ursachen.’ Jahrbücher für Nationalökonomie und Statistik 24 (3): 305–388. Foster, John Bellamy, and Paul Burkett. 2000. ‘The dialectic of organic/inorganic relations: Marx and the Hegelian philosophy of nature.’ Organization & Environment 13 (4): 403–425. Grandke, Hans. 1897. ‘Die vom “Verein für Socialpolitik” veranstalteten Untersuchungen über die Lage des Handwerks in Deutschland, mit besonderer Rücksicht auf seine Konkurrenzfähigkeit gegenüber der Großindustrie.’ Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft im Deutschen Reich 21 (3): 1031–1088. Haberler, Gottfried. 1937. Prosperity and Depression. A theoretical analysis of cyclical movements. Genève: League of Nations. Haeckel, Ernst. 1866. Generelle Morphologie der Organismen. Allgemeine Grundzüge der organischen Formen-Wissenschaft, mechanisch begründet durch die von Charles Darwin reformirte Descendenz-Theorie. Erster Band: Allgemeine Anatomie der Organismen. Berlin: Georg Reimer. ———. 1869. Ueber Arbeitstheilung in Natur- und Menschenleben. Vortrag, gehalten im Saale des Berliner Handwerker-Vereins am 17. Dezember 1868. Edited by Rudolf Virchow. Sammlung gemeinverständlicher wissenschaftlicher Vorträge. Berlin: Lüderitz’sche Verlagsbuchhandlung A. Charisius. https://doi.org/10.18452/297 ———. 1873. Natürliche Schöpfungsgeschichte. Gemeinverständliche wissenschaftliche Vorträge über die Entwicklungslehre im Allgemeinen und diejenige von Darwin, Goethe und Lamarck im Besonderen. Berlin: Georg Reimer. Hagemann, Harald. 1999. ‘The development of business-cycle theory in the German language area, 1900–1930.’ Storia del Pensiero Economico 37 (1): 87–122. Hansen, Alvin Harvey. 1927. Business-cycle theory. Its development and present status. Boston, MA: Ginn and Company. Herf, Jeffrey. 1984. Reactionary modernism: Technology, culture, and politics in Weimar and the Third Reich. Cambridge: Cambridge University Press. https://doi.org/10.1017/ CBO9780511583988 Herrmann, Emanuel. 1891. Technische Fragen und Probleme der modernen Volkswirtschaft. Studien zu einem Systeme der reinen und ökonomischen Technik. Leipzig: C. F. Winter’sche Verlagshandlung. Hesse, Mary. 1966. Models and analogies in science. Notre Dame: University of Notre Dame Press. Hock, Wolfgang. 1960. Deutscher Antikapitalismus. Der ideologische Kampf gegen die freie Wirtschaft im Zeichen der großen Krise. Frankfurt am Main: Fritz Knapp. Hoffmann, Walther. 1965. Das Wachstum der Deutschen Wirtschaft seit der Mitte des 19. Jahrhunderts. Berlin/ Heidelberg/ New York: Springer Verlag. https://doi. org/10.1007/978-3-642-86088-1 Hutter, Michael. 1994. ‘Organism as a metaphor in German economic thought.’ In Natural images in economic thought: Markets read in tooth and claw, edited by Philip Mirowski, 289–321. Cambridge: Cambridge University Press. https://doi. org/10.1017/CBO9780511572128.011 Jevons, William Stanley. 1865. The coal question; an inquiry concerning the progress of the nation, and the probable exhaustion of our coal-mines. London/ Cambridge: Macmillan.

Werner Sombart’s business cycle theory 169 Klamer, Arjo, and Thomas C. Leonard. 1994. ‘So what’ s an economic metaphor?’ In Natural images in economic thought: Markets read in tooth and claw, edited by Philip Mirowski, 20–51. Cambridge: Cambridge University Press. https://doi. org/10.1017/CBO9780511572128.002 Krause, Werner. 1962. Werner Sombarts Weg vom Kathedersozialismus zum Faschismus. Berlin: Rütten & Loening. Kuntze, K. 1903. ‘Wollindustrie.’ In Die Störungen im deutschen Wirtschaftsleben während der Jahre 1900 ff. Erster Band. Textilindustrie., edited by Verein für Sozialpolitik, 158–321. Leipzig: Duncker & Humblot. https://doi.org/10.3790/ 978-3-428-57358-5 Landes, David. 1969. The unbound Prometheus: Technological change and industrial development in western Europe from 1750 to the present. Cambridge: Cambridge University Press. Lebovics, Herman. 1969. Social conservatism and the middle class in Germany, 1914–1933. Princeton, NJ: Princeton University Press. https://doi.org/10.1515/9781400879038 Lederer, Emil. 1925. ‘Konjonktur und Krisen.’ In Grundriss der Sozialökonomik. IV. Abteilung: Spezifische Elemente der modernen kapitalistischen Wirtschaft. I. Teil, 354–413. Tübingen: Verlag von J. C. B. Mohr (Paul Siebeck). Lenger, Friedrich. 1994. Werner Sombart 1863–1941. Eine Biographie. München: C. H. Beck. Limoges, Camille, and Claude Ménard. 1994. ‘Organization and the division of labor: Biological metaphors at work in Alfred Marshall’s Principles of Economics.’ In Natural images in economic thought: Markets read in tooth and claw, edited by Philip Mirowski Historical perspectives on modern economics, 336–359. Cambridge: Cambridge University Press. https://doi.org/10.1017/CBO9780511572128.013 List, Friedrich. 1841. Das nationale System der politischen Oekonomie. Stuttgart/ Tübingen: Cotta. Luxemburg, Rosa. 1903. ‘Im Raten der Gelehrten.’ Die Neue Zeit 22 (1): 5–10. Marx, Karl. [1867] 1996. Capital. A critique of political economy. Volume I. The process of production of capital. New York: International Publishers. ———. [1894] 1998. Capital. A critique of political economy. Volume III. The process of capitalist production as a whole. New York: International Publishers. Mitchell, Wesley Clair. 1913. Business cycles. Berkeley: University of California Press. ———. 1927. Business cycles. The problem and its setting. New York: National Bureau of Economic Research. Niman, Neil. 1991. ‘Biological analogies in Marshall’s work.’ Journal of the History of Economic Thought 13 (1): 19–36. https://doi.org/10.1017/S1053837200003370 Oldenberg, Karl. 1897. Deutschland als Industriestaat. Göttingen: Vandenhoeck & Ruprecht. Peukert, Helge. 2010. ‘Die Technik im Werk Werner Sombarts.’ In Studien zur Entwicklung der ökonomischen Theorie XXIII. Okonomie und Technik, edited by Harald Hagemann. Berlin: Duncker & Humblot. https://doi.org/10.2307/j.ctv1q69g6x Pohle, Ludwig. 1902. Deutschland am Scheidewege. Betrachtungen über die gegenwärtige volkswirtschaftliche Verfassung und die zukünftige Handelspolitik Deutschlands. Leipzig: B. G. Teubner. Potthoff, H. 1903a. ‘Die Leinenindustrie.’ In Die Störungen im deutschen Wirtschaftsleben während der Jahre 1900 ff. Erster Band. Textilindustrie., edited by Verein für Sozialpolitik, 1–126. Leipzig: Duncker & Humblot. https://doi. org/10.3790/978-3-428-57358-5

170 Marius Kuster ———. 1903b. ‘Von der Generalversammlung des Vereins für Sozialpolitik. 14.–16. September in Hamburg.’ Volkswirtschaftliche Blätter 2 (10): 150–152. Ringer, Fritz. 1969. The decline of the German Mandarins. The German Academic Community, 1890–1933. Cambridge, MA: Harvard University Press. Roscher, Wilhelm. 1849. ‘Die Productionskrisen mit besonderer Rücksicht auf die letzten Jahre.’ In Die Gegenwart. Eine encyklopädische Darstellung der neuesten Zeitgeschichte für alle Stände Vol. 3, 721–758. Leipzig: F. A. Brockhaus. Schmidt, Alfred. 1993. Der Begriff der Natur in der Lehre von Marx. 4th ed. Frankfurt am Main: Europäische Verlagsanstalt. Schmölders, Günter. 1990. ‘Berliner Konjunkturtheorie und -politik vor Keynes.’ In Beiträge zur Wirtschaftswissenschaft in Berlin. Geschichte und Gegenwart, edited by Burkhard Strümpel, 111–118. Berlin: Colloquium. Schumpeter, Joseph Alois. 1927. ‘Sombarts Dritter Band.’ Schmollers Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft im Deutschen Reiche 51 (3): 349–369. ———. 1939. Business cycles. London and New York: McGraw-Hill. Sieferle, Rolf Peter. 1995. Die Konservative Revolution. Fünf biographische Skizzen (Paul Lensch, Werner Sombart, Oswald Spengler, Ernst Jünger, Hans Freyer). Frankfurt am Main: Fischer. Sombart, Werner. 1896. ‘Zur neueren Litteratur über das Handwerk.’ Archiv für soziale Gesetzgebung und Statistik 9: 624–639. ———. 1899. ‘Die gewerbliche Arbeit und ihre Organisation.’ Archiv für soziale Gesetzgebung und Statistik 14: 1–52, 310–405. ———. 1901. Technik und Wirtschaft. Dresden: v. Zahn & Jaensch. ———. 1902. Der moderne Kapitalismus. 2 vols. Leipzig: Duncker & Humblot. ———. 1903a. Die deutsche Volkswirtschaft im Neunzehnten Jahrhundert. Berlin: Georg Bondi. ———. 1903b. ‘Vorwort.’ In Die Störungen im deutschen Wirtschaftsleben während der Jahre 1900 ff. Erster Band. Textilindustrie., edited by Verein für Sozialpolitik, V–XIII. Leipzig: Duncker & Humblot. https://doi.org/10.3790/978-3-428-57358-5 ———. 1904a. ‘Die Störungen im deutschen Wirtschaftsleben während der Jahre 1900 ff: 1. Referat.’ In Über die Lage der in der Seeschiffahrt beschäftigten Arbeiter und über die Störungen im deutschen Wirtschaftsleben während der Jahre 1900 ff., CXIII, edited by Verein für Sozialpolitik, 121–137. Berlin: Duncker & Humblot. ———. 1904b. ‘Versuch einer Systematik der Wirtschaftskrisen.’ Archiv für Sozialwissenschaft und Sozialpolitik 19 (1): 1–21. ———. 1913. Der Bourgeois. Zur Geistesgeschichte des modernen Wirtschaftsmenschen. München/ Leipzig: Duncker & Humblot. ———. 1925. ‘Prinzipielle Eigenart des modernen Kapitalismus.’ In Grundriss der Sozialökonomik. IV. Abteilung: Spezifische Elemente der modernen kapitalistischen Wirtschaft. I. Teil, edited by Carl Brinkmann. Tübingen: J. C. B. Mohr (Paul Siebeck). ———. 1927a. Der moderne Kapitalismus. Das Wirtschaftsleben im Zeitalter des Hochkapitalismus. Vol. 3. München/ Leipzig: Duncker & Humblot. ———. 1927b. Die Ordnung des Wirtschaftslebens. 2nd ed. Berlin: Julius Springer. Spiethoff, Arthur. 1904. ‘Kommentar: Die Störungen im deutschen Wirtschaftsleben während der Jahre 1900 ff.’ In Über die Lage der in der Seeschiffahrt beschäftigten Arbeiter und über die Störungen im deutschen Wirtschaftsleben während der Jahre 1900 ff., CXIII, edited by Verein für Sozialpolitik, 209–225. Berlin: Duncker & Humblot. ———. 1925. ‘Krisen.’ In Handwörterbuch der Staatswissenschaften, edited by Ludwig Elster, Adolf Weber and Friedrich Wieser, Vol. 6, 8–91. Jena: Gustav Fischer.

Werner Sombart’s business cycle theory 171 Sybel, Heinrich von. 1903. ‘Die Baumwollindustrie.’ In Die Störungen im deutschen Wirtschaftsleben während der Jahre 1900 ff. Erster Band. Textilindustrie, edited by Verein für Sozialpolitik, 128–156. Leipzig: Duncker & Humblot. https://doi. org/10.3790/978-3-428-57358-5 Tugan-Baranovsky, Mikhail. 1901. Studien zur Theorie und Geschichte der Handelskrisen in England. Jena: Gustav Fischer. Wagner, Adolf. 1901. Agrar- und Industriestaat. Eine Auseinandersetzung mit den Nationalsozialen und mit Professor L. Brentano über die Kehrseite des Industriestaats und zur Rechtfertigung agrarischen Zollschutzes. Jena: Gustav Fischer. Weber, Max. [1930] 1992. The protestant ethic and the spirit of capitalism. Translated by Talcott Parsons. London/ New York: Routledge. Zweynert, Joachim, and Daniel Riniker. 2004. Werner Sombart in Rußland. Ein vergessenes Kapitel seiner Lebens- und Wirkungsgeschichte. Marburg: Metropolis.

6

Biological, medical and physical metaphors in Germán Bernácer’s theory of business cycles (1916–1936) Juan A. Zabalza

6.1 Introduction The analysis of economic crises was not a common topic in the Spanish literature of the 19th century. Few economists paid attention to crises as a phenomenon. When they did, like Alvaro Flórez Estrada, they referred to crises experienced by foreign countries. Even at the end of the century, when the phenomenon of economic crises became more apparent, Spanish economists focused on the repercussions of the crises for Spanish agricultural production and phenomena like pauperism and the institutional reforms needed to confront them. They were not particularly interested in the causes and mechanics of economic crises. During the early 20th century, there was little theoretical analysis of economic crisis within the Spanish community of academic economists, who were mainly educated in law faculties. However, a heterogeneous group of researchers with mathematical, statistical and natural sciences backgrounds— in stark contrast to mainstream Spanish economists—began to take interest in economic crisis. Amongst them, it is worth highlighting Germán Bernácer, who developed a theory of economic f luctuations in a monograph and a series of articles mottled with metaphors and analogies from natural sciences.

6.2 Spanish economists and economic crises 6.2.1 Economic crises in Spanish economic literature during the 19th century: an alien phenomenon The late 18th century was a f lourishing period for political economy in Spain. The great reformers and economists of the day like Jovellanos, Campomanes and many others shifted the economic discourse. They left behind the old debates of the 17th and 18th centuries by introducing new challenges like agrarian reform, the monopoly of colonial trade, the abolition of guilds and entailed dominions, tax reform and the liberalization of the corn trade. In the 19th century these debates continued, alongside discussions about the problems with Spanish public finances and the growing public debt,

DOI: 10.4324/9781003144601-9

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particularly during the two parliamentary periods (1812–1814 and 1820– 1823). Nevertheless, Spanish economists paid little attention to economic crises in general and made no mention of crises in the Spanish economy during the early 19th century, with a couple of exceptions. In 1823, with absolutism reestablished in Spain, many liberals sought exile abroad, mainly in London. It is here that we find some interest in the phenomenon of economic crises. The most significant work in this respect was Flórez Estrada’s Reflections on the present mercantile distress experienced in Great Britain and more or less affecting other nations on the continent of Europe, &c. &c. published in London in 1826 and later translated into Spanish (Flórez Estrada 1826). This work enjoyed some success, being republished three times in London and receiving a critical review by Jean-Baptiste Say in the Revue Encyclopédique (Prados Arrarte 1982, 30). After describing the consequences of the London Stock Market crash in 1825 on employment, production, trade and public finances, Flórez dismissed several factors that were accepted by British public opinion and stated that what lay behind the crisis in Britain was the monetary shortage in the Latin American republics that halted the f low of precious metals to Europe (Flórez Estrada 1826). He uses no analogies to describe the crisis, except for the medical term ‘symptoms’ and the moral term ‘evil.’ Flórez was not alone in discussing the economic crisis. The pamphlet ‘Five Questions on the Actual Mercantile Distress’ by the almost unknown Pablo Pebrer was the result of his expertise as a successful merchant in Britain. Like Flórez, he does not accept the contemporary interpretations of the crises as the result of the operations of the Bank of England and suggests that the crisis was ‘more imaginary than real,’ using an empirical analysis that relies more on ‘facts’ and trade figures than abstract pre-conceptions (Pebrer 1826, 18). He deploys a mechanical analogy for the crisis, writing that ‘… the mercantile machine suffered in its rotation, its accelerated movement stopped’ (Pebrer 1826, 16). Pebrer also describes the financial distress and bankruptcies by using the metaphor of a torrent sweeping through the banks, which suffered the most visible aftereffects of the crisis. In using such a metaphor, Pebrer clearly aimed to stress the violence and suddenness of the financial crisis (Besomi 2019, 373). Not until midway through the century does one find further mention of the economic crisis in the writings of Spanish economists. By then, the free-trade–protectionism debate had monopolized economic disputes. Luis M. Pastor, a supporter of free trade, gave a historical account of the financial distress during the 19th century without going into its causes in any depth. He referred to the crisis as a ‘social illness,’ as if the crisis were an exogenous phenomenon (Pastor 1850). A more moderate proponent of free trade, Colmeiro, also refers to economic crises as an ‘accidental phenomenon’ with no periodicity that free trade policy may help overcome (Colmeiro 1873, 172). A complete analysis of crises, however, is found under the entry ‘Commercial crisis’ in the first Spanish general encyclopedia by José Joaquín de Mora, one

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of the old liberals exiled in London. When describing the ‘commercial crisis’ Mora, probably recalling his experience in 1820s London, points out that the psychological mood of social classes in such a situation is called ‘panic’ in England. It is a term that has become more common in contemporary works (Besomi 2011). The entry summarized the agenda of the supporters of free trade and linked the commercial crisis to protectionism. This was the connection that was commonly made in the French works circulating in Spain at the time, such as Rossi’s Curso de Economía Política (Rossi 1840). However, generally speaking, the economic crisis was a phenomenon the Spanish regarded as alien to the Spanish economy of the mid-19th century (see Chapter 1 for a similar understanding of crises in Italy).1 The free trade–protectionist controversy increasingly lost prominence to a series of other debates like the rearrangement of public debt, integration into the Latin Monetary Union, the central bank’s issuing monopoly and monetary policy and, above all, the debate about the so-called social question, referring to the social consequences of industrialization. Something changed, however, in the light of the 1870s crisis. Most Spanish economists give apparently down-to-earth interpretations, merely describing the path of economic events, their obvious causes (overproduction caused by overseas production and globalization) and their consequences on commercial policy (San Julián 2015). On the other hand, many remarked that Spanish agriculture’s structural problems and the protectionist policies implemented by European countries impeded the modernization of production, which paved the way for the harsh impact of the international crisis. Some critics of individualism like Estasén, Azcárate and Piernas Hurtado noted a more profound and general moral or ethical crisis behind the economic distress. This is symptomatic of the poor analytical level of Spanish economists’ accounts of the crisis (Azcárate 1879; Piernas 1882, 73). At the end of the century, however, a few economists like Villaverde and Sanz de Escartín insisted on the monetary origins of the depression and particularly to the falling money supply as a result of the demonetization of silver in bimetallic monetary systems (San Julian 2015, 880). This is a faithful ref lection of a period of true detachment of Spanish economists from the new developments in economics like marginalism and historicism. Most economists focused on policy and practical questions and did not show particular interest in theoretical advances and even less in the theory of business cycles. 6.2.2 The early 20th century During the early 20th century things changed dramatically and Spanish political economy experienced a period of modernization. The key figure in this process was Antonio Flores de Lemus, who was highly inf luenced by German neo-historicism. Flores assembled a large group of disciples who worked throughout the faculties of law, where they taught political economy and public finance. All adopted an empirical methodology that proved the inf luence of German neo-historicism, analyzing the functioning of the

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Spanish economy, the problem of economic backwardness and suggesting reforms to the structure of Spanish public finances and administration. Besides historicism, marginalism played a secondary role in the modernization of the Spanish political economy thanks to J.M. Zumalacárregui, who was inf luenced by the Lausanne School. An overview of this literature until the late 1920s reveals no interest in the theory of business cycles. Paradoxically, some economists who worked outside academic circles and faculties of law were the first to pay attention to economic crises. The mathematician and statistician Olegario Fernández-Baños, who had been strongly inf luenced by the Italian economists Luigi Amoroso and Enrico Barone, taught a course in 1925 entitled ‘Nociones fundamentales de economía matemática’ (Foundations of mathematical economics), which included an appendix on the periodic crises of capitalism (Fernández-Baños 1925). Later on, in the 1930s, he made interpretations of the British economic crises following the abandonment of the gold standard. However, he did not use any metaphorical language apart from mathematical formalism. The Catalan Josep Antoni Vandellós, who also had a statistical background, showed an interest in economic crises in his article ‘Patología Económica’ (Economic Pathology) published in Revista Nacional de Economía (Vandellós 1925). By economic pathology he meant the analysis of the economic organism in abnormal periods, that is, when the organism is sick, in contrast with economics that analyzed the organism during regular economic periods. This use of this biological metaphor to describe the economic crises was not original, as the article was largely a lengthy summary of the lectures given by the Italian statistician Corrado Gini at Bocconi University in Milan, after the Italian had adopted the methodological approach known as neo-organicism (Cassata 2008). The article suggests that Vandellós was assimilating the medical metaphors that Gini, whom he recognized as a master, frequently used in his writings. During the Great Depression, Vandellós was given a position at the Catalan Institut d’Investigacions Econòmiques in Barcelona and wrote a vast number of articles on business cycles, but by then the metaphorical language had vanished completely (Pascual 1991, 8). The third and most extraordinary exception was the economist Germán Bernácer, who made the only distinctive Spanish contribution to the theory of economic cycles between 1916 and 1926. The Great Depression was generally interpreted as ‘someone’s else problem,’ as it impacted Spain less than most European countries. Therefore, few economists paid attention to the economic distress the world economy suffered during the 1930s, and when they did they usually relied on borrowed accounts from the leading economists at the time. Luis Olariaga, for example, gave an Austrian account of the economic crisis.2 Others, like Manuel de Torres and Vergara—both agricultural economics specialists—focused on the agricultural origins and their repercussions in Spain. Perpiñá Grau and Torres both examined the Spanish economic crisis using a structural analysis based on a generic notion of equilibrium (Zabalza 2012). There were, however, some original attempts to interpret the depression like the monograph Dinero,

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rentas y paro by the prolific economist Lorenzo Victor Paret (1930). Paret held that capitalism involves the continuous disruption of economic equilibrium caused by f luctuations in the volume of credit, which in turn result from the requirements of the gold standard. Apart from this, Paret took an underconsumption approach to economic crisis inspired by Foster, Catchings and P. W. Martin (Paret 1930, 1935). Nevertheless, we found no use of metaphorical language in these works, with two exceptions. The first is the above-mentioned J.M. Zumalacárregui, who gave a comprehensive historical account of the theories of business cycles by categorizing them according to the different analogies and metaphors used to illustrate cyclical movements (medical, astronomic or mechanical). In this respect, it is worth remarking that he regards the term ‘crisis,’ as used by classical economists and organicists like Schäff le, as anachronistic and erroneous. According to him, the term invokes a medical metaphor to describe the exogenous origins of a crisis that leads the economy to an abnormal state, an illness of the economic organism. Illness, he affirms, has no regular rhythm and cannot be subjected to prediction or calculus and therefore has nothing to do with business cycles (Zumalacárregui 1933, 628). He suggests substituting it for the term ‘coyuntura’ (conjuncture), which he takes from the German economist and statistician Wagemann, who, he says, gave the term different lexicographical content by using it in prosperity and depressions (Zumalacárregui 1933, 632–633). The second exception, as mentioned, is Germán Bernácer, the main subject of this article.

6.3 The metaphors and analogies in Bernácer’s theory of economic f luctuations 6.3.1 Germán Bernácer’s theory of economic fluctuations Germán Bernácer Tormo (1883–1965), a canonical example of the selftaught economist, was born in the peripheral town of Alicante (Spain). After graduating from the Escuela Superior de Comercio de Alicante in 1901, he taught Physics, Chemistry, Natural History and Industrial Technology at the same institution, thereby gaining a natural sciences and technological background (Oliver Narbona 1983, 33–45). His friends were successful local musicians, painters and writers, but no economists or social scientists belonged to his close circles. How Bernácer ended up in economics therefore remains a mystery. The most reliable hypothesis, however, relates to the social and political convictions that led him to take an intellectual interest in Henry George and Georgism. His first publication, the monograph Sociedad y felicidad (Society and Happiness) (1916), attempted an early interpretation of the cyclical nature of capitalism and advanced some ideas that he would later develop in a series of articles published in the 1920s. The most significant of them was ‘Teoría de las disponibilidades como interpretación de las crisis económicas y del problema social’ (‘Theory of Disposable Funds as an Interpretation of

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Economic Crises and the Social Problem’), which provided the first formal account of his theory of economic f luctuations (Bernácer 1922). Further articles and a monograph on the theory of interest in 1925 helped to complete the theory by 1926 (Bernácer 1925, 1926a, 1926b). Nevertheless, the publication of Keynes’s A Treatise on Money (1930), the main ideas in which Bernácer believed he had advanced, led him to rearrange the model based on new formal rhetoric in a series of articles that he published in the journal Economía Española. By then, he was a member of the Research Department of the Bank of Spain, where he drafted a series of weekly reports between 1932 and 1936 to advise the bank’s board about the global economic and monetary events of the 1930s based on his theory of ‘disposable funds’. This activity came to an end when the Spanish Civil War broke out in July 1936. Bernácer, however, remained outside the circles of Spanish economists and never held a position at a Spanish university as an economist. Even when Dennis Robertson published an article in Economica (1940) that included excerpts from Bernácer’s work in 1922 and suggested that the theory of disposable funds may have inspired his time-lag theory of business cycles and indirectly Keynes’s, Bernácer won no academic recognition in Spain (Boianowsky et al. 2006). In fact, after the Spanish Civil War (1936–1939), he undertook a campaign to spread the theory of disposable funds abroad by publishing a wide range of articles in international journals. He also prepared some monographs in which he claimed that he had advanced the model of economic f luctuations in A Treatise on Money and firmly believed that the path Keynes had taken in the General Theory (1936) led him the wrong way. Bernácer gave different formal accounts of his model of economic f luctuations. However, the essentials of the model did not experience significant changes after 1922, and a brief and simplified account of its central tenets will suffice for our purposes. Once the different economic agents are remunerated for their contribution to production, these ‘disposable funds’—which may be augmented by new ones coming from, for example, an increased money supply by the central bank—may be allocated to the ‘productive fund’ (the production-consumption cycle) or the ‘unproductive fund’. In the first case, effective demand results. However, the ‘disposable funds’ may be allocated to the ‘unproductive fund’, being hoarded—‘f loating disposable funds’—or allocated to what he called ‘valores de renta’ (incomeyielding assets), including land and industrial shares in the stock exchange market (Bernácer 1926a, 10–11; 1935, 6).3 In this case, the ‘disposable funds’ do not result in effective demand. The dynamic development of the model results in a cyclical structure of the economy, which moves away from economic equilibrium. The determining factor behind the breaking of the economic equilibrium is the ‘… attraction and repelling of disposable funds by the income-yielding assets market,’ which leads to a shortage of ‘disposable funds’ in the credit and real investment markets that eventually results in falling demand (Bernácer 1935, 25). Once demand falls, there is a need to reduce the stock of goods by reducing prices.

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As sales take place at a lower price, the value of production plummets. In this context, companies limiting costs will improve technical organization and dismiss workers, leading to industrial unemployment—a central feature of the depression—and, thus, to further reductions in remunerations, resulting in the typical downward spiral that characterizes crises (Bernácer 1934b; 1935, 17). During the depression, the growing inf low of ‘disposable funds’ to the financial market may reduce the rate of interest, which paves the way to the return to prosperity. However, the distrust caused by the crisis, which incentivizes hoarding and results in falling demand, impedes the automatic return to prosperity. The turning point, according to Bernácer, is usually the result of some ‘fortuitous event’ that absorbs the purchasing power existing in the ‘unproductive’ or reserve fund and reintroduces it to the productive circuit (Bernácer 1934a, 19). Such phenomena may be a war, a technical innovation, or even a public calamity. 6.3.2 The use of metaphorical terms and analogies in Bernácer’s writings From the very beginning Bernácer’s writings use abundant metaphorical language to illustrate many aspects of the theory of ‘disposable funds’ as an explanation of business cycles. Leafing through Sociedad y Felicidad (1916), we find several examples of resemblances and similarities between some aspects of the economic crises that may be classified as metaphors or analogies. For our purposes, we will not discuss the nature of these similarities, whether metaphors or analogies (see the Introduction to this volume), and merely identify them, how they fit with the model of ‘disposable funds’ and why Bernácer used them to illustrate different aspects of the economic crises. As early as the introduction, Bernácer convincingly describes the parallels between ‘physical and social mechanics’ (Bernácer 1916, 14), which might be expected given the full title of the book: Sociedad y Felicidad. Ensayo de Mecánica Social (Society and Happiness. Essay on Social Mechanics). Bernácer’s natural sciences background may have inf luenced his drawing of this parallel. On the other hand, Bernácer himself provides indications in Sociedad y Felicidad of the possible inf luence of Henry George in this respect. In the introduction he outlines the basic principles of economics: human wants are diverse and to meet them, a painful task is demanded of human beings called labor; human beings ultimately meet human wants, but with the minimum effort possible; growing human wants are a manifestation of human progress. Afterwards, he draws parallels with some physical laws ‘… the first one fits with the mechanical law of inertia; the second one, with Henry George … may be related to the second axiom of mechanics: the independence of the physical forces …’ (Bernácer 1916, 20). However, while not denying George’s inf luence on the parallels Bernácer draws between physical and social mechanics, the inf luence of the American sociologist Lester F. Ward seems also to have been crucial in this respect.

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Ward was a prominent American sociologist who became interested in social sciences after establishing a minor career as a botanist and natural science writer. He went on to join the scientific community that would later form the basis of the US Geological Survey, the Bureau of Labor Statistics and the Smithsonian Institute (Lybeck 2013). His approach to sociology was autodidactic, remained relatively isolated from the currents in academic and social science at the time and drew parallels with natural science. His Outlines of Sociology is undoubtedly behind Bernácer’s subtitle—Ensayo de Mecánica Social. Ward’s monograph forms part of an agenda to make sociology a scientific discipline, and in doing so he analyzes the links and similarities between sociology and natural sciences, that is, between ‘physical phenomena’ and ‘social phenomena’ (Ward 1898, 164). The latter is governed by ‘… true natural forces and obeys all of the Newtonian laws of motion’ (Ward 1898, 166) and therefore ‘… to regard social structures as a mechanism is a luminous point of view for the treatment of social mechanism’ (Ward 1898, 171). Bernácer applies this parallelism to the phenomenon of economic crisis with two physical metaphors. The first compares the development of the economic crisis with the ‘waves started by the throwing of a stone in the pond’ (Bernácer 1916, 234). The second is a more sophisticated remark that even though economic crises begin at a small scale, the process develops in a cumulative way, resulting in an immeasurable phenomenon that nevertheless retains the causal links with the original spur: The physical phenomenon which most closely resembles the economic crisis is ‘exothermic decomposition’. The small original cause is but an initial stimulus or preliminary work, which, once completed, continues by itself, resulting in disproportionate effects compared to the original cause. (Bernácer 1916, 235) Both metaphors suggest a regular transmission of the initial impact to the most advanced phases of the cycle. Moreover, they suggest causal links between the origin of the cycle and its development. Nevertheless, they do not pretend to give a complete description of the cycle and suggest nothing about the cycle’s periodicity or turning point. The second stage in the development of Bernácer’s theory of business cycles begins with the article ‘La teoría de las disponibilidades líquidas’ (1922). This is the paper behind Bernácer’s reputation as a forerunner of the Cambridge time-lag theories of the business cycle (Boianowsky et al. 2006). The article is formally different from Sociedad y felicidad, as it focuses on the economic model itself, setting aside any sociological or anthropological issues that characterized his first work. By then, Bernácer had situated his theory of economic f luctuations within the spectrum of economic theories. As early as 1918, he had criticized the Marshallian paradigm by considering that the demand and supply analysis and their ‘complex curves’ were not enough to

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account for the prices of goods, as they do not take into account changes in money value. He compared Marshallian economics to physics before Galileo, calling it ‘Ante-Galilean economics’ (Bernácer 1918, 252). By using this term, Bernácer seeks to highlight the existence of a new theoretical system that is able to replace the neoclassical orthodoxy (Besomi 2019, 362). It is worth remarking that Bernácer exemplified critical relationships between the economic variables using physical but mainly medical or biological metaphors. This is a significant change from the metaphors in Sociedad y Felicidad, but we have not observed any significant evolution in his thought, and no event has taken place that may have led him to introduce this new sort of metaphors. Perhaps the different audiences of Sociedad y felicidad and Revista Nacional de Economía, the journal that published the article, has something to do with the new rhetoric adopted in 1922. We know, however, that Bernácer has used the term ‘social organism’ from the very beginning. It is continually repeated in Bernácer’s writings and comes from Herbert Spencer, although it is possible that he learned it—again—through Ward’s Outlines of Sociology (Ward 1898, 187).4 As seen above, the final allocation of ‘disposable funds’ plays a central role in Bernácer’s model of economic f luctuations. The different uses made of these ‘disposable funds’ determine their migration to the ‘productive’ or the ‘unproductive fund’, and their resulting different effects on the level of economic activity.5 Therefore, while ‘…the loan, the speculative investment or the purchasing of income-yielding assets does not change the objective nature of disposable funds,’ as they move within the limits of the unproductive fund ‘the allocation of them in industry to paying wages, assets, interests, rents […] transforms them into remunerations’ and thus changes their nature (Bernácer 1922, 543). Bernácer compares this process to metamorphosis, which he does not describe, but also to biological metabolism: Thereby, what is seen from outside as an equilibrium that barely oscillates, is in the innermost a state of dynamic activism similar to the material equilibrium of human livings, which is maintained by assimilation and de-assimilation, and therefore, the reserve tissues—in this case, disposable funds—increase or decrease depending upon the two reverse aspects of metabolism. (Bernácer 1922, 544) Adipose or reserve tissues play a central role in regulating the energy of the organs and the body as a whole. As stores of energy in the form of lipids that are distributed all over the body, they also act as an endocrine organ producing numerous bioactive factors and modulating a range of metabolic pathways (Luo and Liu 2016). We do not know how deep Bernácer’s biological knowledge was, but the metaphor is quite sophisticated for the regular readers of Revista Nacional de Economía, who were basically businessmen. More than the regular reader of the journal, it looks like the article targeted the academic

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spheres, as the journal regularly published articles by the country’s leading economists. However, most of them taught at the faculties of law, and the analogy used by Bernácer may not clarify things. We cannot advance any clear hypothesis on this, but it looks like Bernácer seeks to stress the scientific nature of his contribution to a Spanish academic community that had utterly ignored his work on business cycles. Bernácer also uses a physical metaphor to represent the instability of productive configurations, which depends, as mentioned, on the final allocation of ‘disposable funds’, which in turn depends on the decisions of the money holders. If they change their ‘wishes’ and ‘plans’ it will result in the ‘… shifting of the activities of one industry to another like the magnetized needle moves around’ (Bernácer 1922, 537). The metaphor adds some aspects that were previously missing. The movement of the magnetized needle seems to suggest a quick movement toward crisis but does not convey the asymmetric shape the cycle takes in Bernácer’s theory, as the movement toward equilibrium or the prosperity phase does not happen automatically. Bernácer completed the theory of ‘disposable funds’ in 1926, later setting theoretical issues aside to focus on some lively debates that took hold in Spain about the possibility of the Spanish currency joining the gold standard. The metaphors for the economic crisis vanished utterly, but he continued using physical and meteorological metaphors to epitomize the relationships between the rate of exchange, the level of domestic prices and the balance of trade (Bernácer 1929). When he returned to economic theory in 1933, however, he opted for medical metaphors to characterize the economic crisis. Hence, when he analyses the causes of the economic crisis, he uses the term ‘etiology,’ and when describing its development, he calls it a ‘pathological process’ (Bernácer 1934a, 18). Bernácer also came to make prolific use of metaphors when he drafted a series of reports as a member of the Research Department of the Bank of Spain to advise the members of the bank’s board about the main economic and financial events of the Great Depression. Medical metaphors are by far the most frequent in the reports. The term ‘disease of the economic organism’—in the different Spanish meanings of the term (dolencia, enfermedad, males del organismo) is very often used to denote speaking, economic crisis. However, Bernácer makes a precise gradation in the use of these terms depending upon the particular episode of the economic crisis and how they affect peripheral or core aspects of the ‘disposable funds’ model. So, when reporting the evolution of the price of stock market securities, or even interest rate levels he talks about ‘symptoms of the economic organism’ that might be advancing a period of prosperity or depression (Bernácer 2020, December 29, 1932 and November 29, 1935). In some cases, when referring to the early stages of economic crisis, he uses the terms ‘germ’ or ‘embryo’ (Bernácer 2020, March 9, September 22 and December 22, 1932). However, when Bernácer qualifies the term ‘illness’ as ‘the capital disease of the economic organism’ or ‘the deepest sickness’ (Bernácer 2020, February 3 and April 21, 1932), he refers to the ‘disposable

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funds’ feeding the ‘unproductive’ fund on a large scale. Such f lux is basically caused by def lation, which makes the ‘disposable funds’ migrate from the productive fund to the unproductive fund and mainly to income-yielding assets. He also used the term ‘cancer’ to refer to that episode, which is central to the model of ‘disposable’ funds (Bernácer 2020, March 23, 1932). There are many other analogies for referring to particular aspects of the crisis. As Bernácer was particularly interested in warning the bank’s board about the repercussions of the lousy management of the policy of the exchange rate, and more specifically the overvaluation of the Spanish currency, he paid particular attention to the troubles experienced by the countries in the Gold Bloc, especially France. When Bernácer criticized the exchange rate policy of the French franc, he was indirectly referring to the debates in Spain at the time, as the Spanish currency was in 1933 pegged to the French franc and, therefore, indirectly to the gold standard. Although the management of the exchange rate was not then in the bank’s hands, he wanted to inf luence the members of its board, who were highly regarded in Spanish economic circles for keeping the Spanish economy relatively isolated from the global crisis. As early as 1933, he used many—usually medical—metaphors to criticize the proponents of the gold standard over the issue of currency stabilization. Bernácer strongly opposed a return to gold as a means of stabilizing currencies during the turbulent 1930s by using two metaphors. An ‘elastic rubber meter rule’ is used to exemplify how an international monetary system based on variable rates of exchange may lead to the stabilization of currencies. Bernácer wants to illustrate that gold is not a stable measure for prices, as its value—or the value of goods—is continually moving up and down. He claimed that anchoring the currencies to gold resulted in domestic price instability. As with Keynes, Bernácer was highly skeptical about the quantitative theory of money and regarded instability of domestic prices as harmful. The critical point was that gold parity, as it is known, carried instability over to domestic prices. Bernácer exemplified this by using the metaphor of an ‘umbilical cord’ channeling disequilibrium to domestic prices. Disconnecting the two bodies by cutting off the ‘umbilical cord’ that joins them together paves the way for the stability of domestic prices (Bernácer 2020, June 22, 1933). Bernácer regarded the def lationary pressure imposed by gold parity as a barrier to efficiently fighting the depression. This problem and the distress in the French economy are repeatedly remarked upon in the reports. In this vein, when he described the def lation suffered by the countries in the Gold Bloc, and particularly France, he declared that they ‘are under a strain that resembles a recurrent fever’. These countries perform like a ‘chronic patient that is consumed by the successive attacks’ (Bernácer 2020, May 29, 1935). The survival and resilience of the French economy are possible due to ‘natural inertia or the instinct for self-preservation that is innate to any organism’ (Bernácer 2020, December 27, 1935). The term ‘chronic patient’ denotes not only the impossibility of recovery in the context of the gold standard but also the conviction that the illness may only worsen if the original cause—the

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high exchange rate—is preserved. The limits of this metaphor for giving an account of the economic cycle are obvious, but it seems entirely appropriate for illustrating the consequences of the wrong exchange rate policies. Something similar may be said about his comparison of the impact of gold parity to the effects on a person’s breathing when pressure is put on their chest. Once the currency devalues ‘the effects are similar to the effects on breathing of relieving the pressure on the chest’ (Bernácer 2020, June 14, 1935). Nevertheless, Bernácer also used a physical metaphor to illustrate the effects of def lation: ‘In the period of turbulence, countries that have stabilized their currency cannot devalue it at the rate they have adopted, and –in both Economics and Mechanics, the energy conservation principle is valid—thus the effect is on the ‘intimate’ parts of the economic mechanism’ (Bernácer 2020, September 27, 1935). Bernácer is clearly referring to domestic prices. The metaphor indeed tries to show how the mechanism of the gold standard works and how a fixed rate of exchange does not prevent the imbalance from striking the domestic economy. Summing up, Bernácer made use in the weekly reports of a wide range of metaphors to epitomize central or peripheral aspects of the economic crises. The variety of the metaphors suggests that Bernácer chose them for the purpose of persuading the members of the board about the economic consequences of bad economic policies.6 This may explain the simplicity of the metaphors themselves, whether medical or mechanical, which were easily understandable for the members of the bank’s board, and simple enough to highlight the links between the exchange rate policy and def lation.

6.4 Final remarks Economic crises and cycles were not a popular topic among Spanish economists who were more engaged in tackling the economic backwardness and reform of the Spanish economic institutions in order to build up the liberal state. The economic literature barely refers to economic crises and even less to the theory of economic f luctuations. It is not until the early 20th century that we find some contributions to the theory of crises by heterodox economists. Bernácer’s theory of ‘disposable funds’ is by far the most valuable of them. From our point, some of that value comes from his extensive use of metaphors and analogies. Bernácer’s natural sciences and technological background may have something to do with the abundant use he made of these expressions. But the inf luence of Henry George and the American sociologist Lester Ward seem to have contributed to the acceptance of a parallelism between the law of physical mechanics and the laws of society that paved the way to the use of metaphors and analogies. The metaphors are varied. At the very beginning, physical and mechanical metaphors for describing the economic crisis prevailed, but later on he introduced medical and biological metaphors, referring to what he calls the ‘economic organism.’ From then on, his writings are mottled with the

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terms ‘organism’ and ‘mechanics’ to refer, respectively, to the economy as a whole and its different processes. Bernácer employs metaphors to illustrate certain specific aspects of the model of ‘disposable funds’. He does not pretend that metaphors fully replicate all the elements of the economic cycle, but they exemplify partial aspects of the process by which the crises developed. On the other hand, the use of metaphors from mechanics and medical science seeks to vindicate the scientific nature of economics and probably contribute to making clear the methodological differences from mainstream economic science in Spain, which by then was heavily inf luenced by German neo-historicism and mostly practiced by economists with a legal background. Finally, the metaphors Bernácer used in the weekly reports he drafted as a member of the Research Department of the Bank of Spain are different in nature. The audience was a restricted group of financiers and businessmen who had a relative but not complete inf luence on monetary and rate of exchange policies. Bernácer interpreted the international financial and monetary events in terms of his theory of ‘disposable funds’, which was probably not known by the reports’ audience. It also seems reasonable to presume that they were unable to understand those interpretations. Hence, Bernácer mostly uses straightforward medical metaphors as a vehicle for making understandable the complex relationships of the model of ‘disposable funds’. All these metaphors are straightforward and unambiguous and leave no room for other interpretations. Nevertheless, all rely upon a methodological approach that sharply highlights the similarities between the physical and organic realms and the economic, something in which Bernácer seems strongly to have believed.

Acknowledgment This work was supported by Cátedra Germán Bernácer.

Notes 1 The exception was again Pastor who in 1848 published the pamphlet ‘La Bolsa y el crédito’, in which he described the financial distress in the Madrid Stock Exchange market, attributing it to the political events in Europe and the government policy of restricting credit (Pastor 1848). 2 He also analyzed the consequences of the drastic reduction in public works that affected the metallurgical industry and the whole Spanish economy. However, he was not concerned with the impact of the multiplier process on aggregate demand (Zabalza 2012). 3 In this respect, the time lag between the reception of these payments in monetary terms by the economic agents and the precise moment in which they are converted into effective demand or not is crucial (Bernácer 1933, 2–20). This time lag is key to Bernácer’s model of economic f luctuations and is the basis on which he may have anticipated Robertson and Keynes’s theory of business cycles in A Treatise on Money (1930).

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4 The metaphor ‘social organism’ was used abundantly by the German historicists, who were profoundly inf luential in Spain (Hutter 1994). However, Bernácer completely escaped this inf luence, which was rooted in the faculties of law and around the figure of Flores de Lemus. 5 The terms ‘productive fund’ and ‘unproductive fund’ were introduced by Bernácer in 1926. 6 See the pedagogical role played by metaphors in Klamer and Leonard (1994).

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The nature of monetary disturbances in Austrian and Swedish business cycle theories Bert Tieben

7.1 Introduction This chapter investigates the role of metaphors in the business cycle theories of the Austrian school and the Stockholm school of economics. It is well known that in the interwar period, the business cycle theories of these schools operated within the same framework but reached very different conclusions (Laidler 1999). The common element is a method which Ebeling (1997) typified as sequence or period analysis to indicate that changes, over time, play an important role in both theories. Metaphors abound in the work of the proponents of what some call monetary theories of the business cycle, the forerunners of modern macroeconomics. A good illustration is Wicksell ([1898] 1936), who used the simile of a spring (‘Spiralfeder’) to explain the changes in the equilibrium dynamics of a barter economy when money is introduced as a medium of exchange. In a barter system, the spring is short and strong, but its equilibrium pull weakens when money starts to play a role. According to Wicksell, money would elongate the spring between supply and demand. Every child knows what happens when you elongate a spring beyond its natural elasticity—it loses force. When the spring has lost all elasticity, the monetary system cannot return to its equilibrium position, a consequence illustrated by the metaphor of ‘a ball or cylinder on a plane’ (Wicksell 1935, 1:197). The ball or cylinder resides in an indifferent equilibrium. It lacks the quality of automatically returning to its original position when disturbed. As a result, we may observe a cumulative process of inf lation, a key feature of Wicksell’s monetary theory. The authors of the Austrian schools adopted metaphors of their own making to describe what they consider key aspects of the dynamic adjustment process. Böhm-Bawerk (1921, 1:313) described the economy’s capital structure as an enormous ‘Pumpwerk’ (pumping station) to indicate that value is imputed through all stages of production and so allocates scarce resources over alternative uses, which, in this case, may be used at different times in the production process. Extending the analysis of Böhm-Bawerk, Hayek (1931) used intertemporal equilibrium to explain why the introduction of money alters this dynamic adjustment process.

DOI: 10.4324/9781003144601-10

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Metaphors may express what Schumpeter (1949) called a scientist’s vision of the nature of the field that he studies. As such, they must have a strong relationship with the perceptions of the operation of the economy, whether it is ruled by equilibrium mechanisms, possesses stable properties when disturbed or, on the contrary, behaves in a chaotic and fundamentally unpredictable manner (recall Shackle’s (1972) metaphor of the kaleidoscope). This chapter aims to shed light on the different uses of metaphors in the contributions of the Austrian school and Stockholm school of economics to business cycle theory. For this purpose, we shall focus on the relationship between metaphor and theory construction. In particular, we intend to demonstrate that the choice of metaphor allowed both schools to argue that money matters in the explanation of business cycle f luctuations. We also show that the root metaphor is that of equilibrium. The business cycle occurs because of the disruption of monetary equilibrium. We shall argue that towards the end of the 19th century, equilibrium was still a relatively fresh metaphor that could inspire follow-up research and thus inf luenced the development of economic thought and business cycle theory, in particular. This follow-up research mostly consisted of redefinitions and novel metaphors of equilibrium. What is surprising is the fact that these metaphors were intended to better understand what was going on when the monetary system was not in equilibrium. For the Austrians and Swedes, the business cycle was generally a disequilibrium phenomenon, which originated in the monetary system. The choice of metaphors highlights the differences between the Austrian school and Stockholm school of economics and so helps to understand the relationship between these schools. This chapter is structured as follows. We shall first explain our interpretation of metaphors and their relationship with theory development. Second, we will introduce the monetary theories of the business cycle, which represent the common element underlying the Swedish and Austrian theories of the business cycle. Third, we turn to the discussion of the metaphors used in those theories. In what sense are they metaphors? What are their similarities and/or differences? Finally, we draw the conclusions.

7.2 Do metaphors affect economic theory? Metaphors abound in economic theory. Business cycle theory is an example of this practice, as the word ‘cycle’ has a metaphorical origin; it refers to the verb ‘circulate,’ which means ‘to describe a circle.’ Metaphors are linguistic expressions that link different objects in terms of language. In particular, metaphors invite readers to attribute the aspects of one object to another. Thus, the word ‘cycle’ suggests that economic activity has a recurring pattern of growth and decline as if the economy had described a circle and returned to its original starting point. ‘A metaphor is a use of language in which what is said is not literally what is meant’ (Henderson 1994, 344).

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Metaphors may have different meanings depending on the role they play. The common roles mentioned in the literature concern communication, teaching, heuristic, argumentation and storytelling. The focus of this chapter is what Boyd (1993) called theory-constitutive metaphors. This is a class of metaphors which plays a role in the development and articulation of sciences. They guide research into new areas by introducing theoretical terminology where none previously existed.1 The importance of metaphorical language in this regard is that it presents the researcher with linguistic categories ‘to describe the causally and explanatory significant features of the world’ (Boyd 1993, 483). The key is that the attribution of meaning from one field to another through metaphorical language is open ended. This means that the scientist who starts to work with a new word, such as ‘cycle,’ does not overview the full consequence of the similarity or analogy between the image of a cycle and the process which they are studying, which, in this case, is the pattern of economic activity over time. The metaphor offers a language tool to explore yet unknown causal or, in this case, temporal relationships. It is in this sense that theory-constitutive metaphors ‘are invitations to future research’ (Boyd 1993, 489). Given that constitutive metaphors act as a linguistic guiding light for research into a new domain, they have the potential to mislead. As with any light, metaphors are capable of illuminating dark areas and casting shadows (Henderson 1994, 355). The dark side of metaphors is that they suppress the aspects of a topic. This explains the debate in economics about the rhetoric of mechanistic metaphors, such as equilibrium, which is seen as a reason why economists ignore the aspects of real economies that are clearly not in equilibrium. An example is the apparent contradiction of new classical business cycle theories, which aim to explain the dynamics of cyclical f luctuations in terms of an equilibrium model. Words matter in the discussion of the inf luence of metaphors on economic theory, and this also applies to the word ‘metaphor’ itself. Liquid assets is a single-phrase metaphor, which attributes to assets a quality that one generally associates with liquids, namely, the ability to quickly f low from higher to lower grounds. The utility of the metaphor is that assets cannot literally be liquid. The metaphor stimulates us to consider the ways in which assets are and are not liquid. It is the ‘not quite’ aspect of the metaphor or its ‘tension,’ as Henderson (1994, 245) put it, that is part of its force. If the comparison is literally true, then the metaphor is mere decoration and is better removed. Metaphors thus provoke thought about the meaning of the similarity suggested. This type of query has led scientists to formulate extended metaphors, such as analogies and models. According to Henderson (1994), this type of metaphor plays a more important role in economics than the single-phrase metaphor. The characteristic of extended metaphors is that they generate more scope for argument and counter-argument. This is what makes them suitable vehicles for scientific enquiry.

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At this point, Lagueux (1999) made the unfortunate distinction between metaphors and analogies. He defined analogy as the similarity of relations, where A is to B, as C is to D. However, he did not consider analogy an extended metaphor but the elaboration of a simile. For him, a sustained or extended metaphor is an allegory.2 The distinction is meaningful, for he described metaphors and allegories as ‘poetical and essentially suggestive literary tropes whereas simile and analogy are analytical exercises which are perfectly suited for scientific analysis’ (Lagueux 1999, 15). The distinction is clearly aimed at opposing McCloskey’s work on the rhetoric of economics, which views economics as a kind of poetry (e.g. McCloskey 1985). Can literary expressions not be vehicles for scientific enquiry? The point of Lagueux seems to be that economists use analogy in an analytical way. It is an explicit and systematic comparison of two entities, a relation which can be scrutinised according to the rules of scientific methodology, such as falsification and verification. In this manner, analogies have a cognitive aspect, and they facilitate the process of theory formation. However, this focus on analytical argument ignores the linguistic property of metaphorical reasoning, in which meaning is transferred from one domain to another. It is language which transfers meaning and thus creates potential for novel insight. Whether this language is poetical or analytical is irrelevant; the cognitive process at play is identical. As Boyd (1993) argued, both literary and analytical expressions provide a way to introduce terminology for the features of the world, whose existence seems probable but whose fundamental properties have yet to be discovered. The analogy–metaphor distinction is untenable, as Lagueux himself seemed to underline when he said: ‘No doubt such analogies—as is the case with many linguistic operations—imply metaphors and … analogies can be built by awakening dormant metaphors’ (Lagueux 1999, 16). Apparently, the gap between metaphors and analogies is not as great, as initially suggested. Viewing the distinction as one of degree is more fruitful. As Henderson (1994, 346) put it, ‘analogy spells out specific aspects of a comparison which other figures of speech, such as simile and metaphor, also either explicitly or implicitly make.’ They are all interwoven parts of economic discourse. Analogies and metaphors are equally important to the articulation of new ideas and are therefore likely to be found in the growing parts of the discipline. What gives metaphors the power to articulate novel insight is their ability to surprise. It is the tension of the linguistic transfer, referred to above, that stimulates thought. Metaphors with this capability are sometimes called live metaphors. Such metaphors commit a calculated category mistake. For example, conceptualising the direct comparison between bookkeeping, the domain where assets are valued, and f luids, the domain for which liquidity is a physical characteristic, is difficult. The use of the metaphor creates ‘a logical opposition that shocks the reader and contributes to the creation of [a] new meaning’ (Lagueux 1999, 11). It is the unexpected association which puts the mind at work. Irony is just one example of a literary expression which can

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3

generate this effect. The juxtaposition of private vices and public benefits in Mandeville’s classic Fable of the Bees is a good example of what irony can achieve. Of course, poetry no longer has a place in modern economic discourse. It adopts a prosaic language that is full of what Lagueux (1999, 5) calls ‘dead’ metaphors. These are metaphors of which the associated meaning has decayed over time. Equilibrium is an example. The metaphor has become so common that it provokes no thought about its associated meaning anymore. The fact that the metaphor was once borrowed from physics, where it pointed to a balance of forces, is irrelevant to its use in the economic context, where it mostly functions as a technical term. As such, it is mostly understood by the practitioners of the economics profession, most of whom probably do not even realise that it once had a metaphorical origin. What causes dead metaphors to lose their original meaning is mostly repetition in, for example, textbooks, which greatly fosters the general acceptance of the term and drives out metaphorical meaning (Henderson 1994). Dead metaphors are so common that they have lost the capacity to shock the reader and generate new thoughts. They have ceased to be theory-constituent metaphors. Therefore, when Lagueux wrote that analogies are suited for scientific analysis because they awaken dormant metaphors, we should take that literally. They constitute live metaphors, and that is why they can play their theory-constituent role. It just shows how differentiating between metaphors and analogies is unnecessary, in opposition to what Lagueux himself proposed. Whether analogy or metaphor, it is the capacity of the literary expression to surprise and shock, which allows it to play a role in the enquiry of the associated meaning.

7.3 Monetary theories of the business cycle Before we proceed to the analysis of the metaphorical meaning of the business cycle, this section investigates the key propositions of the monetary theory of the business cycle—the theory which links the Stockholm and Austrian schools of economics. The pioneer of this theory is Knut Wicksell (1851–1926). Wicksell redefined monetary equilibrium in an attempt to shed more light on the transmission mechanism between money and prices. This redefinition led him to distinguish between the market rate and the natural rate of equilibrium. The natural rate of interest points at the rate of interest for which the supply and demand for loans are exactly equal, assuming that all lending is done in terms of real capital goods. In the absence of money, the natural rate of interest should correspond to the expected yield on newly created capital. In reality, loans are expressed in terms of money, and this may entail that the market rate of interest differs from the natural rate of interest. Therefore, the first condition for monetary equilibrium is that the market and the natural rate of interest should be equal. The second condition for monetary equilibrium is that prices should be stable. Wicksell linked money and prices through a transmission mechanism.

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He focused on changes in the stock of money as a result of the creation of credit by banks. Wicksell’s monetary economy was a pure credit economy. The extra supply of credit pushed the market rate of interest below the natural rate of interest. This effect does not directly cause prices to rise. Here, the role of capital investment is crucial. Wicksell stressed that entrepreneurs use the extra supply of credit to finance the purchase of capital goods. Cheap credit fuels their expectation of a profitable expansion of their productive capacity. However, their demand for productive resources drives up the prices of factor resources, which spreads inf lation throughout the economy. It now appears that the initial expectations of entrepreneurs, who are faced with higher costs, are unmet. However, at the end of the period, entrepreneurs will find to their surprise that not only the costs of production have increased, but the money prices for their goods have also risen. Inf lation is now a general phenomenon with a proportional increase in all factor and output prices, assuming that the money demand for final products rises in proportion to the increase in factor incomes. The next period will bring a repetition of this process if banks continue to follow the same policy and keep the monetary rate of interest below the natural rate. The extra credit again fuels price increases of both capital and consumer goods in what Wicksell ([1898] 1936) called a cumulative process. This was essentially a cycle of purely nominal effects, explained via a model of a one-year production period. What starts this cycle is the violation of the condition of monetary equilibrium in which the monetary rate of interest should equal the natural rate of interest, which upsets the stability of the price level. Understanding that Wicksell constructed a second two-year production period model is necessary to correctly grasp the importance of the third condition, in which saving should equal investment. In this second model, real and nominal changes are set in motion. The two-year production period captures the time-consuming nature of production. Investors curtail the production of consumer products for the current period in order to free resources for investment. Investment now entails building a larger productive capacity, which, in the second production period, can deliver more consumer goods than before. In this manner, Wicksell underlined that investment is a problem of intertemporal coordination. Investors plan ahead. They take the reduction of the rate of interest as a signal that consumers have increased their savings. Given a fixed income, the increase in saving implies a reduction of the demand for current consumption. In intertemporal terms, the increase in saving is an indication that consumers have shifted part of their consumption demand to a more future period. If producers want to match this future demand, they need to adjust their productive capacity accordingly. Their investment aims to increase the production of consumer goods in the future period. If all goes well and the expectations of consumers and producers are perfectly aligned, the increase in investment will match the increase in saving.

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The problem is that the reduction in the rate of interest is a distorted signal. It is not an indication of an increase in saving but the result of a decision of the banks to create more credit. Therefore, the expectations of entrepreneurs are bound to be unmet if their investment does not find a match in savings somewhere. This match is found in what Wicksell ([1898] 1936) called forced saving. The extra loans finance the plans to build a larger stock of capital goods for production in the second period. However, consumer demand has not changed accordingly. At the end of the first year, consumers demand a larger proportion of the final output than has been provided for. This results in price increases for consumer goods, and consumers are forced to save, assuming that their incomes have not yet risen accordingly. This allows entrepreneurs to successfully complete their two-year period of production. As a result, the monetary disruption again creates inf lation, which is cumulative as long as the banks keep the market rate of interest below the natural rate. However, the price cycle now also generates an effect on the real economy, given that entrepreneurs shift resources towards production for a more distant future. This change is not matched by real saving but will continue given that inf lation forces consumers to save.4 Wicksell’s definition of monetary equilibrium provided the blueprint for much subsequent work in the field of business cycle theory (Laidler 1999). It also laid the foundation of monetary policy. Inf lation seen as a cumulative process of price changes was a powerful metaphor to suggest that the money market lacked a mechanism to restore monetary equilibrium in case of a disturbance. Wicksell suggested that banks could indefinitely keep the market rate below the natural rate of interest; they could simply issue credit to whoever applied for a loan. Hence, the restoration of monetary equilibrium required the active involvement of banks. As a practical rule, Wicksell proposed that banks adjust their rate of interest in line with inf lation. They could not equalise their interest rates to the natural rate of interest, as this level cannot be observed. However, they know that the rate of interest is at its equilibrium level when prices are stable. In this situation, banks should therefore not alter their rate of interest. When prices increase, banks should raise their interest rates accordingly. When prices fall, banks should decrease their interest rates (Wicksell [1898] 1936, 172–173). By means of trial and error, banks locate the level needed to equalise the market and the natural rates of interest. It was this type of analysis which was used by the followers of Wicksell, such as Gunnar Myrdal (1939), to argue that monetary equilibrium was labile and that active monetary management was needed to secure price stability, a type of approach that, in the 1930s, became known as neutral money. More fundamentally, Wicksell advocated the introduction of a gold standard because this would introduce an automatic balancing mechanism. When money can be fully converted into gold, rising prices will cause an increasing demand for gold currency on the part of the non-bank public. Banks would thus lose reserves and, in response, raise the market rate of interest. This re-establishes monetary equilibrium.

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The Austrian roots of Wicksell’s monetary theories are clearly observable, especially in the definition of the rate of interest as the price for the time preference of consumers and the notion of capital which underlies his definition of investment. In turn, Austrians, such as Ludwig von Mises and Friedrich von Hayek, adopted Wicksell’s analytical framework for their monetary and business cycle theories. The core of these theories is the distinction between the market and the natural rate of interest and the definition of monetary equilibrium. For Mises (1924), in particular, this becomes the starting point of business cycle theory. The contribution of Mises in this regard was to observe that a disruption of monetary equilibrium may have more dire consequences than a cumulative process of price changes. Mises argued that a low rate of interest motivates producers to invest in more capital intensive, that is, more time-consuming, methods of production. The benefit of this investment is that it ultimately increases productivity. However, consumers do not shift their demand to a future period in the same fashion. Hence, we encounter the problem in which investment is dislocated in an intertemporal way. Saving and investment do not match when viewed over the whole period of production. Ultimately, it must appear that the demand for the extra future production is not forthcoming and that the investment plans turn out to be not as profitable as expected. When this happens, two things may occur: either investors return to the banks for additional loans and the credit cycle continues or firms go bankrupt. In contrast to Wicksell, Mises argued that banks cannot extend credit without limit so that a crisis would be the logical outcome of monetary expansion. Firms would be forced to sell the capital goods of their partly finished investment projects. This reverses the price trend, causes investment to become even more unprofitable and so deepens the crisis, fostering layoffs and widespread unemployment. The longer the continuation of credit delayed that outcome, the more severe these symptoms would be when they finally materialise. Mises (1924) contained all the essential elements of what became known as the Austrian monetary theory of the business cycle. Hayek subsequently strengthened its theoretical foundation by reformulating monetary equilibrium. He adopted a Walrasian perspective, which showed that similar goods traded at different points in time can be treated as distinct entities whose relative prices are determined within a general equilibrium framework which extends over time (Hayek [1928] 1984). This reformulation resulted in two novel insights. First, Hayek concluded that monetary equilibrium implies a falling rather than a stable price level. Second, he argued that the source of economic f luctuations was endogenous; it emerges from within the monetary system (Hayek 1933). Put differently, the business cycle is an inescapable feature of a money-using economy. The conclusion regarding the price level is linked to the growth in productivity, which is the result of investment. Given a constant stock of money, productivity growth means that at some point in the future, more

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commodities than today will be exchanged against the same quantity of money. This is only possible if nominal prices fall. The problem of the business cycle emerges because the money stock, in general, is not constant. In reality, banks cannot resist the demand for extra money and thus expand their supply of credit. Entrepreneurs will use the extra credit to finance investment, which means that money impacts relative prices; the demand for producers’ goods is now increased relative to the demand for consumer goods. The effect of money on relative prices is nowadays called the Cantillon effect and explains why money will have an impact on real economic activity. In this case, the disruption of the intertemporal allocation of productive resources is the consequence of the failure of banks to keep the stock of money constant in a growing economy. Given that expanding the supply of credit is profitable for banks, the business cycle is endogenously generated. An important part of Hayek’s work around 1930 was intended to underpin that cyclical f luctuations are an essential feature of the money-using economy. The upswing of the cycle thus results in an economic crisis for which there is no cure. At this point, the Swedish and Austrian theories of the business cycle clearly parted ways. Whereas Wicksell and especially his followers Lundberg and Myrdal looked for government policies to restore monetary equilibrium, the Austrians believed that any attempt by the government to cure the crisis would only worsen the problem. The only remedy is to let the events of the crisis unfold. In their view, the bankruptcy of firms is needed to restructure production, restore profitability and realign investing and saving.

7.4 Monetary equilibrium as a metaphor in business cycle theory Equilibrium is clearly one of the key metaphors in the Swedish and Austrian business cycle theories, as indicated above. This seems to suggest a mechanistic interpretation of the theoretical framework first developed by Wicksell, in which the cycle of consumption and production is compared to some kind of mechanism. The phrase ‘process approach,’ which is sometimes used to describe the methodology of both the Stockholm school and the Austrian school in this type of study, reinforces this image (e.g. Ebeling 1997). The aim of this section is to argue that the metaphors used by the Swedes and Austrians in the context of their business cycle theories should be seen as live metaphors, redefining equilibrium. In a sense, they awaken equilibrium as a metaphor. We shall demonstrate that the utility of the metaphors was to stimulate analysis of the causes which either establish or disrupt monetary equilibrium. As a by-product, it is possible to show important differences in the business cycle theories of both schools. The key to the interpretation is the difference between the market and the natural rate of interest. What this difference signifies is that the use of money fundamentally alters plan formation and the intertemporal coordination of

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activities. These activities are saving and investing, which involve the decisions of consumers and producers about how they allocate their resources over time. Do consumers save because they aim to increase their capacity to increase their consumption at some future date? Then, this decision means that they must curtail their current consumption. Given the budget constraint and their preferences, consumers make decisions about the intertemporal allocation of their expenditures. Wicksell argued that in a fictional world without money, plans to save and invest will automatically match. This means that investors will perceive an incentive to increase their investment when consumers decide to save more and vice versa. The incentive which ensures this coordination of decisions is the interest rate, which falls in case of extra saving and thus stimulates producers to invest in a more capital-intensive method of production, which delivers more consumer products but at a later date in time. This coordination succeeds if we assume that the exchange of present for future commodities is done in the form of barter. It may be supposed in theory that the entrepreneur borrows these consumption goods from the capitalists in kind, and then pays them out in kind in the shape of wages and rents. At the end of the period of production he repays the loan out of his own product, either directly or after exchanging it for other commodities. (Wicksell [1898] 1936, 103) The operation of the interest rate mechanism is altered because of the introduction of money. Wicksell used the definition of monetary equilibrium to investigate the causal relationship between the supply of money and the general price level. In this sense, his work can be seen as a next step in the development of the quantity theory of money (Laidler 1991). What happens is that, in reality, neither bankers nor lenders can observe the natural rate of interest, which, after all, is nothing but a theoretical concept. Nonetheless, under normal circumstances, the supply and demand for money will ensure that the market rate of interest follows the changes in the natural rate of interest, which will inevitably occur. The connecting rod between both rates is the price level.5 A drop in the interest rate creates demand for goods, which drives up prices. However, the higher price level creates demand for cash balances.6 This drives up the interest rate again if we assume that the supply curve for money remains unaltered. The question is what the precondition is for this equilibrating mechanism to work. This occurs when we operate in a pure cash system; money is coins and paper currency only.7 Wicksell introduced the term ‘elasticity’ to analyse what may hamper this equilibrating mechanism. He argued that the more elastic the money system is, the less it will respond to changes in the price level. Figure 7.1 explains this difference for the other extreme, a pure credit system, in which bank reserves are central bank credit, and money is merely

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“pure credit system” interest

interest

DLF

’

DLF

DLF

SLF

in

in

im

im

Loanable funds

’

DLF

SLF

’

SLF

Loanable funds

Figure 7.1 Elasticity of the supply of money.

checking deposits. If, for some reason, the natural rate increases above the market rate of interest, inf lation again shifts the demand curve for money (in this case, credit) to the right. However, the difference is that the increase in demand will be met by a corresponding increase in supply. In fact, the supply of money becomes so liquid that it will meet any demand.8 As a result, the market rate of interest does not increase, and it stays below the natural rate. In other words, the price changes do not succeed in restoring monetary equilibrium, and the price level will continue to rise, which is a cumulative process (Wicksell [1898] 1936, 121). In reality, monetary systems operate between these two extremes; they use both cash and credit. The analysis is intended to make the point that the organisation of the money system (i.e. the money supply) critically determines the ability of the economy to maintain monetary equilibrium and prevent inf lation. Wicksell used the metaphor of an elastic money supply to underline this conclusion, in which prices literally act as elastic: The two rates of interest still reach ultimate equality, but only after, and as a result of, a previous movement of prices. Prices constitute, so to speak, a spiral spring which serves to transmit the power between the natural and the money rates of interest; but the spring must first be sufficiently stretched or compressed. In a pure cash economy, the spring is short and rigid; it becomes longer and more elastic in accordance with the stage of development of the system of credit and banking. (Wicksell [1898] 1936, 136–137) In a literal sense, the metaphor of the spiral refers to the capacity of the price mechanism to pull or push the market rate of interest towards its natural level. A weak spiral does a poor job in this regard but can still be said to have some residual stretch. However, in the extreme situation of the pure credit system

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with unlimited elasticity, the pull of equilibrium is completely lost. Wicksell switched to a different metaphor; he then likened the price level in this case to a ‘ball or cylinder on a plane’ (Wicksell 1935, 197). As a result of inertia or friction, the ball will not move from its position, but if forces of sufficient strength to drive it from its position of equilibrium are brought into play, it has no tendency to resume that position, but if the forces which set it in motion—i.e. in this case the difference between the normal or the real rate and the actual loan rate—cease to operate they will remain in a new and also indifferent position of equilibrium.9 The use of the phrase ‘indifferent equilibrium’ captures the notion that the pure credit system lacks an automatic tendency to restore monetary equilibrium, but it does a poor job of describing the dynamic of the price change. After all, because of friction, indifference means that the ball or cylinder does not move without the pull or push of the monetary system, whereas the purpose of the argument is to show that a disruption of monetary equilibrium leads to an ongoing process of price changes. In that sense, depicting a ball or cylinder in continuous but constant motion, as if it is in a frictionless world, would have been more appropriate. Wicksell clearly used elasticity as a metaphor for equilibrating forces. The theory-constituent role of this metaphor was the suggestion that knowing the conditions under which the monetary system lacked such forces was necessary. In that sense, the cumulative process was a disequilibrium process. The followers of Wicksell would further develop this lead for research but, in the process, shifted metaphors. Their metaphors do not highlight the equilibrating (or lack thereof ) nature of the monetary system but emphasise dynamic changes. They focused on the time element, which was implicit in Wicksell’s definition of monetary equilibrium. In that sense, their work is a good example of follow-up research. Similar to equilibrium, the key metaphors of this new line of work have mechanistic origins, such as ‘process,’ which resembles the operation of a machine, and ‘dynamic,’ which is the opposite of static (equilibrium). Lundberg ([1930] 1996) is a good example of the criticism that emerged amongst Swedish economists on the use of equilibrium theory. According to Lundberg, equilibrium theory left implicit the very thing that mattered most—the time element in the adjustment process between positions in equilibrium. This process may call forth changes with devastating effects on the outcome of the process. Rather than static, equilibrium is more likely to be explosive or implosive, oscillating or non-oscillating. By definition, equilibrium theory is unsuited to examine the nature of these dynamic changes. This can only be done by explicitly studying the sequence of changes over time. The problem is that there exists no standard unit for a sequence analysis of economic changes. Lundberg (1937, 46–50) argued that there are innumerable possibilities regarding the assumptions about the quantitative size

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and duration of changes. The choice of metaphor ref lects this diversity. No single metaphor describes the changes of the monetary economy in disequilibrium. Sequence or period analysis is the term often used to describe this method (Ebeling 1997). Lundberg himself focused more on the application of dynamics in numerical models than on the development of a theoretical explanation for disequilibrium models of this kind. His models relate the decisions to invest and save to the sequence of events during the different phases of economic expansion. They use the multiplier-accelerator type of mechanism, which reminds us of Keynesian economics (Laidler 1999, 66). Lindahl (1939) tried to provide a theoretical underpinning of the sequence of changes which underlie the dynamic process. This explanation focused on the role of plan formation and revision. Initially, his theory of plan formation involved a redefinition of equilibrium, similar to Hayek Lindahl pioneered in the late 1920s the definition of intertemporal equilibrium, which assumed perfect foresight (Zappia 2001). However, he found this definition lacking because it did not involve dynamics in a meaningful way. He developed the notion of temporary equilibrium as a better alternative. To Lindahl, a dynamic process could be described as a sequence of temporary equilibria. In order to analyse such a dynamic process, we imagine it to be subdivided into periods of time so short that the factors directly affecting prices, and therefore also the prices themselves, can be regarded as unchanged in each period. All such changes are therefore assumed to take place at the transition points between the periods. The development of prices can then be expressed as a series of successive price situations. (Lindahl 1939, 158) These price situations are equilibrium states in the sense that supply equals demand during the period. However, Lindahl also acknowledged the limitations of the temporary equilibrium method and tried to develop a general dynamic method. This led him to formulate an innovative theory of expectation formation as the key to a dynamic process in which decisions are continually in disequilibrium. He ascribed this feature to the fact that pricing is a discontinuous process. It requires decisions by different people, which are made at different points in time. Transactions are carried out during the transition periods between periods, whilst during the period, actors would make offers and ponder over their plans for subsequent periods. As a result, he described pricing in terms of a sequence of disequilibria, as there was no reason to believe that the expectations which guided the decisions at point A in time would be validated by the outcomes of the transactions in the transition point between periods A and B or any subsequent period. An example of this disequilibrium process is what happens in the case of sudden and severe adjustments in the interest rate and other prices. As a result of uncertainty, people may lose all sense of direction in such cases, leading

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to ‘such an avalanche of price level movements that no equilibrium could be established between the factors determining prices, even for very short periods’ (Lindal 1939, 251). This seemed to be the onset for a truly dynamic method. However, the lure of the assumption of temporary equilibrium was never far away. Lindahl argued that at a certain point in time, the disequilibrium process explained above could revert to a series of temporary equilibria. This occurs when, after several periods of trading, a situation is established in which the buyers and sellers see no reason to change. For example, in the real word, frictional conditions can immobilise the price level to a certain extent. The interest rate may vary within certain limits without immediately disturbing the equilibrium of the price level. The result is temporary partial equilibrium, which may even develop into a temporary general equilibrium ‘of the Walrasian type’ (Lindahl 1939, 66). In the end, Lindahl valued the equilibrium assumption, whether static or stationary, not only as an approximation to real conditions but also as a pedagogic instrument. Concerning the use of metaphors, what emerges in the case of the Stockholm school is a process of redefining equilibrium, spurred on by metaphors such as the cumulative process with its related analogies like the spiral or the ball on a plane. These metaphors emphasised the importance of an examination of processes in disequilibrium, but subsequent efforts, such as those of Lundberg and Lindahl, did not turn out to be very successful in this regard.10 Success can be measured here in terms of follow-up research. After 1936, sequence analysis lost the race against Keynes, who initially used the same Wicksellian framework. His General Theory, however, made a radical choice for a static method, in part because he considered the Swedish dynamic method too difficult. What may have played a role in this change of method is the choice of metaphor. Sequence analysis suggests the passing of time like a sequence of minutes, hours or days. As such, it is more of a simile than a metaphor which has that element of surprise to spur follow-up research. In that regard, the image of an avalanche of price changes is a much stronger metaphor. It is a pity that Lindahl did not further explore this path and too quickly reverted to the more common notion of temporary equilibrium as a more realistic description of what characterised price movements in the real world.

7.5 The role of metaphors in Austrian business cycle theory Austrian business cycle theory, as developed by Mises and Hayek, largely adopted Wicksell’s framework with its distinction between the natural and the market rate of interest and its focus on the study of the perturbations of monetary equilibrium (Laidler 1999). As in the case of the Swedes, for the Austrian school, the business cycle was decidedly a phenomenon of disequilibrium adjustment, which was closely linked to the role of money in

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the economic process. Metaphors in the work of the first generation of the Austrian school highlight this focus on disequilibrium adjustments. Thus, Menger ([1871] 1994, 192) compared market prices to the ‘waves’ that appear on a water surface when the locks between two bodies of water at different heights are opened (Menger [1871] 1994, 192). This metaphor was intended to demonstrate that prices are indications of economic activity, which only seems to take place when markets are not in a supply and demand equilibrium. Böhm-Bawerk (1921, 1:313) described the economy’s capital structure as an enormous ‘Pumpwerk,’ which likewise seems to indicate that production requires motion, generally assumed to be a feature of dynamic processes. Static metaphors, such as that of equilibrium, did not frequently appear in the work of Menger and Böhm-Bawerk. This changed with the development of the monetary theories of the business cycle in the 1920s by Mises and Hayek. The paradox is that they more frequently adopted equilibrium to describe the starting point of their analysis of cyclical swings, whilst for them, the phenomenon they were trying to explain was decidedly dynamic in nature. The result was that they were accused of following an equilibrium strategy in contrast to the methodology of their predecessors. Thus, O’Driscoll and Rizzo (1996) complained that Mises adopted what they called static subjectivism as his working method, which should be contrasted with dynamic subjectivism, which O’Driscoll and Rizzo saw as the core of the Austrian approach. Relatedly, Cowen and Fink (1985) criticised Mises and Rothbard for their assumption that markets always tend towards equilibrium, which seemed to suggest some kind of a general equilibrium approach, which, according to Cowen and Fink, is internally inconsistent with other features of the Austrian school. Trautwein (1996) attacked Hayek for his attempt at disequilibrium adjustments in a monetary economy on the basis of a theory of intertemporal equilibrium. The problem is that ‘intertemporal equilibrium and the business cycle imply logically disparate assumptions about the role of money and banking.’11 Essentially, equilibrium is a mechanistic metaphor, and Austrians, such as Mises and Hayek, used it as such. However, the criticism cited above seems to suggest that they used this metaphor in a way which caused confusion about the nature of their theories of the business cycle. In particular, the use of the equilibrium metaphor seemed to conf lict with the view within the Austrian school that the nature of the economy is inherently dynamic. As a mechanistic metaphor, equilibrium suggests stasis or an ‘evenly rotating economy’ (ERE), as Mises (1949) defined it. This raises the question of why the Austrians used the equilibrium concept as a mechanistic metaphor that served as a starting point of their business cycle analysis in the first place. In this section, we hope to shed some light on this question and to clear up the confusion surrounding the use of equilibrium metaphors in Austrian business cycle theory. In the following, we shall argue that the Austrian theory of the business cycle is a classic example of the use of theory-constituent metaphors. The

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use of monetary equilibrium, however defined, invites readers to consider the economy and its financial institutions as being in a condition of rest. For the Austrians, this was a highly troublesome image because, in their view, the reality of the monetary economy was the exact opposite of the rest—it resided in a perpetual state of f lux. It was this cognitive dissonance which was intended to provoke thought about the mechanisms behind the perturbations of the monetary economy and especially the regular pattern of upswings and downswings in the level of production, which forms the heart of the business cycle. This role for the equilibrium metaphor is not reconstruction on our part. It was the explicit goal of a methodology which the Austrians defined as the method of imaginary constructions (Moss 1997). Imaginary constructions are part of a thought experiment, which is used to study complex questions in the organisation of society for which real experiments cannot be performed. The method proceeds by developing an abstract notion of the economy, which the Austrians then used as a foil to highlight the impact of those elements which were the object of study. Mises (1949, 237) described an imaginary construction as ‘a conceptual image of a sequence of events logically evolved from the elements of action employed in its formation.’ The function of this construction is that we may better understand the operation of the prime movers of the economic process by first assuming that they are not present and then introducing an isolated factor to provoke change. Mises called this an argumentum a contrario (ibid., 251). The key to this method is that imaginary constructions are deliberately designed as unrealistic. ‘In designing such an imaginary construction the economist is not concerned with the question of whether or not it depicts the conditions of reality which he wants to analyse. Nor does he bother about the question of whether or not such a system as his imaginary construction posits could be conceived as really existent and in operation’ (Mises 1949, 237). Likewise, for Hayek (1941, 22–23), equilibrium analysis begins ‘by constructing as an intellectual tool, a fictitious state under which these plans are in complete correspondence without, however, asking whether this state will ever, or can ever, come about.’12 ‘In order to derive full advantage of this technique [equilibrium theory, BT] we must abandon every pretence that it possesses reality’ (Hayek 1941, 28). The theory-constituent role of the equilibrium metaphor in the Austrian business cycle analysis is therefore a negative one. It is intended to provoke an image of the economy which lacks the quality of rest. Both Mises and Hayek reformulated the concept of equilibrium to highlight the distinction between the world at rest and economic reality. In other words, purposively, they made the equilibrium more unrealistic, which, indeed, resulted in conceptions that were internally inconsistent. Thus, Mises redefined equilibrium in terms of the ‘evenly rotating economy’ (ERE) (Mises 1949, 247). The characteristic of this equilibrium was the complete absence of causal changes that required the lapse of time.

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The ERE depicted change in the sense that production took place, goods were exchanged and prices were formed; there was even population dynamic because people were born, got old and died. However, all these changes were regular movements that were repeated without altering the course of the system as a whole. The ERE was therefore ‘in perpetual f lux, but it remains always at the same spot’ (ibid., 248). It thus joined the notion of movement to the notion of rest, which seemed contradictory. The whole purpose of the ERE was to argue that, in reality, the economy was never at rest. It served as a foil to discuss the relevance of human action as a central organising concept to economics, which Mises examined in terms of the means–end framework. Entrepreneurship was a concrete manifestation of human action because for Mises, it was an element that is present in all economic decision making. The relevance of the ERE was that it represented a situation in which entrepreneurship played no role. This was the force which explained that, in reality, the economy was never at rest.13 Likewise, Hayek redefined the equilibrium concept to include the notion of time. Hayek ([1928] 1984) observed that Wicksell’s treatment of monetary equilibrium was incomplete. It was formulated as a static concept, whereas investing and saving are forward-looking activities and therefore include a time element. Hayek’s solution was to define equilibrium as an intertemporal concept, which indicated the match of the plans to save and invest both now and in the future. Again, we meet a concept that is internally inconsistent. Intertemporal equilibrium suggested perfect knowledge and foresight as a condition of equilibrium, whereas one of Hayek’s main contributions from the 1930s onwards was to argue that, in reality, individuals never had perfect knowledge (e.g. Hayek 1937, 1945). To make the equilibrium concept suitable for application in the field of business cycle research, Hayek also included a notion of money in his definition of intertemporal equilibrium. Money, in this construction, serves as a medium of exchange, but this is contradictory. Why use a medium of exchange when the future is perfectly foreseeable, as the definition of equilibrium assumes? Under such conditions, ‘there is indeed little room for money in the picture at all, except as “mere counters”’ (Hayek 1941, 29). In theory, there is no role for money in this construction. This is another example of cognitive dissonance, which was deliberately sought after by Hayek. Hayek ([1933] 1984) defined money in this equilibrium state as neutral. This word signified that in equilibrium, money would not cause the perturbations we commonly associate with the business cycle. In monetary equilibrium, the decisions to save and invest are perfectly aligned now and in the future. This means that it considers future changes in preferences, which are perfectly foreseen so that supply meets demand at every future instance. Hayek also used the word ‘traverse’ to describe this process of equilibrium adjustment over time. Along the traverse, investment is in equilibrium with saving, and exchanges take place as if there was no money. In other words,

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neutral money allows the economy to function as a system in which only real transactions take place. Neutral money or the traverse thus formed the input for the analysis of what would happen to the time structure of production when the plans of consumers and producers do not match—when, in other words, the market and the natural rate of interest would deviate. The traverse was the growth path reference for the analysis of the cycle, which emerges when banks change the market rate of interest. This starts the process of cyclical swings explained above, a chain reaction of malinvestments to indicate the disruption of intertemporal equilibrium in real terms. Therefore, in Hayek’s work, the equilibrium concept ultimately functioned as a foil, an imaginary construction used to examine the disequilibrium adjustments taking place during the business cycle.14 Hayek applied the equilibrium concept for the last time in his book on the theory of capital (Hayek 1941) and subsequently turned away from business cycle theory. This shift away from economic analysis coincided with the quick deterioration of the importance of the Austrian school after the Second World War. One explanation for this downfall is that the method of imaginary constructions had lost its appeal. Economists no longer experienced cognitive dissonance when confronted with the equilibrium concept in its diverse theoretical formulations. The Keynesians developed macroeconomics as an entirely new field based on a static concept of aggregate supply and demand equilibrium. From the 1950s onwards, general equilibrium theory was on the rise, and it exclusively focused on the analysis of equilibrium states despite Hayek’s warnings that this type of analysis assumed away the problems which economics sought to explain. In short, the equilibrium concept ceased to function as a theory-constituent metaphor for which the Austrians had used it. What did not help was the fact that the Austrians themselves seemed to engage in equilibrium theorising, given their intertemporal redefinitions of equilibrium. This is an example of the risk emphasised by Henderson (1994), namely that metaphors can mislead. The Austrians were highly critical of novel developments, such as Keynesian macroeconomics and Walrasian general equilibrium theory, but seemed to apply similar equilibrium concepts. Some even argued that Hayek worked in the Walrasian tradition and applied comparative static analysis like a standard neoclassical economist. These commentators (and, after the Second World War, the majority of the economics profession) clearly could not go along with Mises and Hayek in viewing equilibrium through a negative lens and in considering the economy a process of ongoing adjustments that was decidedly not in equilibrium. It was only a matter of time before the Austrians themselves would reject the method of imaginary constructions and the use of the equilibrium concept as a foil. Explaining in detail what came in its place is beyond the scope of this chapter. It is noteworthy that Hayek (1978, 184) substituted the notion of order for that of equilibrium; he considered equilibrium ‘an unfortunate term’

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because it assumes away all the relevant problems. Moreover, equilibrium could never be attained in reality, but spontaneous order could actually be approached to some degree. Whilst in the past, the lack of reality of the equilibrium concept was seen as an advantage, Hayek (1978) clearly distanced himself from the method of imaginary constructions. ‘We do injustice to the achievement of the market, if we judge it, as it where, from above by comparing it with some ideal standard which we have no known way of achieving’ (ibid., 185). What emerged in the 1970s was a divided school of Austrian economists, one part of which followed the lead of Hayek and rejected mechanistic metaphors in favour of biological ones. The way in which Boettke, Horwitz and Prychitko (1994) proposed substituting evolution for equilibrium is a case in point. Another part of the Austrian school retained the notion of equilibrium as a mechanistic metaphor, albeit as a tendency and not as a state. Kirzner (1973) is the leading figure in this part of the school, which adopted equilibrium as an organising principle and aimed to understand how alert entrepreneurship promotes equilibrium tendencies as a dominant characteristic of the market economy.

7.6 Conclusion The business cycle theories of the Stockholm school and the Austrian school of economics operated within the same theoretical framework based on Wicksell’s definition of monetary equilibrium. This definition rested upon the distinction between the market rate and the natural rate of interest. We have argued that this distinction underlined the difference between a moneyusing economy and a system of barter. The role of money as a medium of exchange loosened the joint between saving and investing and thus gave rise to the phenomenon of the business cycle. The purpose of this chapter was to highlight the different metaphors used to explain the mechanism of what became known as monetary theories of the business cycle. The metaphors of Wicksell himself focused on the equilibrating nature of the interest rate mechanism, which became weaker as the elasticity of the money supply increased. The notion of a spring demonstrated the metaphorical meaning of elasticity in this explanation, which served to study the impact of the institutional organisation of the monetary system on the rate of inf lation and the business cycle. The notion of inf lation as a cumulative process of price changes demonstrated the need for intervention to remedy the unstable nature of monetary equilibrium. The notion of dynamic adjustment, which was left implicit by Wicksell, was further developed by other members of the Stockholm school, such as Lindahl, Lundberg and Myrdal. These developments show how metaphors work in economic theory; a live metaphor invites follow-up research and is, in that sense, theory constituent. In this case, metaphors, such as elasticity and the cumulative process, invited the exploration of the nature of monetary

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equilibrium, which introduced new theories to explain the dynamic nature of disequilibrium adjustments. The business cycle theories of Austrians, such as Mises and Hayek, adopted Wicksell’s distinction of the market and the natural rate of interest. Like Wicksell, the Austrians adopted the equilibrium concept as a mechanistic metaphor but applied the metaphor in a different way. For them, equilibrium signified what the real economy was not, namely, a system at rest. The use of this metaphor was intended to provoke thought about what caused the economy to be in a perpetual state of f lux. As an imaginary construction, it was deliberately intended to be unrealistic, whereas the Swedes saw equilibrium as something that could be approached in reality and is, in fact, desirable. The use of equilibrium in Austrian business cycle analysis is a good example of a live metaphor. It aroused curiosity about the exact nature of equilibrium. What causes the disruption of equilibrium? Why is it that money cannot have a meaningful role in equilibrium? What is the role of knowledge and uncertainty in equilibrium? It is such questions which led the Austrians to explore the role of knowledge and coordination failures in the economic process, which were key to the swings of the business cycle. It also led them to reformulate the equilibrium concept to include the notion of intertemporal changes, which made them vulnerable to the accusation that they were inconsequential equilibrium theorists. In the end, the Austrian school abandoned the attempt to examine the business cycle on the basis of imaginary constructions, such as equilibrium. However, economic science went a different way and adopted a different language. Mathematical models of Keynesian and neoclassical origin defined equilibrium as an end state, without the complexities of the dynamic adjustments on which Swedish and Austrian economists mainly focused in their largely verbal traditions.

Notes 1 Following Black (1962), this is called ‘catachresis.’ 2 Thus, ‘an analogy is to a simile what an allegory is to a metaphor’ (Lagueux 1999, 15). 3 Paul Fussell’s (1975) literary history of the Great War is probably the best explanation of how ironic literary experiences can have a lasting impact on the human mind. 4 During this process, the expectations of consumers are continuously unmet. Will this not have negative repercussions on the investment plans of producers? Wicksell did not explain the negative feedback that unrealised consumer spending plans could have on entrepreneurial investment decisions. He argued that at the end of year two, consumers may benefit from their forced savings through the availability of a greater quantity of final products at that point in time. 5 Wicksell ([1898] 1936, 101) uses the word ‘Bindeglied.’ 6 This is the real balance effect introduced by Wicksell. Producers and consumers try to keep the real value of their cash balances constant, that is, M/P. When

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P increases, there is an incentive to increase the demand for money M and to restore the real cash balance to its former level. In this system, banks are forced to hold 100% of their deposits in the form of metallic reserves. ‘Das Angebot an Geld wird also durch die Nachfrage selbst geschaffen’ (Wicksell [1898] 1936, 102). See also Wicksell (1935, 194). Wicksell ([1898] 1936, 1010) used the term “neutral equilibrium” to describe this situation. Myrdal’s (1939) redefinition of monetary equilibrium in terms of the ex-ante– ex-post distinction also fits this category. See also Rosner (1994), who typified Hayek’s business cycle analysis as un-Austrian because it involved comparative static analysis. The notion of equilibrium is that of the mutual compatibility of plans. See Hayek (1941). This example demonstrates that the Austrians applied the method of imaginary constructions not only to business cycle analysis but also to other fields of enquiry, such as the theory of entrepreneurship and the problem of socialist calculation. See Moss (1997). We have explained Hayek’s main lessons of this analysis elsewhere (Tieben 2012).

References Black, Max. 1962. Models and metaphors. Ithaca, NY: Cornell University Press. https://doi.org/10.2307/2104931 Boettke, Peter, Steven Horwitz, and David Prychitko. 1994. ‘Beyond equilibrium economics: Ref lections on the uniqueness of the austrian tradition.’ In The market process: Essays in contemporary austrian economics, edited by Peter Boettke and David Prychitko, 62–79. Aldershot/ Brookfield: Edward Elgar Publishing. Böhm-Bawerk, Eugen von. 1921. Kapital und Kapitalzins. Zweite Abteilung: Positive Theorie des Kapitals. 4th ed. Vol. 1. Jena: Gustav Fischer. Boyd, Richard. 1993. ‘Metaphor and theory change: What is “metaphor” a metaphor for?’ In Metaphor and thought, edited by Andrew Ortony, 481–532. Cambridge: Cambridge University Press. https://doi.org/10.1017/CBO9781139173865.023 Cowen, Tyler, and Richard Fink. 1985. ‘Inconsistent equilibrium constructs: The evenly rotating economy of Mises and Rothbard.’ American Economic Review 75 (4): 866–869. Ebeling, Richard M. 1997. ‘Money, economic f luctuations, expectations and period analysis: The Austrian and Swedish economists in the interwar period.’ In Austrian economics in debate, edited by Willem Keizer, Bert Tieben and Rudy van Zijp, 42–74. London: Routledge. Fussel, Paul. 1975. The Great War and modern memory. Oxford: Oxford University Press. Hayek, Friedrich August. [1928] 1984. ‘Intertemporal price equilibrium and movements in the value of money.’ In Money, capital and fluctuations. Early essays, edited by Roy McCloughry, 71–117. London: Routledge & Kegan Paul. ———. 1931. Prices and production. 2nd ed. London: Routledge & Kegan Paul. ———. 1933. Monetary theory and the trade cycle. Translated by Nicholas Kaldor and H. M. Croome. New York: Sentry Press. ———. [1933] 1984. ‘Neutral money.’ In Money, capital and fluctuations. Early essays, edited by Roy McCloughry, 159–162. London: Routledge & Kegan Paul.

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———. 1937. ‘Economics and knowledge.’ Economica n.s., 4 (13): 33–54. https://doi. org/10.2307/2548786 ———. 1941. The pure theory of capital. London: Macmillan. ———. 1945. ‘The use of knowledge in society.’ American Economic Review 35 (4): 519–530. https://doi.org/10.1142/9789812701275_0025 ———. 1978. ‘Competition as a discovery procedure.’ Translated by Christophe Piton. In New studies in philosophy, politics, economics and the history of ideas, 179–190. London: Routledge & Kegan Paul. Henderson, Willie. 1994. ‘Metaphor and economics.’ In New directions in economic methodology, edited by Roger E. Backhouse, 343–367. London: Routledge. Kirzner, Israel M. 1973. Competition and entrepreneurship. Chicago, IL/ London: Chicago University Press. https://doi.org/10.4236/jss.2018.69008 627 Lagueux, Maurice. 1999. ‘Do metaphors affect economic theory?’ Economics and Philosophy 15 (1): 1–22. https://doi.org/10.1017/S0266267100003564 Laidler, David. 1991. The golden age of the quantity theory: The development of neoclassical monetary economics, 1870–1914. Hemel Hempstead: Philip Allan. ———. 1999. Fabricating the Keynesian revolution: Studies of the inter-war literature on money, the cycle, and unemployment. New York/ Cambridge: Cambridge University Press. Lindahl, Erik. 1939. Studies in the theory of money and capital. London: G. Allen & Unwin. Lundberg, Erik. [1930] 1996. ‘On the concept of economic equilibrium.’ Structural Change and Economic Dynamics 7 (3): 361–390. https://doi.org/10.1016/ S0954-349X(96)00056-2 ———. 1937. Studies in the theory of economic expansion. London: P. S. King and Son. McCloskey, Deirdre N. 1985. The rhetoric of economics. Madison: University of Wisconsin Press. Menger, Carl. [1871] 1994. Principles of economics. Grove City: Libertarian Press. Mises, Ludwig von. 1924. Theorie des Geldes und der Umlaufsmittel. 2nd ed. Leipzig: Duncker & Humblot. ———. 1949. Human action: A treaties on economics. London: William Hodge. Moss, Laurence S. 1997. ‘Austrian economics and the abandonment of the classic thought experiment.’ In Austrian economics in debate, edited by Willem Keizer, Bert Tieben and Rudy Van Zijp, 151–171. London: Routledge. https://doi. org/10.4324/9781315862866-7 Myrdal, Gunnar. [1931] 1939. Monetary equilibrium. London: William Hodge. O’Driscoll, Gerald P. Jr, and Mario J Rizzo. 1996. The economics of time and ignorance. London: Routledge. https://doi.org/10.4324/9780203006740 Rosner, Peter. 1994. ‘Is Hayek’s theory of business cycles an Austrian theory?’ In Hayek, co-ordination and evolution: His legacy in philosophy, politics, economics and the history of ideas, edited by Jack Birner and Rudy van Zijp, 51–66. London: Routledge. Schumpeter, Joseph Alois. 1949. ‘Science and ideology.’ American Economic Review 39 (2): 346–359. https://doi.org/10.1017/CBO9780511819025.015 Shackle, George Lennox Sharman. 1972. Epistemics and economics: A critique of economic doctrines. Cambridge: Cambridge University Press. Tieben, Bert. 2012. The concept of equilibrium in different economic traditions. Cheltenham: Edward Elgar Publishing. https://doi.org/10.4337/9781781953518

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Trautwein, Hans-Michael. 1996. ‘Money, equilibrium, and the business cycle: Hayek’s Wicksellian dichotomy.’ History of Political Economy 28 (1): 27–55. https:// doi.org/10.1215/00182702-28-1-27 Wicksell, Knut. [1898] 1936. Interest and prices. Translated by Richard F. Kahn. New York: Sentry Press. ———. 1935. Lectures on political economy. 2 vols. London: Routledge & Kegan Ltd. Zappia, Carlo. 2001. ‘Equilibrium and disequilibrium dynamics in the 1930s.’ Journal of the History of Economic Thought 23 (1): 55–75. https://doi.org/10.1080/ 10427710120045646

8

How economics failed to understand crises. Constitutive metaphors in business cycle analysis, from Frisch to Real Business Cycles Francisco Louçã

8.1 Introduction The love affair between economics and mathematics precedes the neoclassical revolution of the end of the 19th century. The view that good science should be formulated in a Newtonian mode was shared by many inf luential economists even before science was used to generate a common language for the new concepts which translated thermodynamic laws and functions into economics. It can therefore be argued that the formulation of economics—both as deductive logic in the spirit of mathematics and also as a representation of an identifiable apparatus which imitates physics—started a journey for the rapid dominance of the new approach to economics, challenging the agenda of classical economics. However, this view came to be criticized even by its own practitioners, with the more relevant case during that period of the fin de siècle probably being that of Alfred Marshall, who voiced his quest for alternative methods, such as that of evolutionary dynamics—ever since the introduction to the fifth edition of his Principles (where he presents biology as the ‘Mecca’ for economics; Marshall 1920: xiv; see Chapter 4 of this volume). Marshall also argued that the choice of an adequate analogy should be decided by pedagogy: There is a fairly close analogy between the early stages of economic reasoning and the devices of physical statics (…). I think that in later stages of economics better analogies are to be got from biology rather than from physics; and, consequently, that economic reason should start on methods analogous with those of physical statics, and should gradually become more biological in tone. (Marshall 1925, 314) As this transition was not pursued in economics, it is obvious that Marshall became disappointed with the current methods—even those he himself had introduced—for he addressed some of his colleagues in a critical vein during the late years of his career. In a letter written in 1906 to Arthur Bowley, a younger colleague who dedicated his life to the lecturing statistics and mathematics to economists, Marshall stated,

DOI: 10.4324/9781003144601-11

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I had a growing feeling in the late years of my work that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics, and I went more and more on the rules: (1) use mathematics as a short hand language, rather than an engine of inquiry; (2) keep these until you have one; (3) translate into English; (4) then illustrate by examples that are important in real life; (5) burn the mathematics; (6) if you cannot succeed in (4), burn (3). This last I did often. Marshall even argued that the ceteris paribus clause, which is so central in partial equilibrium, was sometimes not even practicable and that formalization would be useless: In my view, every economic fact, whether or not it is of such a nature as to be expressed in numbers, stands in relation as cause and effect to many other facts; and since it never happens that all of them can be expressed in numbers, the application of exact mathematical methods to those that can is nearly always a waste of time, while in the large majority of cases it is particularly misleading; and the world would have been further on its way forward if the work had never been done at all. (Marshall to Bowley, quoted in Kaldor 1985, 58–59) Bowley ignored these suggestions, mainly because they would lead to narrative theorizing and to intractable models, or even to the abandonment of his own work project. In any case, in spite of the success of the neoclassical revolution which came to dominate economics and notwithstanding some major resistance, such as that promoted by John Maynard Keynes and old institutionalism, several voices were raised to express defiance of the simplification imposed by the reduction of economics to a mere branch of mathematics. One example is that of Wassily Leontief, who himself was a highly skilled mathematician who won the Nobel Prize for his work on input-output. He chastened his colleagues during a late phase of his career, saying: ‘page after page of professional economic journals are filled with mathematical formulas leading the reader from sets of more or less plausible but entirely arbitrary assumptions to precisely stated but irrelevant theoretical conclusions’ (Leontief 1982, 106). Another example is that of Ronald Coase, who won the Nobel prize 19 years after Leontief ’s complaint, who developed the same hostility toward the support by mathematical formulations of ‘entirely arbitrary assumptions,’ such as utility, which he described as being ‘a non-existent entity which plays a part similar, I suspect, to that of the ether in the old physics.’ For if we accept that notion, then ‘we have consumers without humanity, firms without organization, and even exchange without markets’ (Coase 1988, 2–3). Many other examples of this type of concern about the development of economic science could be quoted, however, in effect, such defiance did nothing to alter the mold of the profession. Throughout the last century, economics became a

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province of mathematics as far as language and methods are concerned and was inspired by physics as the mode of representation of reality. The topic of this chapter is how mechanical metaphors were used to justify or to conduct research on business cycles and how they led to a cul-de-sac. The chapter discusses an example of how that process of the configuration of economic science can be seen as being alienated from facts and real processes in social life. The next section presents the different arguments regarding the role of metaphors in science in general, and in economics in particular; the following section indicates how mechanics emerged as a reference for the formulation of models; and the fourth section explores the prevailing business cycle models which apply those principles and argues that these were destined to be condemned, not least because of their inspiring metaphors. Section 8.5 concludes.

8.2 The role of metaphors in scientific inquiry Metaphors are as old as language and have been praised for many a year for adding charm to style: The metaphor consists in giving a thing a name that belongs to something else, [a] transference on grounds of analogy (…). The metaphor, moreover, gives style clearness, charm, and distinction as nothing else can, and it is not a thing whose use can be taught by one man to another. (Aristotle, CW, IX, 1457b 7–18) Therefore, for Aristotle, the metaphor is a part of rhetoric and not of logic. Indeed, it is considered the ‘sign of genius, since a good metaphor implies an intuitive perception of the similarity in dissimilarities’ (ibid., 1459a4) and, since the explanation is omitted, the metaphor is as a riddle (ibid., 1407a11– 13, 1405 b3–6). In the Aristotelian context, the metaphor is a semantic transformation at the level of the identity of meaning which is concentrated on the word. Furthermore, for the philosopher, metaphors are similes and should ‘fairly correspond to the thing signified’ (ibid., 1405a9–10), that is, no ambiguity should alter the connection between the word and the world. Thus, for Aristotle, the f light of the analogy is restricted to vicinity of expression and meaning. Adam Smith, who is rightly described as the founder of modern economics, also considered all the discursive relations in the realm of rhetoric, for which he included economics in his early work entitled Lectures on Rhetoric and Belles Lettres, which he wrote in 1748–1749 (however he did not address this question in his later work). This approach was strongly denied by many of the voices of the scientific approach which emerged with the onset of modernity. John Locke, in a chapter dedicated to ‘the abuse of words’ in his Essay on Human Understanding, accused metaphors, or ‘figurative speech,’ of ‘insinuating wrong ideas’ and to ‘mislead judgement’ (Locke 1689, 33–34). Refusing these ‘wrong ideas,’ when Isaac Newton developed his science he claimed that hypotheses were to

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be ignored and that only facts and experiments mattered. Following the same train of thought, David Hume proposed a radical view of the proceedings of science in his Enquiry Concerning Human Understanding: When we run over libraries, persuaded of these principles, what havoc must we make? If we take in our hand any volume—of divinity or scholar metaphysics, for instance—let us ask, Does it contain any abstract reasoning concerning quantity or number? No. Does it contain any experimental reasoning concerning matter of fact and existence? No. Commit it to the f lames then, for it contains nothing but sophistry and illusion. (Hume [1748] 1902, 165, his emphasis) This Newtonian or positivistic view expresses a naive description of the development of science. In fact, hypotheses matter, and theories which define the scope of experiments and metaphors can provide new ideas to be explored (Louçã 1997). One well-known example that contradicts the claim that science only progresses through ‘experimental reasoning concerning matter of fact and existence’ is the connection between Malthusian theory and Charles Darwin’s work. Darwin’s notebooks show that he had read Smith’s Theory of Moral Sentiments in 1838–1839, early in his career, while at the same time, he summarized The Wealth of Nations. The Smithian view of the emergence of order from complex interactions and of diversity rather than from disharmony resulting from the social fabric certainly inf luenced Darwin’s vision. Yet, in a later summary of his life, Darwin described himself as a ‘true Baconian,’ or a faithful positivist, as he said: ‘I worked on true Baconian principles, and without any theory collected facts on a wholesale scale.’ Notwithstanding, he mentioned the insight which suggested a new theory to interpret these facts—namely from the reading of Malthus’s theory of population: I happened to read for amusement ‘Malthus on Population,’ and being well prepared to appreciate the struggle for existence which everywhere goes on from long-continued observation of the habits of animals and plants, it at once struck me that under these circumstances favorable variations would tend to be preserved, and unfavorable ones to be destroyed. The result of this would be the formation of new species. Here then I had at last got a theory by which to work; but I was so anxious to avoid prejudice, that I determined not for some time to write even the briefest sketch of it. (Darwin [1876] 1956, 120, my emphasis in italics) In the Origin of Species, this inference was already present: A struggle for existence inevitably follows from the high rate at which all organic beings tend to increase. Every being, which during its natural lifetime produces several eggs or seeds, must suffer destruction during some period of its life, and during some season or occasional year,

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otherwise, on the principle of geometrical increase, its numbers would quickly become so inordinately great that no country could support the product. Hence, as more individuals are produced than can possibly survive, there must in every case be a struggle for existence, either one individual with another of the same species, or with the individuals of distinct species, or with the physical conditions of life. It is the doctrine of Malthus applied with manifold force to the whole animal and vegetable kingdoms. (Darwin [1859] 1989, 37, with my emphasis in italics) Nevertheless, this did not indicate how powerful the metaphor was to configure a theory by which to work, as Darwin suggested in his above-mentioned autobiography which he wrote for his children (Darwin [1876] 1956). In spite of this evidence, Malthus’s inf luence on Darwin was contested. Suggested change: Schumpeter denied it, and so did Hayek. While Schumpeter did not know about Darwin’s later writings, in which he presented the reading of Malthus as being the illuminating event, Hayek did (Hodgson 1993, 55, 63, 229n; Jones 1989, 418). In any case, this example is a well-proven instance of a successful metaphoric transfer, even if it was made by a ‘true Baconian’ disciple. Indeed, metaphors pervade the journey of science. In the history of economics, the most widely-used metaphor for paradoxically vindicating a mode of reasoning based on scientism was that of the founders of neoclassical economics, such as Léon Walras, Francis Edgeworth, and Hermann Gossen, followed later by Irving Fisher, who all used the inspiration from thermodynamics and mechanics to formulate their concept of utility, as well as their model of maximization and their result of general equilibrium. As Mirowski summarized, the energetics movement was a logical extrapolation of some major themes surrounding the original construction of the energy concept: the promise of the reunification of all science; the reification of the fundamental substratum underlying the diversity of phenomena; the expressions of the belief in causal continuity and the determinism of the Laplacean dream; and the prosecution of research by analogy. (Mirowski 1989, 56) Modern economics is built on a metaphor. In the following section, some instances of the use of this metaphor are inspected.

8.3 Mechanics as a representation of social life By the end of the 19th century, if not still today, physics was seen as the model for science: contemporaries marveled at its capacity to make daring predictions and to test experimental hypotheses, and the dominant epistemology followed its ways and established them as a standard during most of the following century, just as Karl Popper did. Different sciences interpreted this

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standard in different ways, but the reference to mechanical representations of reality, including social life, has been an almost universal constant. Adam Smith, in Principles which Lead and Direct Philosophical Inquiries: Illustrated by the History of Astronomy, presented this mechanical analogy that is at the core of positivism: ‘Systems in many respects resemble machines (…). A system is an imaginary machine inverted to connect together in the fancy those movements and effects which are already in reality performed’ (Smith [1758] 1980, 116). As many others who followed him, Smith proposed science as the construction of an ‘imaginary machine.’ Through time, this would be extended to configure the mathematical model as the representation of machines and their computation as the simile of the working of a laboratory experiment. In the same sense, Walras defined economics as a physical-mathematical science like mechanics and hydraulics (Walras [1874–1877] 2013, 23), with the neoclassical economists following his lead. Nevertheless, it must be mentioned that Walras was divided on this and sometimes formulated a double criterion on the rules of science, an example being when he criticized Say’s attempts to define economics as a natural science, since he claimed, ‘Man is a being gifted with reason and freedom, capable of initiative and progress. In matters of production and distribution of wealth, as in general in every matter of social organization, he may choose between good and evil’ (Walras [1874– 1877] 2013, 10). In any case, if economics was not likened to a natural science, for Walras it still could be represented as a mathematical model of a machine. Yet this was not to be the end of the story. Israel and Ingrao related that Walras struggled to suggest his new concepts and approach to other scientists in a quest to gain some confirmation or support, including those who were seen as beacons of respectability at the time. In that sense, in 1901 he wrote a letter to Henri Poincaré, the distinguished mathematician, asking for his opinion about his own Elements of Pure Political Economy. However, Poincaré prudently replied that he could not understand ‘satisfaction’ as a measurable entity, and therefore he suspected that a function based on that concept would be arbitrary and should be avoided. In that sense, Poincaré was not seduced by the comparison between utility economics and mechanics. Furthermore, the specific assumption of maximizing rationality, which is a condition for general equilibrium, was rejected by Poincaré: ‘You look at men as being infinitely egoistic and infinitely clear-sighted. The first hypothesis can be accepted as a first approximation, but the second one perhaps requires a degree of reservation’ (Poincaré, quoted in Israel and Ingrao 1985, 22, my translation). From the same point of view, Vilfredo Pareto addressed Vito Volterra, a famous mathematician and physicist, only to receive a reply stating that utility and satisfaction are ‘non-measurable concepts’ (Volterra, quoted in Israel and Ingrao 1985, 25–26, my translation). It is notorious that, in spite of these rebuttals, both Walras and Pareto pursued their efforts to constitute economics on the pillars of mechanics, using the weak concepts of utility and optimization. My point is that their approach was not an eccentricity in science: for many, if not most of the scientists of the late 19th century and early 20th century

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shared the same ambition, or the desire to replicate the methods, the formulations, and, after all, the triumph of mechanics. William Thompson, Lord Kelvin, proudly stated, ‘I never satisfy myself until I can make a mechanical model of a thing’ (quoted in Meyerson 1908, 92). For what matters for this chapter is that such a mode of reasoning based on the ‘imaginary machine,’ or the mechanical analogy, was important enough to inf luence the design of models in many domains of economics, including that of cycle analysis. When it came to explain business cycles, which was one of the more challenging topics in early macroeconomics, this mechanical view resurfaced, and, indeed, it was decisive for the formulation of the first and more inf luential model—that presented in 1933 by Ragnar Frisch, who much later would share the first Nobel Prize in economics with Jan Tinbergen for this very reason. As Frisch explained in a private letter to his colleague and friend, Joseph Schumpeter, ‘We all have our peculiar way of working, and I for one, never understand a complicated economic relationship until I have succeeded in translating it either into a graphical representation or into some mechanical analogy’ (Frisch to Schumpeter, July 5, 1931, quoted in Louçã 2001). He presented his mechanical analogy and that ‘imaginary machine’ led the way for business cycle analysis.

8.4 Mechanical cycles: the rocking horse and its alias, the pendulum Classical economics had previously approached business cycles in two different ways. For Smith, periods of exaltation and depression could be explained by the perceptions of traders, which later on would be called expectations: When the profits of trade happen to be greater than ordinary, overtrading becomes a general error both among great and small dealers. (…) Sober men, whose prospects have been disproportioned to their capitals, are likely to have neither the wherewithal to buy money nor credit to borrow it, as prodigals whose expense has been disproportioned to their revenue. (Smith [1776] 1937, 406) Instead, Karl Marx explained crises as the result of changes in the process of the accumulation of capital, namely by the decreasing profit rate and the replacement of generations of fixed capital. Both approaches were to be abandoned under the neoclassical revolution, which proposed a radical psychological interpretation of the agent, wherever he or she was placed in the structure of production and distribution, as a rational being, with rationality being defined as the understanding of the objective function to be maximized under recognized constraints, or as a computational apparatus of a fully informed homo economicus. In that case, and under strict conditions which would remain to be ddressed for decades, the economy populated by those agents would reach general equilibrium. But what about cycles, crises, and perturbations, which, after

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all, are the easily-recognizable real-life traits of economies? Walras provided an explanation for such perturbations in general equilibrium, stating that the economy would be as the level of the water always looking for equilibrium, without ever attaining it (…). Just as the lake is in some days deeply agitated by tempests, so is the market violently agitated by crises, which are sudden and general perturbations of equilibrium. (Walras [1874–1877] 2013, 207–208) This was an imaginative metaphor, articulating that equilibrium (the tranquil surface of the lake) and perturbations, which could be explained as external forces, would quickly die away, restoring the normal state of affairs. The problem is that this metaphor of the lake (pp. 4–5) was unconvincing for some Walrasians. Young Joseph Schumpeter, when visiting the old master in 1909 at his home in Lausanne, heard it again, and, many years later, he protested against the simplification: I felt very strongly that this [the presentation of economics as the explanation of exclusively static processes] was wrong and that there was a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained. (Schumpeter [1937] 1951, 160) This rejection by Schumpeter was based on the perception that the image of the lake being disturbed by a tempest or any other unexplained perturbation was deficient and failed to focus on the relevant cause. But many others who did not share Schumpeter’s notion of innovation worked along Walras’s lines and tried to combine equilibrium and episodic change. However, to be able to do that, they required at least a mechanical model. Knut Wicksell was the first to suggest the metaphor for the construction of that model: If you hit a rocking horse with a stick, the movement of the horse will be very different from that of the stick. The hits are the cause of the movement, but the system’s own equilibrium laws condition the form of the movement. (Wicksell 1918) He did not pursue the metaphor, but Frisch, a gifted mathematician turned economist, noted the suggestion and developed it further. In 1933, in a paper that became a reference for modern macroeconomics and a crucial departure for business cycle analysis, he presented the rocking horse as a system of three equations, including a nonlinear function and a mixed difference-differential

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equation, simulating the impact of shocks (making it rock) on a stabilizing machine (the wooden horse). This was a monument of ingenuity, where energy is added by the movement of the child sitting on the horse and the up and down movements, and yet equilibrium is preserved as the natural rest state of the system. As I have narrated elsewhere (Louçã 2001), for precisely the same reasons that made him oppose Walras’s metaphor, Schumpeter argued with his friend about the adequacy of that not-too-imaginary machine to describe cycles. In a nutshell, he could not accept the source of energy to be exogenous, since he conceptualized the capitalist system as generating innovation and adaptation as its inner driving force. Alternatively, as he expressed in the same paper that presented the rocking horse system of equations, Frisch proposed another mechanism—that of a pendulum driven by a f low of energy from a pool of innovations. Again, mechanical imagination was the justification for the argument: ‘Personally, I have found this illustration [the pendulum] very useful. Indeed it is only after I had constructed this analogy that I really succeeded in understanding Schumpeter’s idea’ (Frisch 1933, 203). But this came to be no more than a forced pendulum, which was driven by exogenous causality, whatever the sophistication of the pool of innovations. In each case, in the form of either a rocking horse or preferably of a pendulum, given its mathematical tractability, the apparatus established a clear distinguo between both behavior and structure and also between the unexplained causality, the perturbation, and the intelligibility of the system, which tended to a state of rest. The consequence is momentous for the cycle theory, as the variations were consequently described as independent modes of oscillation created by factors which are alien to the natural equilibration of the system. The notion of the pendular movement of capitalism had already been naively suggested by many predecessors, such as Marx, Yule, Fisher, and Hotelling. It was an intuitive description, but it was not an explanation.1 In any case, it established itself as the model of models of cycles, although its interpretation followed two different paths from then on. 8.4.1 Mechanical apparatus The first interpretation was enunciated by Paul Samuelson in his 1947 doctoral thesis, The Foundations of Economic Analysis, where he valued the contribution of the Frisch’s paper in 1933, but highlighted its deterministic part—the equilibrating process. Samuelson was searching for an operational definition of determination: he considered that, for comparative statics, equilibrium is not something that is attained, but rather it is something that, if attained, has certain properties. Furthermore, as the propagation system is represented by simultaneous equations, all endogenous variables matter and they are simultaneously determined. He went on to pursue the project and proceeded to analyze the system, in order to dissect its dynamics. Samuelson was concerned with the equilibrating properties in that framework, even if causality was only

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attributable to changes in the parameters or in exogenous variables, (Samuelson [1947] 1983, 14–15). As a consequence, he failed to suggest a model of cycles, although he toyed with the idea of the accelerator as an explanation for growth and change. Other economists looked the other way. 8.4.2 Mechanical shocks The paradox of the Frischian model is that its most interesting part for business cycle analysis lies beyond the scope of the explanation, namely the hypothesis that shocks move the system (at that time, other words were used interchangeably with ‘shocks,’ such as ‘stimuli,’ ‘impulses,’ or ‘perturbations,’ which all directly allude to the function of that inf luence, and also, in another sense, the term ‘errors,’ whose meaning deviates from the description of a real process). These represent mysterious contributions to the process, and Frisch himself resisted to attribute a theoretical explanation and even a statistical description of their emergence. Indeed, Frisch did not accept a stochastic view of economic processes and did not want to configure the shock as a random event: ‘The concrete interpretation of the shock ek does not interest us for the moment’ (Frisch 1933, 200–201). Instead, Schumpeter strongly rejected to even consider explaining the evolution of economics in terms of random shocks: ‘the inf luence of external factors is never absent. And never are they of such a nature that we could dispose of them according to a scheme of, say, a pendulum continually exposed to numerous small and independent shocks’ (Schumpeter 1939, 12). Yet, for economists endorsing a traditional view of general equilibrium, this combination of perturbations and the mechanics of equilibration which progressively fade out to reestablish the normal state of rest were an attractive compromise. Nevertheless, they were asked how to model the shocks and equilibration, and that constituted the second interpretation of the rocking horse or the pendulum. Two approaches were again suggested to interrelate propagation and impulse. The first was promoted by the current of Equilibrium Business Cycles, namely by Lucas and Sargent, who suggested that serially-uncorrelated impulses are converted by the propagation mechanism into serially-correlated movements in real variables (Louçã 2004, 2007). As a consequence, the structure of propagation is supposed to mold the oscillations. The behavior of the system depends on the serial correlation of the cyclical component of output, and cycles explain cycles. When these authors proposed an explanation for the perturbations, their case study was unanticipated changes in money supply. But this failed to convince their fellow supporters of general equilibrium, who questioned the barriers of information (agents taken by surprise), which is supposed to be short-term blindness, with the very nature of institutions generating the surprise (central banks and the banking system). Furthermore, it is not established why these would be random shocks or, in that case, why would they form a covariance stationary process with a finite constant mean, not to mention the assumption that this would be white noise. Tobin (1980)

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and Okun (1980) further added that monetary shocks could not explain the persistence of the cycle, which would only be obtainable if time correlation of shocks exists, although, in that case, these would be anticipatable and would have no real effect, not to mention the obvious contradiction between the heroic assumption of rational expectations and the argument of misinformation, or the persistent misperception of major economic variables. Lucas and Sargent replied with the argument of the rocking horse: the propagation system is eventually structured by delays such as those generated by the costs of the adjustment of capital and labor, by household optimal accumulation plans, and by the search for jobs (Sargent and Lucas 1979). In any case, in the face of this wave of criticism, the authors of the EBC models hesitated with regard to their own contribution (Dore 1993, 4–5; Stadler 1990, 764n). The second approach built on these criticisms came to be known as the Real Business Cycles theory, as propagated by Kydland and Prescott—who claim precedence in this novel description of cycles: the ‘research program [was] initiated by Kydland and me (1982)’ (Prescott 1986, 9). Indeed, these authors proposed a novel approach, as they deviated from Frisch’s rocking horse, and instead looked to Eugen Slutsky as an inspiration. Slutsky, whose only contribution to the field is an Econometrica 1937 paper (even though it had been in circulation since 1927, with Frisch, the editor of the journal, later deciding to publish it, as he knew about at least part of it, and indeed he mentions it in his work in 1933), adopted an alternative view to that of Frisch: that a structure of propagation which molds the oscillations is not required, as, for Slustky, there is no defined endogenous structure, but it is rather the summation of purely random shocks, or their autocorrelation process, that constitutes the origin of cycles, generating autocorrelation by statistical averaging. But Slutsky does not mentioned what, how, and even whether this averaging is produced in real-life cycles, and rather just presents a statistical possibility: ‘Is it possible that a definite structure of a connection between random f luctuations could form them into a system of more or less regular waves?’ (Slutsky 1937, 106), he asked—and answered affirmatively. Kydland and Prescott praised Frisch’s model, although adding that ‘but no one built on that work,’ since he did not consider a representative agent, neither individual maximization, and, furthermore, at that time nobody was able to develop dynamic general equilibrium schemes. ‘In contrast with modern business cycle theory, he [Frisch] emphasized damped oscillatory behavior’ (Kydland and Prescott 1990, 4). Instead, the RBC authors modified the Solow growth model, introducing random errors in the Slutsky way, albeit they explained these as supply-side technological shocks which force the economy to adjust, which would occur in a Pareto-efficient way, with the trend itself oscillating and moving. There is no error in information, no monetary shock on the demand side, no institutional mistake, but just (unexplained) innovation. As a consequence, the very notion of cycle was rephrased: ‘in the language of Slutzky (1937), [Business Cycles are] the “sum of random causes”’ (Prescott 2002, 1067), as we just experience an

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‘accumulation of random events or a stochastic process’ (Plosser 1989, 52). In this context, maximization and rational behavior account for the adaptation process, and markets always clear in the end. Equilibrium ceases to be a description of a steady state, which is conceptualized as a mode of f luctuation. The exact nature or evidence for these well-behaved technological shocks, which are randomly distributed and uncorrelated until they impinge on the system, is not addressed by the authors. This is not the place to review the efforts to master the intricacies of the Solow residual, as that cocktail of omitted variables assumed the distinguished role of cause in that tale, neither of the random shock, which is presumed to be small in terms of statistical use, as well as insignificant and IID, and yet it represents the economic explanation for the technological changes—the entities that Paul Romer called ‘phlogistons’ (Romer 2016). In any case, estimation of real data was not the concern of the RBC authors, since they shared Lucas’s critique and rather favored calibration and simulation as a mode of reasoning and proof. Therefore, the rocking horse was destroyed: the horse was ignored, and the model was restricted to just explaining the random shocks, as it was reinterpreted following the inspiration by Slutsky—even if he himself only mentioned a statistical hypothesis. However, the accumulation of shocks still required a filter, or some machine capable of carrying out the function of averaging, which was missing. Furthermore, the concept does not explain, but only assumes innovation; neither does it explain persistence, but only registers it; nor does it explain the dimension of crises, since it is not easily conceivable that small shocks obtain such a large effect, unless in a nonlinear and not stochastic world. The RBC model provided no consistent explanation for business cycles. 8.4.3 Crusoe and Pareto optimal cycles To finalize this short excursion to examine the metaphors leading different approaches to business cycles, a reference is due to Robinson Crusoe. Charles Plosser, another claimant of precedence in the creation of RBC theory, published a model representing the economy as ‘the Crusoe society’ in 1989. There is no originality in that reference, for it has been used in contradictory expressions through time: Marx mentioned it to contrast the individual and social dimensions of work (Marx [1867] 1996, 89), many followed this or the opposite meaning, and it became a standard in the microeconomic pedagogy (Mankiw 2020; Varian 2010). What Plosser adventured was to offer a business cycle model based on Crusoe’s exploits. In his narrative, Crusoe maximizes utility by choosing between work and leisure, as expected. This economy then suffers a technological shock and produces more coconuts. Technology comes as manna from heaven, but this is not to be questioned, and the cause is not to be explained. For the case is that this manna induces a choice: should Crusoe consume more, or work more? His rational motivation could be to work more today, rather than later on when he is older, although, if he has no concern for the future (which

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is not really rational, right?), he could maximize consumption and ignore investment. On the contrary, if he were to understand the shock as transitory, then he should increase his investment, and the persistent effect of that decision would be a future decrease in work. Plosser concludes that business cycles, as oscillations in production, investment, and work, are Pareto outcomes of Crusoe’s optimizing response to the supply shock, which require the revision of his plans of the inter-temporal maximization of welfare. Next, by a movement of a magic wand, we move to a complex society, and, presuming that problems of information now exist (which was not the case on the lonely island), that losses and gains are obtained from social interaction (again, this was not the case on the island), and that future productivity shocks are unknown, with agents consequently forming expectations on the basis of the past shocks, then the solution is still a rational expectations equilibrium: ‘In other words, we can interpret the utility-maximizing choices of consumption, investment and work effort by Robinson Crusoe as the per capita outcomes of a competitive market economy’ (Plosser 1989). Markets then clear, and, whatever the perturbations were, cycles do not matter, since a perfect adjustment is always obtained. Place the rocking horse on Crusoe’s island, or in the imaginary machine of the competitive market economy, and nothing can persistently change the nature of the world. Walras could have felt the same when looking at the Lausanne lake.

8.5 Conclusion The founding metaphor in modern business cycle analysis was that of the rocking horse, or, as was expressed mathematically in a more general and simpler way, of the forced pendulum. This induced two opposite interpretations: an impulse-propagation model, developed by Frisch, and a shock-correlation model, suggested by Slutsky and further developed by the school of Real Business Cycles. The first considered the oscillatory structure as endogenous, although this would always require an external source of energy; whereas for the second, it is the creation of autocorrelation that moves the cycles. Yet, both models fail to address the origin and nature of the shocks—which tend to be ignored, as they became commonly understood as errors of the measurement apparatuses. Neither did either of them explain recursivity, persistence, or the dimension of crises. Schumpeter objected to this, since he thought that the shocks were endogenously generated and that they constituted the essence of capitalism—as innovations—and that no model which ignored their history would be adequate. Joan Robinson confronted these metaphors by saying: ‘Once we admit that an economy exists in time, that history goes one way from the irreversible past into the unknown future, the conception of equilibrium based on the mechanical analogy of a pendulum swinging to and fro in space becomes untenable. The whole of traditional economics needs to be thought afresh’ (Robinson 1973; for a discussion see Chapter 9). She was right.

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Acknowledgment A preliminary version was presented at the October 2019 Lausanne conference on ‘The Usage of Metaphors in the Theorization of Crises, Cycles and Equilibrium.’ I thank the participants for their comments. The author acknowledges financial support from Fundação para a Ciência e Tecnologia (FCT, Portugal), with national funding through research grant UIDB/05069/2020.

Note 1 This extends to contemporaneity. For instance, in 2017 Klaas Knot, the Governor of the Dutch Central Bank, argued in a speech, ‘It is often said that financial regulation moves like a pendulum, swinging back and forth between opposite states. When a crisis occurs, there is a call for tighter rules and the pendulum swings. Over time, as memory fades, there is a push for deregulation and fewer rules. Thus, the pendulum swings back, possibly sowing the seeds for the next crisis’ (Knot 2017).

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224 Francisco Louçã Locke, John. [1689] 2020. Essay on human understanding. Vol. 1 of The works of John Locke in nine volumes. London: Rivington. Louçã, Francisco. 1997. Turbulence in economics: An evolutionary appraisal of cycles and complexity in historical processes. Cheltenham: Edward Elgar.

———. 2001. ‘Intriguing pendula: Founding metaphors in the analysis of  economic f luctuations.’  Cambridge Journal of Economics 25 (1): 25–55. https://doi.org/10.1093/cje/25.1.25 ———. 2004. ‘Swinging all the way: The education of doctor Lucas and foes.’ History of Political Economy 36 (4): 689–734. https://doi.org/10.1215/00182702-36-4-689 ———. 2007. The years of high econometrics: A short history of the generation that reinvented economics. London: Routledge. https://doi.org/10.4324/9780203946831 Mankiw, Gregory. 2020. Principles of microeconomics. 8th ed. Mason: Cengage Learning. Marshall, Alfred. 1920. Principles of economics. 8th ed. London: Macmillan. ———. 1925. ‘Mechanical and biological analogies in economics.’ In Memorials of Alfred Marshall, edited by Arthur Pigou, 312–318. London: Macmillan. Marx, Karl. [1867] 1996. Capital. A critique of political economy. Vol. 35 of Collected Works. New York: International Publishers. Meyerson, Émile. [1908] 1964. Identity and reality. Translated by Kate Loewenberg. London: G. Allen & Unwin. Mirowski, Philip. 1989. More heat than light: Economics as social physics: Physics as nature’s economics. Cambridge: Cambridge University Press. https://doi.org/10.1017/ CBO9780511559990 Okun, Arthur 1980. ‘Rational expectations with misperceptions as a theory of the business cycle.’ Journal of Money, Credit and Banking 12 (4): 817–825. https://doi.org/ 10.2307/1992036 Plosser, Charles Irving. 1989. ‘Understanding real business cycles.’ Journal of Economic Perspectives 3 (3): 51–77. https://doi.org/10.1257/jep.3.3.51 Prescott, Edward Christian. 1986. ‘Theory ahead of business cycle measurement.’ Quarterly Review—Federal Reserve Bank of Minneapolis 10 (4): 7–21. https://doi.org/ 10.21034/qr.1042 ———. 2002. ‘Some observations oh the Great Depression.’ In Handbook of fiscal policy, edited by Rabin Jack and Glen L. Stevens, 1065–1072. New York and Basel: Marcel Dekker. Robinson, Joan. 1973. ‘What has become of the Keynesian revolution?’ In After Keynes, edited by Joan Robinson, 1–10. Oxford: Basil Blackwell. Romer, Paul. 2016. ‘The trouble with macroeconomics.’ Commons memorial lecture of the Omicron Delta Epsilon society, New York University, January 5. https://paulromer.net/the-trouble-with-macro/WP-Trouble.pdf. Samuelson, Paul Anthony. [1947] 1983. Foundations of economic analysis. Cambridge: Harvard University Press. Sargent, Thomas, and Robert Lucas. 1979. ‘After Keynesian macroeconomics.’ In After the Phillips curve: Persistence of high inflation and high unemployment, edited by Federal Reserve Bank Boston, 49–72. Edgartown: Federal Reserve Bank of Boston Conferences. Schumpeter, Joseph Aloïs. [1937] 1951. ‘Preface to the Japanese edition of Theorie der Wirtschaftlichen Entwicklung.’ In Essays in economic topics of J.A. Schumpeter edited by Joseph Aloïs Schumpeter, 158–163. New York: Kennikat Editions.

From Frisch to Real Business Cycles 225 ———. 1939. Business cycles. London and New York: McGraw-Hill. Slutzky, Eugen. 1937. ‘The summation of random causes as the source of cyclic processes.’ Econometrica 5 (2): 105–146. https://doi.org/10.2307/1907241 Smith, Adam. [1758] 1980. ‘The principles which lead and direct philosophical inquiries.’ In Essays on philosophical subjects, edited by William Persehouse Delisle Wightman, John Cameron Bryce and B. Emmett Ross. Vol. 3 of Glasgow edition of the works and correspondence of Adam Smith. Oxford: Oxford University Press. https://doi.org/10.1093/actrade/9780198281870.book.1 ———. [1776] 1937. An inquiry into the nature and causes of the wealth of nations. Edited by Edwin Cannan. New York: The Modern Library. Stadler, George. 1990. ‘Business cycle models with endogenous technology.’ American Economic Review 80 (4): 763–778. Tobin, James. 1980. ‘Are new classical models plausible enough to guide policy?’ Journal of Money, Credit and Banking 12 (4): 788–799. https://doi.org/10.2307/1992034 Varian, Hal Ronald. 2010. Intermediate microeconomics: A modern approach. 8th ed. New York: W.W. Norton & Company. Walras, Léon. [1874–1877] 2013. Elements of pure economics. Translated by William Jaffé. London: Routledge. 1954. https://doi.org/10.4324/9781315888958 Wicksell, Knut. 1918. ‘Ett bidrag till krisernas teori [Reviewed Work: Goda och dåliga tider by Karl Petander].’ Ekonomisk Tidskrift 20 (2): 66–75. https://doi.org/ 10.2307/3437495

Part III

Equilibrium

9

The pendulum and equilibrium a survey Daniele Besomi and Sonya Marie Scott

9.1 Introduction The pendulum has exerted a powerful impression on the imagination of people of all stands. It is an apparently simple and ubiquitous device and has been at the heart of important discoveries in physics. It is often used as a metaphor in common language because its swings suggest that if something goes one way, surely it will have to come back. The pendulum metaphor is correspondingly pervasive in economics. Because the pendulum, either as a physical or as an abstract device, is characterized by several features that can be applied to many economic objects, it has been referred to in many different contexts and in different, sometimes even opposite, ways. It has been invoked as a regulator of the consistency of the economic system, as a rhythm-giver and as a symbol of regularity. Yet as a compound pendulum it is a generator of chaos. It has been referenced for its symmetry of movement, for its swinging back, for the fact that f luctuations take time, for its use as a standard of measure. The equations describing its motion have both inspired and been incorporated into economic models. It has been applied to trade and production in general, to the price level, to interest, business cycles, currency, economic policy, expectations, exchange rates, population, and uncertainty. In this paper we focus specifically on the usage of the pendulum metaphor in connection with equilibrium. The paper is organized as follows. In Section  9.2, we begin with a special notion of equilibrium that has been defined as the medium of the oscillations of the economy, in analogy with the symmetry of pendulum f luctuations around its rest position. In Section 9.3, we examine how the pendulum was used in the discussion of the stability of long-term equilibrium; the focus of the writers discussed in this section was more on the tendency of the pendulum to stop rather than on the oscillations (which some writers did not even consider). In Section 9.4, we address the peculiarity that very few writers considered that the pendulum moves away from equilibrium in its oscillations. The focus on equilibrium notwithstanding, they do not ref lect on the fact that during its oscillations the pendulum passes twice per cycle beyond the equilibrium position towards

DOI: 10.4324/9781003144601-13

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which it tends. In Section 9.5, we examine how the pendulum was used to illustrate the notions of statics, dynamics, and the stationary state. In Section 9.6, we discuss some writers who argued that the pendulum metaphor is inappropriate for the task of representing equilibrium in the first place. From different perspectives (methodological, epistemic, and analytic) they observed that the pendulum metaphor as applied to long term equilibrium (see Section 9.3 as well as thinkers in the classical and neoclassical tradition more generally) does not address the important role of history, the asymmetry between past and future, or the possibility that the movement towards equilibrium shifts the equilibrium point itself. Finally, in Section 9.7, we trace the threads that tie together a seemingly disjointed narrative about the use of the pendulum metaphor in relation to equilibrium. Ultimately, we conclude that the pendulum fulfils an interesting epistemic function across various usages, at times serving as a replacement for an explanation of how economic equilibrium is attained, and at other times as an illustration of why equilibrium theory is inadequate, or far too mechanistic, in its mainstream formulation.

9.2 The pendulum and the notion of equilibrium Subsequent to the Mercantilists, different schools of thought and individual writers have developed various concepts of equilibrium and in so doing have revealed their own understanding of the working of the economic system (see e.g. Tieben 2012; Lunghini 1988; Dore 1984). The pendulum has inspired a few writers to frame a special notion of equilibrium as the average between extremes of f luctuations. It has also helped to frame the difference between two of the standard approaches to equilibrium, the one concerning the theory of value and the other concerning the business cycle. Apart from this, we are not aware of any other usage of the pendulum metaphor taking part in the formulation of different definitions of equilibrium. The rather peculiar idea that equilibrium lies in the middle of f luctuations was put forth in the 19th century, but has not had a significant following. It is interesting here, however, because of the foundational role played by the pendulum. This notion relies on the symmetry (or quasi-symmetry) of the oscillations of the pendulum: displacements on one side of the vertical (equilibrium) position give rise to movements of an equal amplitude (or near equal, if the pendulum is subject to moderate friction) on the opposite side. This property of the pendulum was used to support the reasoning that f luctuations and their consequences effectively average out, cancelling each other and indicating at their middle the natural condition of the economic system. Two related arguments were formulated. One was that the true or normal price lies in the middle of the f luctuations; the second was that the effects of f luctuations average out. The first of these arguments first appeared in an 1828 letter to the Editor of The Times on the course of the exchange rate between Britain and France. The author argued that the real par of exchange

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should be the medium between the two extremes of the range of variation, for the contrary would be as illogical as to maintain that a pendulum may oscillate asymmetrically: It would not be more absurd to maintain that the pendulum of a clock might vibrate from its perpendicular and centre 70 degrees to its right, and only 10 degrees to its left, for two years together, than to affirm, in the face of these facts, that 25f. 20c. is the par of exchange. (The Times 1828)1 A few years later, James Wilson used a similar argument to estimate the ‘correct’ price of corn, as he lacked a method to do so precisely. He worked with the assumption that depressions are in exact proportion to excitement and conversely, he took the vertical position of the pendulum, or the average price for the period under consideration, as the ‘fair and just’ sum to be paid for wheat: In order to go into the investigation proposed, it is obvious that we must discover, that we must condescend to some given sum which, could it be maintained steadily, would be the correct amount of the means of the country absorbed for this particular purpose annually, namely, for the purchase of wheat; in order that we may determine what the f luctuations really have been; how much too cheaply the community have been served at one time, and how much too dearly at another time. Now we know of no principle so accurate to determine this point, and, at all events, it is sufficient for a fair and full consideration of our case, as to take the actual average price which has been obtained in a currency of years amidst all these oscillations and f luctuations. Relying as we do upon the excitement being in exact proportion to the depression, and the depression, in its turn, being in exact proportion to the excitement; to the vibration of the pendulum being to the left in the same proportion that it was to the right, and on the right that it obtained on the left, we take the average price of the whole period as a fair and just point from which to date all our calculations in elucidation of the principles we advocate. (Wilson 1840, 19–20) The argument is not expressed clearly: if the vibrations of the pendulum were in precise proportion, we would have a cycle of constant amplitude. The suggested method would therefore be exact. Wilson probably thought of irregular oscillations that are, in the aggregate, equal on the left and on the right. This precise point was stressed more clearly by George Opdyke, who argued that market prices f luctuate around the ‘natural density’ of a market almost as uniformly as a pendulum tending towards its equilibrium point, the sum of variations on either side of the gravitating centre being precisely the same.

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The expansion of the market value of products augments the profits of their producers, the contraction diminishes them; but the self-interest of mankind is ever on the alert, and constantly shifting the distribution of the productive forces in such a way as to transfer the pressure from compressed to expanded values, so that the market value, in all classes of products, ultimately arrives at the point of natural density; or if the oscillations continue, in any given case the sum of its expansions exactly equals that of its contractions. … [T]heir market value contracts and expands with almost as much uniformity as that with which the pendulum vibrates when searching its gravitating rest; and like that, the sum of its variations will be precisely the same on either side of its gravitating centre. (Opdyke 1851, 73–74) In Opdyke’s passage, the nature of the argument is gradually shifting towards maintaining that the medium point of f luctuations represents the equilibrium and gravitational state not only of the pendulum but also of prices. This was stated explicitly a few years later by the anonymous author of an article in The Farmer’s Magazine, who argued that while during each year the medium and average prices of corn could differ through market f luctuations, in the long run, they come close to coinciding. He concluded that the law of demand and supply operates on either side with the same force and should not be tampered with: Let me endeavour to make this matter clearer, by using the pendulum as an illustration, the vibration of which will serve to mark the ebb and f low of prices. Now the line of repose in the pendulum’s course will represent the medium betwixt the highest and lowest price of corn during a year or any other period. That medium price may or may not be the average value for the same time. In the former case the consumer has not suffered from a f luctuation in prices; whereas in the latter he is either benefited or injured, according as the medium price has ranged below or above the average. This benefit or injury, however, is lost in the course of years, as will appear by the fact that during the last thirty years the total difference between the medium price and the average value has not exceeded 6d. a quarter. So, if the average price of a commodity for any year or period or years be the real value of it, then it is obvious, with regard to the corn trade, that, whether the supplies come equably to hand or otherwise, if the mean point be the average value for the same period, and the law of supply and demand operates with the same force in the one case as in the other, the effect would be the same. Of what use, then, can it be to interfere with the operation of laws which, imposed by Eternal Wisdom, work so beautifully and so unerringly to such equitable results? (The Farmer’s Magazine 1862, 100)

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Without invoking Providence, an anonymous writer also stated that in about two decades the averaging through f luctuations brings the price level in accordance with the effects of a law: It is a painful thought to the benevolent man [the farmer who is receiving high prices, compensating for the big losses of 1854], that these great prices which he is receiving, are at once the proof and the result of human want and misery. But here, again, the equalizing prices are at work. And he who watches the vibrations in the great pendulum of commerce, will discover that a round of fifteen or twenty years, rectifies all variations and brings all seeming anomalies under the sway of permanent and steady law. (Ohio Farmer 1856, 6) Finally, another version of the averaging argument was formulated by Francis Hooper, who stated that the revulsion exactly compensating the excessive excitement that had led to the panic would produce an equilibrium: People stimulated one another into such a state of excitement, that they could not view the matter calmly. They came to expect much more from railways than was reasonable: and the necessary consequence was a revulsion and a relapse which, like the swing of a pendulum, by going to an equal extent in the opposite direction produced an equilibrium. (Hooper 1879, 29–30) Several decades later, and in a completely different line of inquiry, Harold Barger used the pendulum to point out that the equilibrium notion to which the theory of value refers is of a different nature than the equilibrium to which business cycle theory refers. The former denotes ‘a position in which everybody’s relative scale is in equilibrium with the technical conditions of supply.’ Business cycle theory is based instead on ‘the analogy of the pendulum and the notion of movement about some point of equilibrium.’ From this perspective, equilibrium merely implies an absence of those disturbances, generally thought of as mainly monetary in character, which show cumulative tendencies. From these ideas has sprung a body of cycle theory, with its own specialised use of the term equilibrium, which, if less comprehensive, is at least no less difficult to formulate. (Barger 1935, 429–430) Barger’s distinction is particularly interesting when it comes to the usage of the pendulum metaphor. Indeed, business cycle theory was to a large extent built on the mechanics of the pendulum. We see this in particular in the foundational writings of Ragnar Frisch,2 but the asymptotic stability of the

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movement of a pendulum with friction also inspired writers who argued that specific variables (prices, in particular) tend towards an equilibrium state. We shall discuss this theme in the following section.

9.3 The tendency towards equilibrium The vast majority of allusions to the pendulum in relation to equilibrium serve to discuss the stability problem. The tendency of a pendulum subject to friction (although the latter qualification was rarely made explicit) to move towards its resting point was used by several writers to represent the stability of economic equilibrium. In some cases, it was used to indicate acceptance of the notion of stability, and in those cases the economic system itself was likened to the pendulum. In other cases, authors rejected the notion of stability. In those instances, the pendulum was denounced as an example of a badly chosen metaphor and was substituted with a more appropriate trope for neutral or unstable configurations. On a couple of occasions, the pendulum was modified to determine different stability outcomes. In some cases, the metaphor serves as a substitution for an argument, or for a part of an argument, that would make a compelling claim for stability. In other cases, the pendulum serves as an illustration of a theory which accounts for equilibrium conditions, however convincing or unconvincing that may be. We will proceed chronologically (for the most part) for the sake of clarity, but note that the lure of the pendulum metaphor appears to transcend traditions of thought and conceptions of equilibrium proper. Early accounts of equilibrium among classical economists were often mechanistic and tended to employ the pendulum metaphor when arguing that there is a long-run tendency to equilibrium, occasionally adding that the adjustment following a disturbance takes place via f luctuations. John Stuart Mill used the trope in his Principles, in the section on the general tendency of profits to equality ([1848] 1965, Book 2, Ch xv, § 4). Mill takes up the argument that profits in various trades tend to equalize via the movement of capital (less hindered, he maintained, than it is thought to be) from the trades expected to be less profitable towards the more remunerative ones. According to Mill, the adjustment generally takes place with oscillations ‘from one side to the other side of the medium’ (p. 407). There might be disturbances preventing the equalization from taking place smoothly. These, however, seldom cumulate into large f luctuations that can cause major impediments to equalization: But it is not often that a succession of disturbing causes, all acting in the same direction, are known to follow one another with hardly any interval. Where there is no monopoly, the profits of trade are likely to range sometimes above and sometimes below the general level, but tending always to return to it; like the oscillations of a pendulum. (Mill [1848] 1965, 408)

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The convergence process thus resembles that of a pendulum. The emphasis is, however, more on the stability than on the oscillations. The former ref lects the systematic operation of the law of profits for which this section of Mill’s book is preparing the ground, while the latter ref lects the disturbances to which, in practice, the movement of capital is subjected. Other pendulum-based accounts of the oscillatory tendency towards equilibrium exist in the latter half of the 19th century, and these either take the form of an addition to classical economic theory, or as a critical description thereof. Walsh (1853), in his Elementary Treatise on Metallic Currency, uses the pendulum as an analogy to show how displacements in exchange rates will be corrected through oscillatory movements towards equilibrium. In order for exchange between countries to be at real par, certain conditions of relative price equality must be met 3; these conditions are ‘gravely complicated by the variable nature of currency regulations in different countries’ (p. 150), in addition to the complications arising from differing standards of value and the differing uses of metal between countries. The pendulum thus gives us an appropriate analogy of the movement towards equilibrium under simplified conditions (assuming relative similarity between currency regimes). If exchange is off par, any deviation from it either gives rise to the power of opposite tendency; just as when the pendulum is displaced from a perpendicular direction, it is quickly drawn back by the force of gravity, and however long it may continue oscillating, its original position is that to which it constantly approximates. (Walsh 1853, 160) The oscillations of the pendulum serve as an illustration of a change in the usual inclination to buy or sell, occasioned by an alteration in the relative value of money and other commodities, affected the exchange, by increasing the demand for bills where the higher scale of prices prevailed, and diminishing it where the contrary obtained. (Walsh 1853, 161) In The Economic Position of the British Labourer, Fawcett (1865) discusses the economics of strikes to obtain higher wages. He summarizes the widely held argument that, if both wages and profits are aligned on their natural rate, raising wages would squeeze profits below their natural level. While he agrees that this would be counter-productive for workers as perverse results would follow and force the re-composition of the employment market or the decline of industry, he points out that that in reality wages and profits only tend to their natural values, and they often diverge from equilibrium:

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The force of gravity never ceases to restore the moving pendulum to a position of equilibrium. The pendulum may however be acted on by disturbing forces, which may cause it to deviate greatly from this position of equilibrium. In a similar way, demand and supply may be regarded as a force which is constantly tending to make wages and profits attain a natural rate; disturbing causes may however temporarily produce a great divergence from this natural rate, and we must therefore enquire whether during the period that is required to restore the wages and profits of any industry to their natural rate, such a combination as a strike implies, can succeed in securing a higher remuneration for the labourer. (Fawcett 1865, 169–170) During the oscillations created by the disturbance, then, there may arise conditions under which it makes sense that workers request higher wages. Again, the general law leads the system towards equilibrium, while disturbances can cause divergences. In spite of using the pendulum, Fawcett does not seem to be interested in the shape of the movement towards equilibrium, but only in the temporary existence of disequilibrium. Ellis, in The Rationale of Market Fluctuation, continues a similar narrative about the eventual return to a natural rate by means of the oscillatory movements of the pendulum. He refers to the change in expectations in connection with price movements determined by the imposition of tariffs. While he assumes that eventually prices will settle at their new equilibrium level, he explains that the movement of adjustment in each direction determines expectations moving in the opposite direction thereby causing a reversal in the direction of movement: the dismay caused by the fear of a great check on future demand is nearly certain to exceed the limits of reason in such cases, and a crowd of articles are forced for sale in the fear of even a worse price only being obtainable in the future; then comes another reaction, and so the pendulum swings backwards and forwards until prices again ref lect in steadiness the equilibrium of supply and demand. (Ellis 1879, 17) The comparison with the pendulum here emphasizes that the swing in one direction eventually causes its reversal by generating a force working against movement, while the tendency to equilibrium is simply assumed, in an unproven analogy with the pendulum’s position of rest, rather than explained. Roderick Henry Smith (1888) pushed the pendulum analogy very far and rather unwarrantedly. He argued that there exists a universal law, common to the pendulum and other oscillating phenomena. According to this law, prices tend in the long term towards their mean value, which they reach by damped oscillations, to which, for some unexplained reason, ideal prices are also subject:

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The ideal price of a commodity, then, is the mean between the two extremes, supply and demand, —a time when interchange is well regulated and evenly balanced, keeping the consumer and producer steadily and evenly at work; a time when there is neither great over-production of any commodity, nor is there great under-production; and when the price of all things will f luctuate between relatively narrow limits. Will that time ever arrive? A few illustrations will here serve our purpose. Children, when swinging under the forest trees, sometimes, after having gotten a ‘good start,’ sit quietly on the swing and let the vibrations to and fro grow smaller and smaller and smaller till they become invisible. If we ask the cause of these slowly decreasing motions, we shall find that the force originally imparted by the lad who swung the child has continually undergone subtractions by the force which the resistance of the air presents, and hence the equilibrium is reached when all the original force has been counteracted. […] The swinging pendulum, no matter how long the arm or how heavy the weight, at last becomes quiet. […] From observations of the method of action of a vast number of phenomena, including those successively changed forms which have arisen during the evolution of the Solar System, down to those which are continually going on in the rearrangements of societies and of individual life, and which manifestly cannot here be treated in detail, men have been led to conclude that not only is all motion in the line of least resistance, and rhythmic, but in the rhythms which each phenomenon presents is a tendency to equilibrium. Commercial affairs are no exception. (Smith 1888, 147–148) Here the pendulum allows for a logical leap. First, the ideal price is the average between extremes. Then, the ideal price is the attractor of the pendulum’s motion—but there is no explanation as to why this could be simply transferred to the price of commodities, except by the claim that there is a universal law of pendulum-like rhythmical changes. Here we thus have a case of the pendulum metaphor being used as a substitute for a proper explanation. Isaac Hourwich (1894), in an attempt to consider the rate of profit through the ‘law of labour value,’ questioned the classical position and its core assumptions. Hourwich claimed that ‘economic discussion today seems to have reached a point where further abstract reasoning can prove but a practical demonstration of the incompetency of the abstract method in Political Economy’ (p. 235). The perfect mobility of capital, such as we saw in Mill, is of course part of this abstraction: This law of assimilation of profits, as enunciated by classical Political Economy, was founded on the assumption of perfect mobility of capital. Capital, it was maintained, would f low freely into that branch of industry which for the time yielded greatest profits, until the increased competition caused by the inf lux of capital pressed down the rate of profits so

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low that a backward movement of capital out of this branch necessarily followed; after a few of these pendulum-like oscillations equilibrium would be restored. (Hourwich 1894, 240) These pendulum-like oscillations are the fancy of a system of thought unconcerned with the material constraints of labour and investments in fixed capital, as Hourwich continues to show through the remainder of his analysis. Without explicitly saying so, Hourwich seems to be imputing to classical political economy the assumption that the pendulum is a paradigm for the motion of an economic system. In the pedagogical part of Walras’ Elements of Pure Economics, a frictionless pendulum-like construction is used as an illustration of the notion of stability and instability. He describes a body of which the center of gravity lies directly beneath the point of suspension, so that if the center of gravity were displaced from the vertical line beneath the point of suspension, it would automatically return to its original position through the force of gravitation. This equilibrium is, therefore, stable. (Walras 1954, 109–112) Conversely, a similar body placed in its upright equilibrium would be unstable, as any displacement would be cumulative and bring the object back to its stable equilibrium. Walras, however, is not interested in the kind of movement that ensues from a displacement, but only in examining whether the position of equilibrium is stable or not. Böhm-Bawerk (1894) uses the pendulum metaphor in response to Marshall, who we will see (Section 9.6) argues that the pendulum is not a sufficiently subtle analogy to describe the seemingly erratic behaviour of prices and quantities. Before we consider the metaphor, however, let us consider its context. The author examines the law of cost and the value of labour in order to determine whether Marshall’s use of short and long periods is methodologically legitimate in his attempt to account for the marginal utility of labour. So, on the one hand, he grants that it is not possible to give a scientific explanation of the absolute height of wages, without some reference to that standard upon which […] Professor Marshall seems inclined to base the market or demand price of labor. This is the marginal utility of labour. (Böhm-Bawerk 1894, 36) And yet, on the other hand, despite their agreement with this initial choice of a standard of measurement, he claims that ‘we are not permitted, even for scientific purposes, to neglect these short and moderate length periods,’ (p. 37) insisting that what may be a short period is nonetheless subject to time,

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and within this time the ‘demand price for labour’ may change because of the mobility of labour (after all, labourers too are self-interested), making the process dynamic. The law of cost forces prices (which are subject to chance and bear the epistemological problem of uncertainty) to oscillate, albeit in regular motions like a pendulum. The equivalence between price and cost is the point of rest for the pendulum, and prices f luctuate about this point: The point is just as important as it is simple. In order to convince ourselves of its truth, we need only keep clearly in our mind what it is, that the law of cost really accomplishes, in relation to the price of goods, and how this result is brought about. The typical effect of the law of cost is to change the chance and uncertain fluctuations which the price of good undergoes, into a regular oscillating motion like that of a pendulum. In this motion the price always tends to return to the cost as to an ideal resting place. Though the price seldom remains for any long time at this point, yet in a general way this might be called the normal position about which the price oscillates. (Böhm-Bawerk 1894, 37) The law of cost thus operates as a force, much like gravity, in order to discipline the swinging of the pendulum into a regular pattern, unlike the chance and uncertain f luctuations which disturb the pendulum from the state of rest in the first place. The answer as to how this happens, for it is not simply automatic, is that self-interest serves as the operating mechanism that works on the oscillations, much as gravity works on the bob. Self-interest ensures the free movement of labour into the most lucrative occupation, which implies that we will see the movement of prices around the equilibrium point. Here, however, Böhm-Bawerk is also trying to explain the various factors which account for the cost of labour. He uses the pendulum not only to explain that the ‘wonderfully simply mechanism by which the law of costs brings about this result is as familiar as the law itself ’ (ibid.) but also to explain that it is the movement of labour (disturbance) that reveals the disequilibrium between price and cost of labour. Thus while ‘a condition of at least relatively stable equilibrium will be attained when in the different branches of production the price has so adjusted itself that the productive power does not tend to change its occupation’ (p. 38), it is the motion of the pendulum, the tendency for labour to leave one occupation for another if the other is more profitable, that is the interesting point of theoretical intervention. While the conclusion the authors reach here is similar to those we have examined thus far (i.e., equilibrium exists, and oscillations will tend towards it), the movement of the pendulum (of the cost of labour) itself is what is interesting. The law of cost, therefore, is supposed to serve as an analogy which confirms the universal rule that wages are determined by the self-interest of labourers (manifesting in this example as the marginal cost of labour as established in a context of freely moving labour capital).

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Knut Wicksell was interested in stressing the difference between relative and monetary prices, the former tending to a stable equilibrium while the latter could settle into a neutral equilibrium. Ultimately what Wicksell is interested in figuring out is how the infusion of credit, which was often ignored or assumed away in earlier attempts at an equilibrium system, would affect prices. He compared the equilibrium of relative prices to that of a dissipative pendulum: It should now be clear that, in so far as our hypothetical conclusions are in accordance with reality, the movement and equilibrium of actual money prices represent a fundamentally different phenomenon, above all in a fully developed credit system, from those of relative prices. The latter might perhaps be compared with a mechanical system which satisfies the condition of a stable equilibrium, for instance a pendulum. Every movement away from the position of equilibrium sets forces into operation— on a scale that increases with the extent of the movement—which tend to restore the system to its original position, and actually succeed in doing so, though some oscillations may intervene. (Wicksell [1898] 1936 100–101) Wicksell repeats this analogy adding a variant to his freely suspended pendulum (a ball moving into a bowl) in his 1906 Lectures in Political Economy.4 Monetary prices, however, do not have a unique equilibrium position, as they depend on the rate of interest: while respecting the ratios of relative prices, their absolute level can move depending on any difference between market and natural interest rates. Such an equilibrium is therefore no longer stable but neutral, and accordingly, Wicksell describes it by means of a different analogy: The analogous picture for money prices should rather be some easily movable object, such as a cylinder, which rests on a horizontal plane in so-called neutral equilibrium. The plane is somewhat rough and a certain force is required to set the price-cylinder in motion and to keep it in motion. But so long as this force—the raising or lowering of the rate of interest—remains in operation, the cylinder continues to move in the same direction. Indeed it will, after a time, start ‘rolling’: the motion is an accelerated one up to a certain point, and it continues for a time even when the force has ceased to operate. Once the cylinder has come to rest, there is no tendency for it to be restored to its original position. It simply remains where it is so long as no opposite forces come into operation to push it back. (Wicksell [1898] 1936, 101)5 Rosenstein-Rodan (1936) also uses Wicksell’s pair of metaphors as illustrations of stable and neutral equilibria in the counterposition of real and monetary

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conditions to argue that Wicksell’s cumulative process cannot take place in a stationary equilibrium as he assumed, but ought to be framed in dynamic terms. Interestingly, stable and neutral equilibria were both illustrated by Dore (1984–1985) by means of a modified pendulum. Instead of hanging from a fixed pivot, the pendulum is made to hang on curtain railings. The pendulum oscillations would cause it to move along the railing. The final result would depend on the shape of the railings: A simple mechanical analogy will make these definitions clear. Imagine a mobile pendulum suspended from a curtain railing. (The pendulum can be moved from one end of the railing to other; let it be in the middle.) The position of the pendulum is a stationary equilibrium which is neutral. Suppose we swing the pendulum moderately. The new position of rest will be different from the first, as the pendulum is itself mobile (it will not be in the middle anymore). But suppose the railing were convex to the f loor; now the pendulum returns to initial equilibrium, which is locally stable. (Dore 1984–1985, 198) When the pendulum f luctuates, it moves along the rail. If the rail is convex, even with f luctuations the pendulum will eventually return to the lower point, and the bob will always eventually settle in the same point, regardless of the shock. This equilibrium is stable. If the rail is f lat, as the pendulum is subject to shock and f luctuations, the peg moves along the rail. Eventually, the pendulum stops, but it has no fixed place to settle, yet it is an equilibrium (a neutral one). Pigou (1935) uses the pendulum to illustrate that equilibrium can be stable or unstable and the oscillatory motion around it could be converging, diverging or of constant amplitude depending on the formation of expectations in disequilibrium conditions, which is an empirical rather than a theoretical problem like that of friction in physics: Economists almost invariably assumed without argument that there is present something analogous to physical friction, which will make the swings backward and forward round the equilibrium position gradually dwindle to nothing. But is this assumption warranted? Friction in macroscopic physics is a fact of experience. Whether anything analogous is at work to stop the movement of the economic pendulum cannot be decided a priori. It is a question of how in fact people behave. If they start one year by producing 10 per cent above the equilibrium amount, so far as a priori considerations go, the cut in production which disappointment causes may equally well carry their output next year more or less than that distance below the equilibrium amount. The swings of the economic pendulum are as likely to grow in amplitude as to diminish. What actually happens can only be ascertained by a study of the facts. Far too little work has been done on this subject to warrant dogmatism. The

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regular recurrence of the 21-month pig-cycle necessarily raises doubts. The fact that an equilibrium position is attainable, which, if attained, would satisfy all parties, may ensure that that position will in fact be attained. On the other hand, there may come about a perpetual oscillation backwards and forwards round that position. (Pigou 1935, 14) The pendulum may increase or decrease its swing, but for the later construction of his model, Pigou casts aside the potential macro-economic oscillations brought about by human behaviour that does not conform to the principles of equilibrium theoretically established: ‘it is postulated, as it were by fiat, that these oscillations do not occur. For that model constancy of all the relevant forces necessitates the establishment of a thorough-going stationary state’ (p. 15). Finally we come to the work of Knight (1941), who offers an epistemological intervention with his use of the pendulum metaphor, and one which is related to the question of equilibrium. Knight’s rather interesting epistemic argument asserts that systems tending towards equilibrium, or even linear oscillators such as the frictionless pendulum, still have equilibrium at the theoretical core, for the motion is explained by the tendency to move towards equilibrium. For example: It should be noted that none of these special considerations [perpetual oscillations and disturbances] invalidate the concept of equilibrium, or the necessity of using the concept in causal analysis. Even in a simple mechanical situation, where the result to be expected from a constant cause would be perpetual oscillation in the effect, as in an organ pipe or other vibrating systems, the notion of equilibrium is necessary for analysis and explanation. This is also true of a system which does not convert energy, such as a pendulum oscillating without friction in a vacuum. The attraction toward a position of equilibrium is the vital point in the theoretical explanation. (Knight 1941, 54) The explanation of the attraction towards a position of equilibrium is what was lacking in a number of the explanations that we have seen thus far. Knight gives even greater subtlety in a following footnote on the problem of friction and oscillations in economic theory: Incidentally, it is interesting to note that economic theory has generally treated the absence of friction as the condition requisite for establishing and maintaining equilibrium. Pure mechanical theory generally has the opposite implication, that only the presence of friction will put an end to oscillations, and only a particular kind of friction (f luid viscosity) will

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result in a position of rest coincident with the position of theoretical equilibrium. (Knight 1941, fn.3) Knight’s point is interesting and worth some further ref lection. Economists have indeed assumed, rather explicitly, the absence of friction. For instance, Walras has stated, ‘we shall suppose that the market is perfectly competitive, just as in pure mechanics we suppose, to start with, that machines are perfectly frictionless’ (Walras 1954, 84). The role of the assumption of the free movement of capital serves to ensure that there is a reaction to any disequilibrium situation, which tends back to equilibrium. If there is a shortage of supply of a certain good, its price increases and creates windfall profits, which eventually attract other capitals to that branch of production and increase supply, thereby aligning it with demand. This ensures that the pendulum will swing back. But how far it will swing depends on the lag (the main focus of Knight’s argument) and the intensity of the reaction. Friction is thus necessary to cause the process to converge: if there is some friction ensuring that the effect is smaller than its cause (e.g., people learn, making the pendulum swing back shorter than the original push), the process eventually converges to equilibrium by damped oscillations. If people do not learn and react in exact proportion to the cause, oscillations will have a constant amplitude. Finally, if they overreact (the case considered by Pigou 1935 in the passage cited above), oscillations amplify instead of converging.

9.4 Passing the equilibrium point In its swinging back and forth, the pendulum passes the equilibrium point without ever stopping there.6 Whether they considered the oscillatory motion or only focused on the ending point towards which the system tends, most writers discussed in the previous section focused on the turning point where the pendulum is pushed towards equilibrium but neglected to discuss why a system that is supposed to tend towards equilibrium actually moves away from it immediately after having reached it. For the pendulum, the reason for this continued movement is that when the bob reaches that point, its potential energy has reached its minimum but its kinetic energy reaches its maximum, and with it, maximum speed. The equilibrium point is thus passed, and the pendulum moves away from equilibrium until the kinetic energy (or what’s left after part of it is dissipated by friction) is again transformed into potential energy. Surely this could be explained by some kind of inertia or by means of lags, and indeed most business cycle theorists did so, but only a few with reference to the pendulum and only fairly late in time. The first to take notice was Rodbertus, who pointed out that ‘the actual movements of the market will nevertheless, like the oscillations of the pendulum, swing beyond this position of equilibrium on either side’

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(1898, 117). Later, Irving Fisher pointed out almost parenthetically that the pendulum may overshoot, thus giving rise to damped f luctuations: Ultimately, of course, the over-indebtedness, whether of one individual or of a whole community, will be wiped out, with or without business failures. But sometimes the liquidation, or the psychology accompanying it, does more than restore a normal debt-situation. Those debtors who have burned their fingers by over-indebtedness, and those creditors who have burned theirs by over-lending—especially if the two groups comprise most of the community—become over-cautious, and end in an undue reaction against borrowing. Then the pendulum may gradually swing back, caution may again be thrown to the winds, and over-indebtedness again prevail. The pendulum may even swing back beyond the point of equilibrium, where people will again go too far into debt, but presumably not so much too far as the first time. This swinging back and forth may go on indefinitely, constituting a debt cycle; but, unless some outside force intervenes, each successive swing of the pendulum will have less scope than the last. (Fisher 1932, 12) In this account, no pendulum-related explanation is given as to why the equilibrium point is passed. Haberler, summarizing Hawtrey’s monetary theory of the cycle, cited ‘the ingenious explanation which Mr Hawtrey offers for the fact that banks always go too far [in raising or lowering the interest rate], that they swing like a pendulum from one extreme to the other and do not stop at the equilibrium rate’—without, however, going into details (Haberler [1978] 1993, 2:164). The only pendulum-related explanation of the swinging beyond equilibrium comes from Samuelson, who referred to inertia in exploring the consequences of an exponential decay of the growth rate by means of a simple relationship linking capital and investment rates. The resulting equation gives rise to an exponential decay leading towards a certain equilibrium level for capital, to which oscillations are superimposed at certain conditions. […] such a system gives rise to sinusoidal oscillations around the equilibrium-oscillations which are exactly like those a pendulum. Intuitively, we can glimpse this as follows: Suppose capital is growing, and it pushes through its equilibrium level. Its inertia causes it to overshoot the mark, because the positive level of investment is only gradually tapering off. But after capital has grown to a critical peak, its decelerating effects finally cause investment to become negative. Capital is now returning toward its equilibrium level at an increasing rate. It passes through the equilibrium level with negative investment at its peak rate. Now there is a downward over-shoot, which lasts until the gradual acceleration of investment, due to capital shortage, causes investment to become positive—at which point capital has reached its trough and has begun to revive. And so forth. (Samuelson 1948, 363)

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Given the abundance of writings focusing on the long-term equilibrium and the corresponding scarcity of contribution acknowledging that the pendulum regularly overshoots the target, once in one direction and once again in the opposite one, it is difficult not to sympathize with the following observation by F. F. Wiley (even if originally formulated in the context of a criticism of the economic policies—Keynesian, in particular—that overlook the reaction to economic stimuli by assuming that when their effect is exhausted the system will monotonously realign to equilibrium rather than bounce in the opposite direction): Economists, in particular, have built their most established theories on the idea that the economy isn’t a true pendulum but a Magic Pendulum. The Magic Pendulum of economic theory never swings back and forth. Instead, it always returns directly to its lowest point, where it remains still until disturbed by an external shock. At its lowest point, the labor force is fully employed. (Wiley 2013)

9.5 Statics and dynamics The most common usage of the pendulum trope is in reference to some of its specific properties as an oscillator, be it for its rhythm, symmetry, or tendency to move towards a state of rest. Some writers, however, discussed the pendulum not in order to detail the features of its motion or to characterize the conditions of the state of rest towards which it may tend, but rather in order to distinguish between basic theoretical approaches, namely, statics, dynamics, and history. This subject was taken up relatively late—unsurprisingly, as the very distinction between statics and dynamics in economics was first evoked by John Stuart Mill in 1848 (Kuznets 1930, 426; Machlup 1959) and only a few times more in the following decades. At first, the terms statics and dynamics were applied to the features of the object of research: Comte, for instance, contrasted statics as dealing with the present order of society and dynamics as being concerned with its evolution, and Mill distinguished the inquiry into the economic laws of a stationary and unchanging society with those concerning a society undergoing progressive changes. The pendulum metaphor is obviously not suitable to distinguish statics and dynamics in this sense, and indeed we do not find any attempts to do so. Towards the end of the 19th century, however, the pendulum trope was used to address the epistemic usefulness of each of these approaches. Only much later, in the 1960s, it was pointed out that in both approaches, but especially in the static approach, history was altogether neglected to focus on trajectories or the final point, respectively, and the pendulum served as a reference image for the criticism of mainstream economics (this will be discussed in Section 9.6).

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Let us begin with the distinction between statics and dynamics. The authors taking up this problem argued that the pendulum’s different dynamic states should be analysed in different ways and separately. The pendulum can be either in a state of rest in the equilibrium position at the bottom of its oscillation arc or it can f luctuate—around, or towards the equilibrium position. The analogy with the states of the economy is immediate: equilibrium is a privileged position, towards which—or around which—the economic system evolves. This evokes two problems: identifying and characterizing the state of equilibrium and determining the laws guiding the system’s motion when starting from a disequilibrium position. The first writer to ref lect on this dualism seems to have been Jevons. In the Theory of Political Economy he admitted that industry is in a state of perpetual motion and change, and accordingly that the complete determination of prices and quantities exchanged should be treated as a problem of dynamics. Yet he argued that as it is far easier to determine a pendulum’s point of equilibrium than to calculate its momentum when it is displaced from its point of rest, it is also easier to determine the conditions at which interchanges are suspended at equilibrium than to ascertain the rate at which transactions proceed otherwise (1871, 93–94): It is much more easy to determine the point at which a pendulum will come to rest than to calculate the velocity at which it will move when displaced from that point of rest. Just so, it is a far more easy task to lay down the conditions under which trade is completed and interchange ceases, than to attempt to ascertain at what rate trade will go on when equilibrium is not attained. ( Jevons 1871, 94) Jevons is thus separating the study of equilibrium from the study of the path leading to equilibrium from disequilibrium positions. He decided to focus on the first problem, and although he presented this as a first approximation, he never tried to pursue a dynamic approach (see for a discussion Mosselmans 2007, 48–49; Peart 1996, 74, 91–92; Tieben 2012, 246–253). Although Jevons’s distinction was not followed in the same terms in the literature, it is important for our story as it is quite clear that it was in the background of the arguments of a large portion of writers who evoked the pendulum in connection with equilibrium, regardless of the process by which equilibrium is reached (see Section 9.3). Some, like Jevons, disregarded motion altogether, except perhaps for mentioning its oscillatory character; others paid partial attention to the movement but focused only on the forces reversing the direction of movement in case the pendulum was moving away from equilibrium. As we shall see in the next section, the implications of Jevons’s distinction were eventually found to be grossly inadequate when addressing a world where movement is characterized by changing expectations.

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John Bates Clark introduced a different kind of distinction between statics and dynamics: oscillating movement is guided by dynamic forces, while the position of equilibrium is determined by static forces—both for markets and for the pendulum. He argued that the subject should be studied first by identifying the position of equilibrium in a stationary society as if the static forces were acting alone, and only later addressing the forces making for change: In the markets of all parts of the world where competition rules the standards about which prices f luctuate are set by static forces; and the f luctuations are accounted for by dynamic ones. Actual prices are now above the standards, and now below them. A pendulum is now on one side of an imaginary vertical line, and now on the other. The vertical line coincides with the position that it would hold if it were under the inf luence of static forces only. Its oscillations are due to dynamic forces; and these can be measured if we first know the nature of the static forces, and the position to which, if they were acting alone, they would bring the pendulum. The oscillations of prices about the natural standards can be accounted for only by a similar plan of study. We must have, at the outset, the static standards of price to which the market tends to conform. The same thing is true of natural wages and interest, and of the fluctuations about these standards. It is dynamic causes that produce variations. (Clark 1898, 12; 1908, 32) The reference to the pendulum here is misguided, as the forces determining the rest position of a pendulum and the oscillations around it are exactly the same. De Pietri-Tonelli realized instead that the forces bringing a pendulum with friction towards its position of equilibrium are the same that drive its movement: Nowadays it is no longer considered arbitrary to conceive of economic life as a system of forces tending towards a given position of equilibrium, in the same way as a pendulum that is displaced tries to find a position of rest. (De Pietri-Tonelli 1911, 220) Some 50 years later the same point was evoked by Hazlitt, who pointed out that, both in economic equilibrium and in a pendulum’s position of rest, we are concerned not much with the equilibrium state per se, but in the process by which such a state is reached—that is, in its dynamics: The very terms equilibrium and disequilibrium, statics and dynamics, are derived from physical and mechanical analogies. The most frequent examples chosen to illustrate the meaning of ‘static equilibrium’ in economics are water tending toward its level, a swinging pendulum

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tending toward a state of rest, or marbles coming to rest against each other at the bottom of a basin. But when we examine any specific problem (or even these analogies), we find that we are chief ly concerned with equilibrium in economics not as a state of rest, but as a process of moving toward rest. We are concerned not with the abstract conditions of achieved equilibrium (the ‘balance’ or mutual ‘cancellation’ of opposing forces), but with the forces which bring a tendency toward equilibrium. But when we are considering the process by which an equilibrium is established, we are not in the field of statics but of dynamics. (Hazlitt 1959, 74) Fetter focused instead on the final result of the action of forces. He defined statics as the study of the forces from which, in time, an equilibrium results, while dynamics is concerned with the changes in the process due to the weakening or strengthening of some forces which will bring the system to a permanently higher or lower level of equilibrium. The frictionless pendulum exemplifies an intermediate ‘stato-dynamic’ situation consisting in f luctuations around equilibrium brought about by any of the disturbing inf luences constantly affecting the working of the economy. Such rhythmic changes appear to be dynamic in the short term, but over a longer period turn out to be merely repetitive: Two types of dynamic change may be distinguished. One is the rhythmic change, the stato-dynamic change, where the movement more or less regularly oscillates above or below a ‘normal equilibrium’; it is cyclical, in that the change runs a cycle above and below the normal and back to the starting point. This appears, in any brief period, to be dynamic, but is merely rhythmic when viewed over a larger period. Another type of dynamic change is cumulative, or transformational, or permanent, meaning that the forces at work are not such as will of themselves generate resistance (as does a swinging pendulum) sufficient to carry them back to the starting point. (…) With many of these changes there is nothing that makes for permanent progress. There is a maximum and a minimum of prosperity, but the pendulum has a limited swing. There is in a rhythmically dynamic society far more of risk and uncertainty, of need and opportunity for judgment, of range for enterprise and alert management, than in a purely static state. None of these forces and inf luences change with perfect regularity, and even when the general average is pretty even from one cycle to the other, there is an element of the unpredictable any year about the total movement as well as about the details. (Fetter 1915, 403–404, 413) The terminological issue was later tackled—again with reference to the pendulum, albeit only marginally—by Frisch. He started by pointing out

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that in the preceding literature there was a confusion between statics and dynamics on the one hand and stationary or shifting phenomena on the other. The former is a distinction between ways of thinking, while the latter is a distinction between different kinds of phenomena (Frisch [1930] 2010, 44): the distinction between statics and dynamics is a distinction between two different ways of thinking, that is, a distinction between two different kinds of analysis: a static analysis is an analysis by which we try to explain a certain thing by taking into account a set of other things that exist at the same point of time, and a dynamic analysis is an analysis in which we try to explain a certain thing by taking into account not only other things existing at the same point of time, but also things existing at some other point of time. Generally, these other points of time will be points of time in the past, so that we can say that the essential characteristic of the dynamic analysis is that it tries to explain how one situation grows out of the preceding. (Frisch [1930] 2010, 45) Stationary phenomena can be defined either as phenomena that do not shift in time or—if instead of relying only on a purely descriptive point of view one wants to adopt an explanatory approach—as the absence of forces tending to produce a change in the phenomena (pp. 49–50). The pendulum was called upon to illustrate the difference between these two understandings of stationary phenomena: if we hold a pendulum still in any position except the vertical one, descriptively the position is stationary, as the pendulum does not move, but only because it is constrained by its being held. The vertical position of rest, on the contrary, is characterized by the absence of forces that would produce movement, and is therefore a stationary equilibrium (pp.  69–70). A few years later Frisch better specified the properties of a stationary equilibrium by pointing out that it is a special state of the system characterized by all the derivatives of the dynamic variables = 0— that is, a point where, if reached, there would be no tendency to move away. Such a position is found by solving a system of static equations derived from the system’s structural relationship by putting all time-derivatives = 0. The pendulum was again invoked to argue that it is not sufficient that the system is at rest, but that it must be permanently at rest: at the extremes of the arc of f luctuation the bob is temporarily immobile, but not in equilibrium: first derivative = 0 is a necessary but not sufficient condition for stationary equilibrium (Frisch 1936, 101). Samuelson took up Frisch’s definition of statics and dynamics, and used the pendulum to illustrate the notion of stationary state—a frictionless pendulum in the equilibrium position (Samuelson 1943, 59; 1947, 313) and a pendulum with friction asymptotically tending towards equilibrium (Samuelson 1943, 61) but endlessly oscillating around it, providing an example of stability of the second kind (1947, 262). He also used the frictionless pendulum as an example of conservative physical system which, if it starts oscillating, will

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preserve its motion and never returns to a stationary equilibrium (1947, 334), and pointed out that purely endogenous cycles have been likened to this kind of motion (1947, 336). He disputed, however, that there is in the economic world anything similar to the conservative laws of physics, thus ultimately making this representation inappropriate (1947, 336–337).

9.6 The arrow of time and ergodicity The simple pendulum has long been considered a symbol of mechanistic thinking. Some of the writers cited in the previous sections clearly admired the pendulum’s regular movement tending towards its position of rest under the effect of gravity and took it as a comparison for the depiction of a law showing that the economy tends towards its equilibrium. Others, however, forcefully argued that the simple pendulum—and the mechanistic approach it represents—is a very misleading metaphor for this purpose. The objections took different forms but generally boil down to a rejection of the idea that economic systems only undergo changeless changes in a timeless time (to borrow from Koyré’s felicitous expression: 1965, 11). The earliest, albeit partial, rejection of the mechanistic paradigm by means of the pendulum analogy is likely from one of the masters of neoclassical economics. After describing the equilibrium of supply and demand and discussing its stability, Marshall compared such a state with a free hanging pendulum only to immediately deny that this model is suitable to describe the actual conditions of markets: The only equilibria of any practical importance are stable equilibria, that is, are such that if the price is displaced little from one of them it will tend to return, as a pendulum oscillates about its lowest point. […] When demand and supply are in stable equilibrium, if any accident should move the scale of production from its equilibrium position, there will be instantly brought into play forces tending to push it back to that position; just as, if a stone hanging by a string is displaced from its equilibrium position, the force of gravity will at once tend to bring it back to its equilibrium position. The movements of the scale of production about its position of equilibrium will be of a somewhat similar kind. But in real life such oscillations are seldom as rhythmical as those of stone hanging freely from a string; the comparison would be more exact if the string were supposed to hang in the troubled waters of a mill-race, whose stream was at one time allowed to f low freely, and at another partially cut off. Nor are these complexities sufficient to illustrate all the disturbances with which the economist and the merchant alike are forced to concern themselves. If the person holding the string swings his hand with movements partly rhythmical and partly arbitrary, the illusion will not outrun the difficulties of some very real and practical problems of value. For indeed the demand and supply schedules do not in practice

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remain unchanged for a long time together, but are constantly being changed; and every change in them alters the equilibrium amount and the equilibrium price, and thus gives new positions to the centres about which the amount and the price tend to oscillate. (Marshall 1890, 404–405) Marshall’s first point is that the pendulum is continuously disturbed, sometimes rhythmically and sometimes at random, so that it never settles at the equilibrium position. The second point is that the very curves of demand and supply tend to shift, and accordingly, the equilibrium point also moves. The pendulum nevertheless continues to oscillate around and towards its centre. For him, the metaphor remains theoretically valid, notwithstanding the disturbances to which in practice both the bob and the pivot are subjected (on the pendulum metaphor in Marshall, see Chapter 4). A few decades later, the pendulum analogy was the object of a much more radical attack. The idea that the motion of the pendulum, however modified, could represent a path to equilibrium was rejected by many as f lawed. One of the first to aim their critique at the idea that the economy moves towards a given equilibrium position was Johannes Åckerman. While discussing movement rather than equilibrium itself, he pointed out that the idea of f luctuations around equilibrium is ahistoric as it assumes at the outset that the social context and the economic processes are reversible or taken to be constant, while in the real world economic variations are interrelated: Starting from the classical theory of pendulum movements around a ‘normal equilibrium’ or from a purely mathematical point of view— in the latter case harmonic analysis based on Fourier’s theorem—it is logical to regard short variations as derivates (or shorter and shorter harmonics) of the basical sine curve. But such an approach is absolutely unhistoric—it assumes the social and economic processes to be reversible and/or absolutely constant. The whole question of changing structures and institutions is then discarded a priori. (Åkerman 1960, 173–174) Although Åkerman was referring to the interaction of cycles of different lengths, his observation about history and the reversibility of the pendulum movement also applies to the movement towards equilibrium, and it was soon echoed—and elaborated in more detail—by Joan Robinson with specific reference to equilibrium. Although her argument was already outlined in earlier writings (in particular Robinson 1953a), Robinson’s first reference to the pendulum came just a couple of years after Åkerman’s. She started (Robinson 1962) from the customary diagram representing supply and demand curves, intersecting at point E where they determine equilibrium price and quantity. This position is said to be stable but, Robinson argued, it is by no means clear what ‘stable’

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means. It is maintained that if price lies, for instance, above the equilibrium price, it tends to fall back towards E. But this is not only a shift in space but a movement in time, and there is no time dimension in the diagram. ‘Time may be conceived to lie at right-angles to the page but nothing in the picture tells us what happens when we move off the sheet.’ Moreover, if at some point price or quantity is not at the equilibrium level, it means that expectations have been disappointed. This, however, may in turn cause a shift in expectations: if prices have risen above the equilibrium level, they could cause an expectation for a further rise and accordingly send prices further up. A stability story is thus added at this point: Now a pendulum is brought into the argument. The point E is said to be like the vertical position of a pendulum. The pendulum may be said to be tending towards the vertical even at those moments when it is moving away from it. This metaphor can be applied to a market in which there is a clear concept in the minds of dealers as to what the equilibrium position is. In such a case it is true to say that price is always tending towards equilibrium even if it never settles there, and that, once settled, it will return to the equilibrium position after any chance displacement. For, in this case, dealers believe that profit is to be made by selling when price is above OP and buying when it is below. (Robinson 1962, 22–23) In Robinson’s view, the pendulum metaphor is thus called upon to fill in for the missing temporal equations that would also be necessary to determine the dynamics of prices and quantities and would thus be necessary to assess whether or not equilibrium is stable. The static problem of the determination of the equilibrium position cannot be severed from the dynamic problem of the path leading to it. Furthermore, when one allows that expectations may be incorrect, the process of moving towards equilibrium (or even around it, or away from it for that matters) affects the equilibrium solution. Elsewhere Robinson stressed the difference between her viewpoint and Marshall’s argument: it is not only that while the system moves towards equilibrium it is disturbed by external shocks or economic factors eventually shifting the curves and altering the equilibrium position, but the very fact of movement towards equilibrium affects ‘the destination of the movement, so that there is no such thing as a position of long-run equilibrium which exists independently of the course which the economy is following at a particular date’ (Robinson 1953c, 590). The implication is that the notion of equilibrium only makes sense if the system is already there and has been there for some time, namely, in a stationary state. If it is not in equilibrium, moving towards it would change the expectations and inevitably shift it, so that even the notion of ‘tending’ does not make sense.

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The critical target of Robinson’s remark on the pendulum being called upon to prove the stability of long-term equilibrium was likely a passage by D. H. Robertson, who has explained the notion of the tendency towards equilibrium not as ‘something which will be attained after so many months or years and then stay put,’ but as a norm around which actual value oscillates, as a pendulum does about a vertical line or a ‘sine curve’ about a horizontal one, so that even though the moments when value actually equals cost of production are few, yet whenever it diverges from it a force, which will ultimately be victorious, is at work tending to bring it back again. Yet even that conception, though helpful, may be too clear-cut for application to a changing world. It may be that in such a world long-run equilibrium is never attained. It is the state of affairs which would be attained if all the forces at work had time to work themselves out; but it may be that in any particular case they never will have time to work themselves out, since other events, altering the whole set-up, will have occurred before they do. (Robertson 1957, 95) Robertson continued by addressing a previous argument by Robinson: ‘it is impossible for a system to get into a position of equilibrium, for the very nature of equilibrium is that the system is already in it, and has been in it for a certain length of past time’ (Robinson 1953b, 85). As Robinson’s statement was not explained any better than cited in this passage, Robertson found it to be ‘great nonsense’ (Robertson 1957, 95). Robertson’s reference to the pendulum thus prompted Robinson to reformulate her thought on the matter, this time elaborating upon the temporal explanation. When a few years later Robinson referred again to the mainstream usage of the pendulum analogy, she explicitly connected the previous argument with the irreversibility of time: Once we admit that an economy exists in time, that history goes one way, from the irrevocable past into the unknown future, the conception of equilibrium based on the mechanical analogy of a pendulum swinging to and fro in space becomes untenable. The whole of traditional economics needs to be though out afresh. After the war, Keynes theory was accepted as a new orthodoxy without the old one being rethought. In modern textbooks, the pendulum still swings, tending towards its equilibrium point. Market forces allocate given factors of production between alternative uses, investment is a sacrifice of present consumption, and the rate of interest measures society’s discount of the future. All the old slogans are repeated unchanged. (Robinson 1973, 5)

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Again the following year: The situation in which the private-enterprise system had evidently broken down was incompatible with the orthodox assumptions. The basic fallacy in the orthodox system was the belief that a market economy always tends to reach equilibrium, like a pendulum which, while swinging to and fro, always approaches a position of rest. The analogy is false. A movement in space may go to and fro, but a movement through time goes only one way, from the past into the future. Human life has to be conducted without ‘correct foresight’; economic behaviour is governed either by guesswork about the future consequences of action taken today, by notions of proper behaviour derived from convention, or from the lessons of past experience, which may turn out to be deceptive. (Robinson and Eatwell, 1973, 48) In these two passages, the pendulum is again called upon to represent the mainstream’s shift from movement in space into movement in time. Robinson, however, also adds the argument that in economics, contrary to mechanics, expectations make time irreversible. The economy runs in history, not in the logical time of the pendulum. Here, however, the analogy is not perfect. A frictionless pendulum’s movement is perfectly reversible: if one substitutes −t for t in the pendulum equation—tantamount to projecting in reverse a film of its movement—the resulting movement is the same as before the substitution, and the resulting film would be indistinguishable from the original. But a pendulum with friction is a dissipative system, as mechanical movement is gradually transformed into heat; such a system is not reversible: after the transformation t → −t the f luctuations amplify instead of converging towards equilibrium. Its movement still refers to the same absolute and mechanical time of Newtonian physics, rather than to Robinson’s historical time in which the system’s past determines its future; yet it is not reversible: the transformation t → −t would create a path divergent from, rather than tending to, equilibrium. Despite this glitch, Robinson’s criticism of the notion of time in mainstream theory—mostly elaborated without referring to the pendulum—was powerful and has been taken up by many commentators—a number of whom brought in the pendulum as a representation of mainstream economics, mostly by citing or paraphrasing one of the passages above. For instance, Garegnani (1989, 350) cited the 1962 passage while discussing Robinson’s criticism to the methodology of neoclassical economics, the emphasis on historical time was discussed by Harcourt and Kerr (2009, 212) and Wolfson (1986, 6) by means of the 1972 quote, and the same passage was also used by Shaw (1989, 153) to emphasize uncertainty as opposed to risk. Feiwel (1989, 53–54) discussed Robinson’s rejection of the notion of tendency to equilibrium by adding a pendulum of his own to Robinson’s original (pendulumless) argument of 1953, while Cohen (1993, 224) referred to the 1962 passage; Feiwel also

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discussed the irreversibility of time by means of the 1972 quote. Without quoting Robinson verbatim, Groenewegen (2003, 21) discusses her rejection of the mechanical analogy, stressing the difference between the symmetry of the approach to equilibrium in mechanics (citing the pendulum as an example) and the fundamental asymmetry between past and future in economics. The reversibility of time as a basis for the epistemology of mainstream economics was one of the main themes of the research of Georgescu-Roegen, who also sometimes used the pendulum in his argument as an illustration of what is wrong with economic analysis. Robinson’s methodological criticism of neoclassical economics was based on its disregard for the asymmetry of time due to the intrinsic uncertainty of economic decisions, from which she concluded that the idea of a tendency to equilibrium and the very notion of equilibrium are nonsense. In contrast, Georgescu-Roegen started with an inquiry into the nature of economic processes. Their first essential feature is that they involve Change (Georgescu’s capitalization), ‘the most baff ling concept in philosophy,’ as at the end of the process (e.g., production) some at least of the elements involved in it undergo some qualitative transformation (beyond the mere quantitative variation). The second feature is that processes require the use of natural resources. Although he took a different route— epistemological rather than methodological—Georgescu eventually shared Robinson’s viewpoint: economic time, as opposed to astronomical time, is irreversible, while mainstream economics, being constructed in analogy with classical mechanics, is only concerned with immutable objects existing outside history. More precisely, the time of mechanics is not ‘Time [T ], conceived as the stream of consciousness,’ but clock-time, that is, intervals t measured with a mechanical clock7: It is the essential difference between the temporal laws which are functions of T and those which are functions of t that calls for a distinction between the two concepts. If we happen to watch a movie showing marshy jungles full of dinosaurs, we know that the event the movie intends to depict took place earlier than the founding of Rome, for instance. The reason invoked in this case is that the law governing such events—assuming that there is one—is, like the Entropy Law, a function of T. On the other hand, a movie of a purely mechanical phenomenon is of no help in placing the event in Time. For a pendulum moves and a stone falls in the same way irrespective of when the event occurs in Time. Mechanical laws are functions of t alone and, hence, are invariable with respect to Time. In other words, mechanical phenomena are Timeless, but not timeless. (Georgescu-Roegen 1971, 135–136) Georgescu-Roegen added that the omission of land value and natural resources from ‘standard analytical economics as well as in most applied works may also be imputed to the neglect of standard economists for any epistemological clarification of the production function. The consequence

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has been that the economic process is now viewed as a simple circular affair, as a mechanical analogue, which, like a pendulum, just beats time, but makes no history. The actual economic process, on the contrary, is making its own history, through the continuous tapping of natural resources and the search for a more efficient use of these scarce economic factors’ (Georgescu-Roegen 1972, 284). The theme of time reversibility and timelessness is repeated elsewhere in Georgescu-Roegen’s writings (e.g., Georgescu-Roegen 1977, 267; 1975, 350–351). Ultimately his argument states that in order to account for the evolutionary character of economic systems, economics should reject the dominant mechanistic epistemology and instead adopt a thermodynamic approach. This is clear in the section of one of his papers which is titled ‘Mechanical pendulum vs. thermodynamic hourglass’ (1977, 267). This paper has also been discussed with reference to the pendulum by a number of commentators (e.g., Bobulescu and Chong 2014; Cojanu 2009, 281; Maneschi and Zamagni 1997, 698; Schlegel 1973, 478). Specifically concerning equilibrium, Georgescu-Roegen writes, The consequence of this indiscriminate attachment to the mechanistic dogma, whether in an explicit or a tacit manner, is [that everything] now turns out to be just a pendulum movement. […] The pillar of equilibrium theory is that, if events alter the demand and supply propensities, the economic world always returns to its previous conditions as soon as these events fade out. An inf lation, a catastrophic drought, or a stock-exchange crash leaves absolutely no mark on the economy. Complete reversibility is the general rule, just as in mechanics. (Georgescu-Roegen 1975, 348) In his book on The entropy law (1971), Georgescu-Roegen developed a criticism of general equilibrium theory, in particular the idea that such a position would be stable, arguing that even Laplace’s demon could not calculate the equilibrium position because when an individual experiences a new situation he or she may alter his or her preferences, so that the demon’s calculations would be defeated by endogenous factors (Georgescu Roegen 1971, 134–135). This particular argument expands Robinson’s claims about partial equilibrium to general equilibrium analysis but does so without reference to the pendulum. A third strain of discussion about the directionality of time concerns the ergodic hypothesis. The concept is highly technical, but it has understandable conceptual implications that have occasionally been exemplified by means of the pendulum. This assumption originates in statistical mechanics as a ‘trick’ (the wording is from Boltzmann, who invented the concept) to reduce randomness and simplify the mathematics. A system is said to be ergodic when the average of all possible states of a system (ensemble average) equals the average value of the realizations taken over time (time average). For example, the average result of n players throwing a dice is equal to the average result of one player throwing the dice n times. If this assumption holds, one trajectory

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is sufficient to determine (probabilistically, at least) the future behaviour of the system. The implication is that: In an ergodic system time is irrelevant and has no direction. Nothing changes in any significant way; at most you will see some short-lived fluctuations. An ergodic system is indifferent to its initial conditions: if you re-start it, after a little while it always falls into the same equilibrium behavior. (Peters 2012, 2) In the 1960s Samuelson introduced ergodicity in economics. He pointed out that the concept of equilibrium in classical economics assumed that long-run equilibrium is unique and all possible trajectories would lead to it independent of initial conditions, and, as a corollary, of any disturbance: Finally, there was an even more interesting third assumption implicit and explicit in the classical mind. It was a belief in unique long-run equilibrium independent of initial conditions. I shall call it the ‘ergodic hypothesis’ by analogy to the use of this term in statistical mechanics. Remember that the classical economists were fatalists (a synonym for ‘believers in equilibrium’!). Harriet Martineau, who made fairy tales out of economics (unlike modern economists who make economics out of fairy tales), believed that if the state redivided income each morning, by night the rich would again be sleeping in their comfortable beds and the poor under the bridges. (I think she thought this a cogent argument against egalitarian taxes.). (Samuelson 1968, 11–12) Davidson and Davidson (1996) introduced the pendulum to the discussion. They interpreted (arguably arbitrarily: Carrion Alvarez and Ehnts 2016, 7–9) Samuelson as accepting the ergodic hypothesis as a necessary basis of the scientific method in economics. In using this ergodic terminology, Samuelson is, as he readily admits, drawing an analogy with nineteenth-century statistical mechanics where the ultimate long run ‘equilibrium’ outcome of a system is independent of the initial conditions. For-example, the ergodic presumption permits physicists to predict that an unhindered pendulum will always come to the same (long-run equilibrium) point of rest at the bottom of its path no matter where in the swing we start it off from. In economics, the ‘ergodic’ analogy of the swinging pendulum is that an unhindered economy will always come to the same long-run position of rest (at full employment), no matter where in the business cycle swing the system starts from. It is this belief in an ergodic economics that permits conservative economists to postulate the existence of unique, inevitable outcomes and therefore makes economics a hard science—on a par with nineteenthcentury physics. This seemingly innocuous presumption of the existence of

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unalterable longrun economic equilibrium outcomes implies that there are natural laws which govern the operation of the economic system propelling it towards a stable, desirable (often termed ‘efficient’) solution, just as the natural law of gravity propels a swinging pendulum towards the midpoint of its swinging arc. Consequently, if ergodicity is postulated for economics, then all the predictions of conservative economic theory can be expected to occur here on earth in the long run—if we only trust the invisible hand of natural laws to operate in the absence of government interference. (Davidson and Davidson 1996, 65) While Samuelson discussed ergodicity in relation to classical economics, Davidson and Davidson attributed the assumption of ergodicity to neoclassical economics. From both of these passages, the context of stochastic systems disappears, with the exception of Samuelson’s reference to the original discipline in order to focus on only the general implications of the hypothesis. It can be argued, however, that ergodicity is indeed a hidden assumption of mainstream neoclassical economics, one of which perhaps many economists are not even aware, but the consequences of which are incorporated in their models. The economy is accordingly described as tending towards an equilibrium independently from its own history. Be it for the methodological reasons explained by Robinson, for the transfer of the epistemological premises of mechanics criticized by Georgescu-Roegen, or Davidson and Davidson’s stress that ergodicity is tacitly assumed, mainstream economics describes an economic system as a Timeless and ultimately Changeless entity.8 The description here by Frank Hahn is particularly apt: An analogy may serve to clarify the view of which I seek to persuade you. The equilibrium of a frictionless pendulum can be described without any reference to its history. Not only do initial conditions not matter but the process by which equilibrium is reached is also irrelevant to its properties. Much of economic equilibrium theory is like that. Biological equilibrium is not of this kind. The alleles ‘learn’ by natural selection and the process itself is instrumental in making the equilibrium what it is. In economics we deal with reasoning agents who learn by experience. What they learn will determine their decisions to deviate from any status quo. The decision not to deviate is what characterises an equilibrium and so the latter is what it is because of a specific historical past. (Hahn 1991, 73)

9.7 Conclusion At first survey, the various usages of the pendulum metaphor in connection with equilibrium do not appear to ref lect a definite pattern. Indeed, most of

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the writers that we have cited have used the metaphor in very simple ways. Even if a robust narrative does not connect these historical examples, there is nonetheless a set of thematic connections which unites these disparate stories. In particular, the specific uses of the metaphor reveal much about each author’s perception of equilibrium and their capacity to substantiate their views thereupon. The pendulum metaphor serves a set of epistemic functions. Often it is a substitution for a proper explanation of how economic equilibrium might be attained, and at other times it is a critique of equilibrium theories in their mainstream manifestations. We have seen that drawing an analogy between economic f luctuation and the symmetry of pendulum oscillations inspired some writers to conceive of equilibrium as the medium of f luctuations. This was ultimately a dead end: on the one hand, equilibrium is a theoretical concept rather than an empirical one; on the other hand, there is no ground for thinking that economic f luctuations should be symmetrical such as those of a pendulum. The pendulum is built in a symmetric way, while economic systems are not. There is no ground—besides wishful thinking—for transferring this property to economic systems. Here the pendulum acted as an illustration of the workings of the economic system, ultimately a substitute for an explanation that never came. The stability property of the pendulum with friction was evoked by most users of the metaphor simply as a comparative illustration. Some, however, used the metaphor to circumvent the need for an explanation or to fill in for an explanation. This, however, was not common. Joan Robinson argued, with reference to the supply and demand diagrams, that the pendulum was indeed asked to prove the stability story. We have found no literal example that substantiates this understanding, apart from the one to which she was probably referring (D. H. Robertson). The critical remarks on the methodological, epistemological and analytical implications of the pendulum metaphor for its reversibility and ergodicity are relevant and pertinent in and of themselves. In this critical commentary, however, the pendulum was transformed into a metaphor for characterizing an approach that rarely made use of the pendulum, but which might as well have given the equilibrium properties described. We have seen that the pendulum metaphor was used to fill in the gaps in what is otherwise an incomplete (or often altogether absent) stability argument. The metaphor was not even pursued to its full extent in this role, as these writers referred to ‘the pendulum’ without specifying that they were alluding to a pendulum subject to friction and that it is the dissipation of energy that eventually slows down the pendulum and brings it to its rest point. The force correcting the deviations from economic equilibrium, analogous to the gravity that draws the pendulum towards its resting point, was actively sought and often identified; but friction was never mentioned, precisely as the role of inertia was not discussed and the issue of the pendulum moving beyond equilibrium into another state of disequilibrium was ignored.

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Nor was it ever mentioned that the pendulum oscillates because the operation of the force of gravity is constrained by the very structure of the pendulum. It would seem that the pendulum was cited often, but usually in a naive way, which goes a long way to confirming our suspicion that most writers did not have a full understanding of the physics of the pendulum. As far as equilibrium is concerned, the pendulum with friction is an object that has a preferred position towards which it moves and, when subject to disturbances, towards which it returns by means of oscillations. This double nature was surely fascinating to early economists who were trying to encompass at once the notion that there exists a viable and ‘normal’ state of the economy which, however, is never reached, and the fact that the economic system is often violently shaken by crises. The economy, like the pendulum, not only moves towards equilibrium but also moves away from it. They thus incorporated the pendulum into their system without fully exploring its nature in detail. This only came later, when the pendulum came in the hands of the early econometricians. But that is another story.9

Notes 1 The metaphor is also taken up in Playfair’s reply (1828) to the anonymous writer. Towards the end of the century, Roderick Smith also argued that equilibrium (of the price level, this time) lays in the middle of the extremes of f luctuations. The relevant passage is cited in Section 9.3. 2 For detailed analysis of Frisch’s use of the pendulum, see Francisco Louçã’s discussion in 2001, 2007, and in Chapter 8 of this volume. 3 Walsh cites the Report of the Select Committee on the High Price of Gold Bullion (1810) to explain that a condition of par occurs when a given quantity of gold or silver in the one country is convertible at the market price to such an amount of the currency of that country as will purchased a bill of exchange on the other country, for such an amount of that other country as will there be convertible at the market price into an equal quantity of gold and silver. (Walsh 1853, 153–154) 4 In the Lectures in Political Economy the restatement is presented in the following fashion: Thus the great and decisive difference between relative commodity prices on the one hand and the general price level on the other is, as I have already explained in my book Geldzins und Güterprieise, that equilibrium of the former is usually stable as is to be likened to a freely suspended pendulum, or a ball at the bottom of a bowl. If by an accident they are driven out of position of equilibrium they tend themselves, i.e. through the force of gravity, to resume their former position. (Wicksell [1906] 1935, 2:196) 5 For an in-depth discussion of Wicksell’s analogy and its subsequent history, see Chapter 7. 6 As pointed out by Samuelson in a description of a stationary system: Simply to fix ideas [a stationary system] may be compared with a pendulum moving in a viscous f luid. If disturbed by a shock, it will depart from the

The pendulum and equilibrium: a survey 261 equilibrium position; but its motion will be damped by the dissipation of energy due to the ‘friction’ resulting from its passage through the viscous f luid. Strictly speaking, even if all shocks were to cease, the system would never regain the equilibrium position although it would approach indefinitely close to that position. (Samuelson 1943, 61) 7 Georgescu-Roegen is referring to Arthur Eddington’s The nature of the physical world (1928). The suggestion to adopt as a measure of Time—the time of consciousness—the entropy gradient instead of the physical clock that measures equal time intervals that was formulated by Roy Murphy a few years earlier. Murphy pointed out that the swings of the pendulum do not convey any additional information after the first cycle and do not change the amount of the entropy of the system (Murphy 1965, 72). 8 For a further discussion of ergodicity in the context of the Italian econophysicists, see Chapter 10.5. 9 The pendulum as used by Frisch and in the subsequent literature is discussed in Chapter 8.

References Åkerman, Johan. 1960. Theory of industrialism: Causal analysis and economic plans. Lund: Gleerup. Barger, Harold. 1935. ‘Neutral money and the trade cycle.’ Economica n.s., 2 (8): 429–447. https://doi.org/10.2307/2548720 Bobulescu, Roxana, and Ina Chong. 2014. ‘Analogy, metaphor and direct integration in Nicholas Georgescu-Roegen’s bioeconomics.’ Paper presented at the 18th Annual Conference of the European Society for the History of Economic Thought (ESHET), Lausanne: University of Lausanne. Böhm-Bawerk, Eugen von. 1894. ‘The ultimate standard of value.’ Translated by C.W. MacFarlane. The Annals of the American Academy of Political and Social Science 5 (2): 1–60. https://doi.org/10.1177/000271629400500201 Carrión Álvarez, Miguel, and Dirk Ehnts. 2016. ‘Samuelson and Davidson on ergodicity: A reformulation.’ Journal of Post Keynesian Economics 39 (1): 1–16. https://doi. org/10.1080/01603477.2016.1145062 Clark, John Bates. 1898. ‘The future of economic theory.’ The Quarterly Journal of Economics 13 (1): 1–14. https://doi.org/10.2307/1882980 ———. 1908. The distribution of wealth: A theory of wages, interest and profits. New York: Macmillan. Cohen, Avi. 1993. ‘Does Joan Robinson’s critique of equilibrium entail theoretical nihilism?’ In Macroeconomic theory: Diversity and convergence, edited by G. Mongiovi and C. Rühl, 222–239. Cheltenham: Edward Elgar Publishing. Cojanu, Valentin. 2009. ‘Georgescu-Roegen’s entropic model: A methodological appraisal.’ International Journal of Social Economics 36 (3): 274–286. https://doi. org/10.1108/03068290910932756 Davidson, Greg, and Paul Davidson. 1996. Economics for a civilized society. New York: M. E. Sharpe. https://doi.org/10.4324/9781315541303 De Pietri-Tonelli, Alfonso. 1911. ‘Le onde economiche.’ Rivista Italiana di Sociologia 15: 220–225. Dore, Mohammed H. I. 1984–1985. ‘On the concept of equilibrium.’ Journal of Post Keynesian Economics 7 (2): 193–206. https://doi.org/10.1080/01603477.1984.11489494

262 Daniele Besomi and Sonya Marie Scott Eddington, Arthur Stanley. 1928. The nature of the physical world. New York/ Cambridge: Macmillan/ Cambridge University Press. Ellis, Arthur. 1879. The rationale of market fluctuations. 4th ed. London: Effingham Wilson. The Farmer’s Magazine. 1862. ‘Agricultural statistics.’ 3, 22 (August): 99–101. Fawcett, Henry. 1865. The economic position of the British labourer. London: Macmillan. https://doi.org/10.4324/9780429030826 Feiwel, George R. 1989. ‘Joan Robinson inside and outside the stream.’ In Joan Robinson and modern economic theory, edited by George R. Feiwel, 1–120. London: Macmillan. https://doi.org/10.1007/978-1-349-08633-7_1 Fetter, Frank Albert. 1915. Economic principles. New York: The Century Company. Fisher, Irving. 1932. Booms and depressions. New York: Adelphi. Frisch, Ragnar. [1930] 2010. A dynamic approach to economic theory: The Yale lectures of Ragnar Frisch (1930). Edited by Olav Bjerkholt and Duo Qin. London: Routledge. https://doi.org/10.4324/9780203845523 ———. 1936. ‘On the notion of equilibrium and disequilibrium.’ The Review of Economic Studies 3 (2): 100–105. https://doi.org/10.2307/2967500 Garegnani, Pierangelo. 1989. ‘Some notes on capital, expectations and the analysis of changes.’ In Joan Robinson and modern economic theory, edited by George R. Feiwel, 344–367. London: Macmillan. https://doi.org/10.1007/978-1-349-08633-7_12 Georgescu-Roegen, Nicholas. 1971. The Entropy law and the economic process. Cambridge, MA: Harvard University Press. https://doi.org/10.4159/harvard.9780674281653 ———. 1972. ‘Process analysis and the neoclassical theory of production.’ American Journal of Agricultural Economics 54 (2): 279–294. https://doi.org/10.2307/1238715 ———. 1975. ‘Energy and economic myths.’ Southern Economic Journal 41 (3): 347–381. https://doi.org/10.2307/1056148 ———. 1977. ‘The steady state and ecological salvation: A thermodynamic analysis.’ BioScience 27 (4): 266–270. https://doi.org/10.2307/1297702 Groenewegen, Peter. 2003. Classics and moderns in economics Volume I: Essays on nineteenth and twentieth century economic thought. London: Routledge. https://doi. org/10.4324/9780203458792 Haberler, Gottfried. [1978] 1993. ‘Money and the business cycle.’ In The liberal economic order, edited by Anthony Ying Chang Koo. Aldershot: Edward Elgar Publishing. Hahn, Frank. 1991. ‘History and economic theory.’ In Issues in contemporary economics, Volume 1: Markets and welfare, edited by Kenneth Joseph Arrow, 67–74. London: Macmillan. https://doi.org/10.1007/978-1-349-11573-0_5 Harcourt, Geoffrey Colin, and Prue Kerr. 2009. Joan Robinson. London: Palgrave Macmillan. https://doi.org/10.1057/9780230582149 Hazlitt, Henry. 1959. The failure of the ‘new economics.’ An analysis of the Keynesian fallacies. Princeton, NJ: Van Nostrand. Hooper, Francis John Bodfield. 1879. Reciprocity, overproduction v. overconsumption, commercial depression, political economy, etc.: A review of four articles in ‘The nineteenth century’ and ‘The contemporary.’ London: Elliot Stock. Hourwich, Isaac Aronovich. 1894. ‘The rate of profits under the law of labor-value.’ Journal of Political Economy 2 (2): 235–250. https://doi.org/10.1086/250203 Jevons, William Stanley. 1871. The theory of political economy. London/ New York: Macmillan. https://doi.org/10.1057/9781137374158 Knight, Frank Hyneman. 1941. ‘The business cycle, interest, and money: A methodological approach.’ The Review of Economics and Statistics 23 (2): 53–67. https://doi. org/10.2307/1927506

The pendulum and equilibrium: a survey 263 Koyré, Alexandre. 1965. Newtonian studies. Cambridge, MA: Harvard University Press. https://doi.org/10.4159/harvard.9780674181861 Kuznets, Simon. 1930. ‘Static and dynamic economics.’ The American Economic Review 20 (3): 426–441. Louçã, Francisco. 2001. ‘Intriguing pendula: Founding metaphors in the analysis of economic f luctuations.’ Cambridge Journal of Economics 25 (1): 25–55. https://doi. org/10.1093/cje/25.1.25 ———. 2007. The years of high econometrics: A short history of the generation that reinvented economics. London: Routledge. https://doi.org/10.4324/9780203946831 Lunghini, Giorgio. 1988. ‘Equilibrio.’ In Dizionario di economia politica, edited by Giorgio Lunghini, Vol. 14, 11–103. Torino: Boringhieri. Machlup, Fritz. 1959. ‘Statics and dynamics: Kaleidoscopic words.’ Southern Economic Journal 26 (2): 91–110. https://doi.org/10.2307/1055009 Maneschi, Andrea, and Stefano Zamagni. 1997. ‘Nicholas Georgescu-Roegen, 1906–1994.’ The Economic Journal 107 (442): 695–707. https://doi.org/10.1111/ j.1468-0297.1997.tb00035.x Marshall, Alfred. 1890. Principles of economics. London: Macmillan. Mill, John Stuart. [1848] 1965. Principles of political economy, with some of their application to social philosophy. Edited by John M. Robson. Vol. 2–3 of The collected works of John Stuart Mill. Toronto: University of Toronto Press. Mosselmans, Bert. 2007. William Stanley Jevons and the Cutting Edge of Economics. London: Routledge. Murphy, Roy Emerson Jr. 1965. Adaptive processes in economic systems. New York: Academic Press. https://doi.org/10.1016/s0076-5392(09)x6013-3 Ohio Farmer. 1856. ‘Premiums for 1856. The year 1855: a remarkable year.’ 5 (2) January 12: 6. Opdyke, George. 1851. A treatise on political economy. New York: Putnam. Peart, Sandra. 1996. The economics of W. S. Jevons. London: Routledge. https://doi. org/10.4324/9780203022498 Peters, Ole. 2012. ‘Shaking the fundation. Revisiting basic assumptions about risk, reward, and optimal portfolios.’ Interview by Michael Mauboussin. Legg Mason Perspectives. http://trendfollowing.com/whitepaper/Mauboussin2.pdf. Pigou, Arthur Cecil. 1935. The economics of stationary states. London: Macmillan. Playfair, P. 1828. ‘On the silver coin, as connected with the exchanges, and the relative value of the precious metals.’ The Times, January 29: 2. Robertson, Dennis Holme. 1957. Lectures on economic principles. Vol. 1. Glasgow: Collins. Robinson, Joan. 1953a. ‘A lecture delivered at Oxford by a Cambridge economist.’ In Contributions to modern economics, 137–145. New York: Academic Press. ———. 1953b. ‘The production function and the theory of capital.’ The Review of Economic Studies 21 (2): 81–106. https://doi.org/10.2307/2296002 ———. 1953c. ‘Imperfect competition revisited.’ The Economic Journal 63 (251): 579–593. https://doi.org/10.2307/2226447 ———. 1962. Essays in the theory of the economic growth. London: Macmillan. https:// doi.org/10.1007/978-1-349-00626-7 ———. 1973. ‘What has become of the Keynesian revolution?’ In After Keynes, edited by Joan Robinson, 1–10. Oxford: Basil Blackwell. Robinson, Joan, and J. Eatwell. 1973. An introduction to modern economics. London: McGraw-Hill. Rodbertus, Johann Karl. 1898. Overproduction and crises. Translated by Julia Franklin. London/ New York: Swan Sonnenschein and Co/ Scribner’s.

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Rosenstein-Rodan, Paul Narcyz. 1936. ‘The coordination of the general theories of money and price.’ Economica n.s, 3 (11): 257–280. https://doi.org/10.2307/2549221 Samuelson, Paul Anthony. 1943. ‘Dynamics, statics, and the stationary state.’ The Review of Economics and Statistics 25 (1): 58–68. https://doi.org/10.2307/1924547 ———. 1947. Foundations of economic analysis. Cambridge, MA: Harvard University Press. ———. 1948. ‘Dynamic process analysis.’ In A survey of contemporary economics, edited by H. E. Ellis, 352–387. Philadelphia, PA: Blakiston. ———. 1968. ‘What classical and neoclassical monetary theory really was.’ The Canadian Journal of Economics 1 (1): 1–15. https://doi.org/10.2307/133458 Schlegel, Richard. 1973. ‘[Review of Nicholas Georgescu-Roegen: ‘The Entropy Law and the Economic Process’].’ Journal of Economic Issues 7 (3): 475–481. Select Committee on the High Price of Gold Bullion. 1810. Report, together with minutes of evidence, and accounts from the Select Committee on the High Price of Gold Bullion. Ordered, by the House of Commons, to be printed, 8 June 1810. London: House of Commons. Reprinted for J. Johnson and Co., and J. Ridgeway, London 1810. Shaw, Graham Keith. 1989. ‘Joan Robinson, 1903–83.’ In Pioneers of Modern Economics in Britain, edited by David Greenaway and John R. Presley, Vol. 2, 144–169. London: Palgrave MacMillan. https://doi.org/10.1007/978-1-349-09376-2 Smith, Roderick Henry. 1888. The science of business: The principles controlling the law of exchange. New York: Putnam and Sons. Tieben, Bert. 2012. The concept of equilibrium in different economic traditions. Cheltenham: Edward Elgar Publishing. https://doi.org/10.4337/9781781953518 The Times. 1828. ‘On the present state of the exchanges (letter to the Editor).’ January 24, 1828: 3. Walras, Léon. 1954. Elements of pure economics, or the theory of social wealth. Translated by William Jaffé. Homewood, IL: Richard D. Irwin. Walsh, Richard Hussey. 1853. Elementary treatise on metallic currency. Dublin: James M’ Glashan. Wicksell, Knut. [1898] 1936. Interest and prices. Translated by Richard F. Kahn. New York: Sentry Press. ———. [1906] 1935. Lectures on political economy. Vol. 2. London: Routledge & Kegan Paul. https://doi.org/10.4324/9780203833339. Wiley, F. F. 2013. ‘Debunking the Keynesian policy framework: The myth of the magic pendulum.’ Cyniconomics (blog). Posted on May 7, 2013, at http://www. cyniconomics.com/2013/05/07/debunking-the-keynesian-policy-frameworkthe-myth-of-the-magic-pendulum/ Retrived on December 14, 2021. Wilson, James. 1840. Fluctuations of currency, commerce, and manufactures; referable to the Corn Laws. London: Longman, Orme, Brown, Green, and Longmans. Wolfson, Martin H. 1986. Financial crises. Understanding the Postwar US experience. Armonk: Sharpe.

10 Statistical equilibrium in early 20th-century Italian economics Gianfranco Tusset

10.1 Introduction ‘In economics statistical equilibrium is a most probable distribution of certain economic entities (say firms or individuals) which cannot all be distinguished one from another, rather than a particular configuration in which each entity is identified’ (Parinello and Fujimoto 1995, 2). The concept of statistical equilibrium, although it was not born in the field of political economy, but is drawn from statistical physics, appeared useful to shed light on some particular empirical phenomena involving an aggregate of an unequally distributed variable. As we know, Walrasian general equilibrium is grounded on reductionism: the whole can only be explained by going deeper and deeper into its component parts. Statistical physics moves instead from the parts to the whole, considering the whole as the basic unit. This is a necessary step for investigating emergent properties, i.e., phenomena that become visible precisely when we consider collective or aggregate entities—and political economy is populated with such phenomena. Hence the interest of economists in statistical equilibrium for the purposes of explaining the shape of aggregates of economic entities, such as the distribution of income and wealth (as analyzed here). In economics, we currently describe such aggregates (which are mainly analyzed empirically) as ‘stylized facts.’ Roughly speaking, we mean phenomena that are visible at mainly meso- and macro-level and that usually have no theoretical micro-foundation. Statistical equilibrium is actually applied to aggregates in an attempt to consider the aggregates themselves as units of analysis and to build theories on these entities. It is generally agreed that statistical physics and statistical equilibrium made their appearance in economics in the 1980s, when complex aggregate phenomena were attracting scholars of economics as well as physics, the focus being on the behavior of financial variables. Physicists had started exploring financial and economic topics long before, in the 1970s or even earlier, when M.F.M. Osborne (a theoretical physicist) promoted conferences on the application of physics to other fields of science. Contributions also came from several economists and mathematicians. In 1983, E. Farjoun and M. Machover published Laws of Chaos, undoubtedly the first consistent

DOI: 10.4324/9781003144601-14

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application of statistical mechanics to economic questions. There was also an interesting earlier work, Random Process and the Growth of Firms by J. Steindl, published in 1965, on the skewed distribution of firms according to their size. In the same year, R.E. Murphy Jr., in his Adaptive Processes in Economic Systems, provided an analysis of statistical equilibrium in an adaptive economic process. Such issues became hot topics in the field of econophysics, which covered various sub-areas, including the probability distribution of income and wealth, agent-based models, and network analysis. In this paper, we investigate the attempt made by a group of unknown Italian scholars to introduce statistical equilibrium in the analysis of one of the best-known stylized facts, Pareto’s law. During the 1920s and 1930s, these economists, mathematicians, and statisticians tried to develop simple models evoking the kinetic theory of gases to explain the sloping income distribution. They started from the concept of inequality implied by Pareto’s law to analyze the internal dynamics of the aggregates of those who receive income or possess wealth. However, their models were forgotten, even when D.G. Champernowne revived attention to income distribution by publishing A Model of Income Distribution in 1953. These attempts are interesting because they all focus on groups as units of analysis and, in so doing, they raise at least two other economically relevant issues. One concerns the relationship between initial and final conditions, the emphasis here being on admitting the existence of small perturbations. This led some of the authors mentioned below to outline a first version of the ergodic condition applied to economic systems. The other issue concerns how micro-analyses can coexist with macro- or meso-analyses, which should be interpreted as a need to coordinate two kinds of equilibrium, one individual and the other social (of a group). Taking the statistical equilibrium approach seems to have led to the conclusion that this kind of coordination is impossible. In fact, the Italian economists raised the problem of how to harmonize individual equilibrium with macro- or social equilibrium but failed to solve it. They perceived that, if they gave up individual equilibrium, then something in the conceptualization of the market itself would change.

10.2 Pareto between distribution and social equilibrium In Italy, interest in statistical equilibrium developed as part of an effort to arrive at an analytical interpretation of income distribution. It is common knowledge that Vilfredo Pareto—first in an article in 1896 (1965), and then in his 1896–1897 Cours (1964)—discussed a curve describing the distribution of income, which came to be widely known as Pareto’s law. The distribution he scribed had the characteristic of recurring in different countries and at different times, insofar as it concerned incomes higher than the minimum required for survival. Pareto developed his law on the distribution of income/ wealth in the second volume of his Cours.

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Brief ly, the Pareto distribution can be stated as follows. If N is the number of income units above a given income threshold, x, and A is a positive scale parameter (Pareto [1896–1897] 1964: sec 958), then α represents the slope of a curve that, when expressed as a frequency, shows the distribution linearly represented in Figure 10.1(a) and expressed by the equation N=

A x°

(10.1)

This first approximation of Pareto’s law can be represented as follows: This is not the equation applied by the scholars to statistical equilibrium, however, which was the second approximation of the above equation proposed by Pareto ([1896–1897] 1964, sec. 961), i.e. N=

A (x + a )˛

(10.2)

where A is a positive scale parameter, α is a positive slope parameter, x + a > 0; and a = const. The difference lies in the constant a, which appears in the denominator, meaning that a proportion of the total income possessed by people with higher than average incomes varies directly with a. In other words, as a increases so does the inequality (Bresciani Turroni 1937, 432). Pareto also provided a third approximation of his law ([1896–1897] 1964, sec. 958, note 1): N=

A e −˛ x (x + a )˝

(10.3)

where A > 0, α > 0, x + a > 0, β > 0. The fact that the slope of the logarithmic representation (the pyramid shape) of the curve in Figure 10.1 remains the same for a given country at different times, or for different countries at the same time, induced Pareto

Log x

x

x0

a)

Figure 10.1 Pareto law

N

Log N

b)

268 Gianfranco Tusset

to draw the empirical conclusion that the curve represents a universal law explaining the distribution of income. This conclusion is based on several assumptions (mentioned only brief ly here) that need to be clarified. First of all, there is the most debated aspect of Pareto’s construction: the distribution does not include all income levels of a given country, but only those above a certain level x 0. As D’Addario explained (1934), the reason why lower incomes are excluded is because Pareto had no data on incomes below the minimum level of taxation. A second point concerns the claim that the distribution of income/wealth does not change diachronically or geographically. The income/wealth curves outline a social pyramid that appears to be a constant in human life, but there is no rational explanation for it. The graphic representations of different distributions recurred on different scales, reproducing the same shapes as in crystals (Pareto [1896–1897] 1964, 958 sec). This would mean that the distribution of wealth depends mainly on human nature (Pareto [1896–1897] 1964, 1012 sec.), though Pareto remained ‘rather vague about what the human law dictated’ (Persky 1992, 184). Third, there is the problem of what makes an agent or group come to be part of a given income level or class. There are too many possible causes to consider, so they disappear, leaving room for probabilities of being assigned to one or other income level. The distribution of income thus becomes a distribution of the probabilities of having a given income (see Vinci 1921). This was not how Pareto saw the income curve, however. Fourth, social relationships are shaped by numbers and their geometric representation. Pareto extracted a law from a series of data without explaining it rationally. After centuries of calculations and mathematics being used to simplify economic and commercial relationships, it seems that numbers existed even before human relationships, describing a natural world. The issue of faith in numbers was turned upside down: numbers just had to be believed. This has continued to represent a shock to the economists’ modus operandi. Going back to the goals of the present paper, Pareto’s use of analogies with the theory of gases, and of concepts like statistical equilibrium is not so straightforward. Certainly, he had already written his most important works by the time quantum mechanics and statistical physics were taking root, but he had a clear understanding of what was then conceived as statistical equilibrium applied to the study of large aggregates. Although Pareto clearly paid attention to statistical equilibrium, what emerges from reading his works (from the Cours and the Treatise on Sociology to his last writings) is that Pareto saw the income curve as being inconsistent with a probabilistic model. Be that as it may, any interpretation of statistical equilibrium in Pareto requires an understanding of his view of probability. In 1892, Pareto wrote that probability ‘is an absolutely subjective phenomenon’ definable as ‘the ratio of equallyfavorable instances to equally-possible instances’ (see Mornati 2018, 238).

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In short, Pareto opted not to develop the innovative notion of ‘more probable distribution.’ Pareto’s view of statistical equilibrium was partly clarified by Pasquale Jannaccone, who wrote in 1949: Pareto’s thought oscillates between representations of social equilibrium as mechanical equilibrium—a balance of forces—as stated in pure economics, and as statistical equilibrium consisting in a continuous balancing of the interdependent elements forming a group. Perhaps one depiction may be useful to illustrate certain problems while the other is useful for others. But, once the social system is considered as a whole, the statistical depiction prevails, as it does for that matter in other fields of the social sciences. ( Jannaccone 1949, 29–30) This idea corroborated what Felice Vinci had written in 1924: ‘Vilfredo Pareto was a profound connoisseur of probability calculus and its statistical applications’ (Vinci 1924, 127). The analogy with the theory of gases is supported by the observation that society is composed of more heterogeneous molecules than those comprising the economy (as Pareto said in sec. 2079 of the Treatise), but it is this very observation that led Pareto to consider other aspects, the first of which was the social system’s organization: The economic system is made up of certain molecules set in motion by tastes and subject to ties (checks) in the form of obstacles to the acquisition of economic values. The social system is much more complicated, and even if we try to simplify it as far as we possibly can without falling into serious errors, we at least have to think of it as made up of certain molecules harboring residues, derivations, interests, and proclivities, and which perform, subject to numerous ties, logical and non-logical actions. (Pareto [1916] 1935, sec. 2079) Pareto’s individuals are not necessarily rational, but they are thinking subjects who cannot be regarded as unintelligent entities with no feelings. It is the analogy between single individuals and molecules that does not hold up. On the other hand, there is something to be said for associating groups of individuals with compounds of molecules: Let us consider the molecules of the social system, in other words, individuals, who are possessed of certain sentiments manifested by residues— which, for the sake of brevity, we shall designate simply as residues.1 We may say that present in individuals are mixtures of groups of residues that are analogous to the mixtures of chemical compounds found in nature, the groups of residues themselves being analogous to the chemical

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compounds… Such mixtures and groups, whether dependent or independent, are now to be considered among the elements determining the social equilibrium. (Pareto [1916] 1935, sec. 2080) Pareto never said that statistical equilibrium would be a fitting explanation for economic equilibrium, while society demands broader concepts, such as social equilibrium. Nor did he ever quote Boltzmann, but he disputed the idea that the whole of society consists of different molecules representing heterogeneous aggregates. This idea seems to have been definitively abandoned by 1922 when Pareto wrote: Society cannot be depicted as a whole composed of separated molecules, where each one acts following its own logic and the general rules; on the contrary, these molecules orbit around certain centers, grouped in specific collectivities, mainly acting and following the logic of sentiments and interests… Social equilibrium springs from the working of all these groups. (Pareto [1922] 1980, 1124) This does not mean that Pareto also gave up his analogies with the kinetic theory of gases, which could be applied to groups rather than to society as a whole. In fact, after first applying statistical equilibrium to society as a whole, Pareto subsequently seemed to restrict his analysis to social groups. It was inappropriate to analyze society because it was composed of at least two classes (capitalists and workers), ‘but many other divisions are necessary to go close to society’ (Pareto [1922] 1980, 1124). In conclusion, Pareto’s law generated two areas of debate: one concerned the shape of the curve, i.e. the law governing the distribution; the other the relationships between groups, as analyzed by Pareto and clarified by his interpretation of the curve in his Treatise on Sociology.

10.3 The mathematicians’ support In the early decades of the 20th century, it became common practice in Italy to apply the theory of gases and statistical mechanics to the distribution of income as a legacy of the publication of Pareto’s curve. Pareto’s law aroused interest inside and outside the country. Prompted also by authors like Bowley (1914), Stamp (1922), and Bagni (1915), a group of scholars (Rodolfo Benini, Giorgio Mortara, Costantino Bresciani Turroni, Corrado Gini) tried to improve the graphic and mathematical representation of income distribution by making the curves better suited to the data. Their main objective was to make them as representative of the real phenomena as possible. Pareto’s concept of inequality, and the value that should be attributed to the variable α in the first and second approximations of the curve, were at the heart of these scholars’ research.

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Other scholars (Felice Vinci, Francesco Cantelli, Luigi Amoroso, Raffaele D’Addario, Arrigo Bordin) took a different stance, following a more abstract path. They tried to interpret data or phenomena more mathematically, thereby moving toward a modeling phase based on probability distribution (see Brambilla 1940). But why use probabilities to analyze income distribution? Harro Bernardelli provided an interesting answer: to establish ‘how the initial distribution inf luences the final state’ (1943, 354), i.e. to explain how income and wealth reach a distribution like Pareto’s whatever condition they start from. The two approaches were completely different. The first group of scholars focused on the statistics known at the time, well anchored to economic facts and reality. Statistical physics showed the way for the second group, often still unaware that as well as modeling on mathematical rounds, they were also thinking along the lines of the transformation of classical into quantum and statistical physics underway at the time. This latter group of scholars, who shared and debated their research on how to approach Pareto’s law mathematically was only partially homogeneous. While they all knew and read each other’s works (with the exception of Bernardelli), they did not develop a school or research network. They worked individually, adding personal contributions to the whole debate. Guido Castelnuovo (1865–1952) was a mathematician who devoted large part of his studies to algebraic geometry, including Riemannian and non-Euclidean geometry. In the early 20th century, he nonetheless published a book, Calculus of Probability, that strongly inf luenced the above-mentioned scholars involved in clarifying the probability distribution of income. Being interested in an area in which the relationship between deduction and empiricism was more direct, Castelnuovo stated that income distribution has so many different causes that it seems pointless to try and interpret them rationally (1919, VII). Though it was based on data, Castelnuovo’s research became strictly mathematical, and his reference to random factors led to his interpretation of the distribution in terms of probability. This prompted the analogy with Maxwell–Boltzmann’s theory of gases: by definition, the analysis of the final distribution of gas particles can ignore the characteristics of the individual particles. What became decisive was the representation of the system, not of individuals. Taking this perspective immediately brought up two points. One was the role of initial conditions in a context where the causes inf luencing the formation of income groups were so numerous that it seemed difficult to correlate the final distribution, or balance, with the initial one. A second point concerned the stability of the distribution or, in other words, whether the agents could move up or down, thereby inf luencing the distribution. This possibility was clearly at odds with the stability hypothesis, so most models limited this movement or assumed that any changes would cancel each other out. Individuals who appeared as parts of a group, defined on the grounds of a certain level of income, were often proposed. This raised at least two questions regarding the consistency of the group or class division with the overall

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distribution; and the mobility of individuals between groups. The emphasis on groups brings to mind the idea of molecules colliding with the walls of a container, as described by Maxwell (see Farjoun and Machover 1983 and Guttmann 1999, 56, Chapter 2). Here, the collisions with the wall are reminiscent of agents attempting to cross the boundaries of their economic class or group. What seems worth noting, however, is that effort to apply the kinetic theory of gases metaphor to Pareto’s law of distribution generated a completely separate field of research on the distribution of wealth and income. This development was remarkable, considering that Pareto’s law had been virtually ignored by mathematicians for several decades. 10.3.1 Cantelli’s empirical approach to probability Francesco Paolo Cantelli (1875–1966) was an Italian mathematician whose attempt to apply the calculus of probability to different groups of income (or wealth) widely inf luenced other scholars searching for a mathematical interpretation of Pareto’s law. Cantelli based his view of distributions on his empirical interpretation of probability (see Benzi 1988). In practical terms, Cantelli (1921) studied the correspondence between random factors and empirical distributions of certain phenomena, thereby orienting subsequent analytical research on the distribution of income. Cantelli insisted explicitly on the relevance of statistical mechanics to the study of collective phenomena (1921, 91). In 1921, he interpreted Pareto’s distribution in the light of studies by Boltzmann and Gibbs on the distribution of gas molecules inside a closed container, so a fixed amount of wealth was distributed among the agents (Cantelli 1920). Cantelli’s point concerned the criteria governing how agents dealt with the distribution of income. Following Pareto, Cantelli stressed the random nature of income distribution, given the numerous factors that might inf luence it (the type of activity, capacity, competition, individual characteristics, context, and so on). So, whatever the distribution may be, the only restriction is due to the exogenous (institutional and political) factors imposing a limit on the global amount C of all the income utilities, i.e.

˜ °(w ) log(x + a)dx = C . Given

this condition, and the distribution f ( x ) = c log(x + a) + h, where c, a, and h are constants, the most likely distribution was of the Pareto Type II, given A by f ( x ) = (see Equation 10.2), where A, a and α are constant (x + a )˛ +1 (Cantelli 1921, 84). But we know that the Pareto II distribution comes under the ‘beta-type distributions’ (Kleiber and Kotz 2003, 60) characterized by two positive shape parameters, α and a, the choice of which explains the distribution and the level of inequality. Explaining equilibrium thus means showing why the system converges toward a given stable distribution. This involves abandoning the idea of the

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distribution as being random and seeking a causal interpretation instead. In 1929, Cantelli produced a partial demonstration of this type of reasoning, assuming that incomes are partly fixed and partly calculated on the hours or days worked. Having established that the number of hours worked decides individual incomes, and the income of groups as a consequence, Cantelli finally introduced the condition that guarantees the stability of distribution, which is the average number of hours a worker puts in. Cantelli somehow assumed that workers could spend a certain number of hours or days working and that a part of their wages depended on the number of hours they worked. Then he set the minimum income at which the curve is asymptotic. In fact, the limited conclusion that Cantelli’s model allows us to reach is that, within the same remuneration class, the distribution will depend on the number of hours worked. So, the global distribution will depend on the level of wages. The explanatory equation is still Pareto II but slightly modified to account for the number of hours worked. If a1 and a2 are two constants expressing the workers’ choices between the minimum and maximum hours of work, a, b, and c are constant, and r is a level of income, Cantelli rewrites Pareto II (1929, 852) as the maximum probability of the workers receiving a given income, r, as:

˜( r )

a1 c b

a2 c +1

(r − a )

a2 c +1

(10.4)

Here, the random distribution of income depending on ‘human nature’ is governed by workers’ choices regarding how many hours they work, given the total quantity of labor required. The Cantelli’s insights lead to paraphrase Foley’s words: the statistical equilibrium framework of an income distribution is a chaotic process that tends to explore all possible patterns of income transactions (Foley 2003, 102). Power relationships and the market itself tend to increase the level of disorder or entropy in the economy, in contrast with individual attempts of large parts of the population to equalize income and wealth by reducing entropy. When gas molecules collide with the walls of a container there is an exchange of energy, and this concept can be used metaphorically to describe what happens when the existence of economic classes, groups, or rules contains the free movement of individuals on the social ladder.

10.4 Generalizing from the Pareto curve Parametrization remains the crucial factor in the definition and use of skewed distributions. In general terms, it depends on the field to which the distribution refers: levels of income; city populations; sizes of firms, and so on. Parametrization brings us back to the early debate on the meaning of the parameters, starting with the α used by Pareto to indicate income

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concentration, which became the object of a heated discussion in the early decades of the 20th century.2 It is the number of parameters employed, as well as their value, that shapes the curve, making it more or less similar to a Gaussian or lognormal distribution. 10.4.1 Luigi Amoroso: the distribution below x0 Luigi Amoroso was a mathematician who studied economics with Pareto and Maffeo Pantaleoni. In 1925, he published a long article on Pareto’s law, entitled Ricerche intorno alla curva dei redditi (Research around the income curve) (1925). Amoroso’s thinking differed little from Pareto’s, but it is undeniable that the zero modal Pareto distribution became a unimodal distribution in Amoroso’s version, with a peak for low-income levels. The figure now gives the impression, as Amoroso himself put it, of a social spinning top. Amoroso first tried to include the low incomes ignored by Pareto, and he did so by extending the income distribution below x0. Since x0 became a peak, Amoroso needed a distribution with at least two parameters. He used a gamma function. Amoroso’s distribution (1925, 124) is a generalization of Pareto’s and can be written as the following density function: 1

f ( x ) = Ce

−˛ (x −x0 ) s

(x − x0 )

p− s s

(10.5)

where f(x) is the number of agents with an income ranging between x and ˛

x0 + dx, and x0 < x < ˛; c = ˙( p ) =

˜e

−z p−1

z

dz

(10.6)

0

is a Euler integral called the ‘gamma function,’ which is meaningful if: p > 0; z = φ(x) = α log x/b; α = positive integer; x0 = positive or nil integer; γ = positive integer; s = positive integer such as p + s > 0. Amoroso’s distribution shows a positive trend when p − s > 0, i.e. when it is below the peak x 0. If p − s ≤ 0, then f(x) is always decreasing, i.e. Pareto’s distribution is reiterated. The above f(x) = … actually contains five independent parameters—h, c, γ, s, p—the same number of independent constants as those mattering for equilibrium: minimum income, average income, number of incomes, concentration of incomes, and concentration of income earners. The difference between p and s, where s is 1, decides the shape of the distribution, the other characteristics (height, depth) being defined by other parameters. Finally, Amoroso’s curve can be treated as a generalization of Pareto’s curve that includes the latter as a specific case. If p = 1, Amoroso’s distribution is the same as Pareto’s, with zero modal characteristics. As the value of p increases to 2, 3, 4, …, the peak makes its appearance and the distribution takes on the

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well-known spinning top shape. We could say that, depending on the value and sign of the parameters, the gamma distribution comes between a lognormal distribution on the one hand, and Pareto’s distribution on the other. The problem of this gamma distribution (which is a unimodal density function with a semi-infinite range) concerned not its shape, however, but the four parameters—far too many compared with Pareto’s index of income concentration, α. The parametrization of p, h, γ, and s was no easy task in Amoroso’s time, and remains difficult even today. 10.4.2 Raffaele D’Addario The approach leading to the descending fat tail being explained by means of a probability distribution seems to have prevailed. This perspective had been amply investigated by an Italian statistician, Raffaele D’Addario (1899–1974), who interpreted Pareto’s law with the aid of Boltzmann’s statistics (D’Addario 1949, 222 ff). He worked (1930, 1936, 1949) on the generating function to obtain a transformed function that could correspond to Pareto’s or another distribution function. It is worth noting that these parts of the curve were strongly asymmetrical. On the generating function, f(z), and the corresponding general function, f(x), D’Addario wrote: The generating function (to which the income curve of Pareto, March, Kapteyn, Vinci, Amoroso and Davis can be traced back) comprises in its form a probabilistic distribution equation drawn from the quantum statistics of Brillouin, which in turn synthesizes and generalizes from a formal viewpoint the quantum statistics of Boltzmann, Bose-Einstein, and Fermi-Dirac. The income curve equations may thus be interpreted, mutatis mutandis, in the light of the same probabilistic scheme. (D’Addario 1949, 222) The idea that formal parallels between disciplines are useful for interpreting the income curve was also rooted in the mind of a statistician like D’Addario, who recognized the difficulty of linking the unequal distribution of income with ‘differences inherent in the human species’ (Pareto [1906] 2014, chap. VII, sec. 2). So, D’Addario’s system (see Kleiber and Kotz 2003, 56) was based on the assumption of changing parameters corresponding to different distributions. This led D’Addario to include March’s distribution among those he obtained by changing parameters and generalizing Pareto’s basic distribution. It is worth remembering that Lucien March offered a Gaussian version of his distribution (March 1898). This generalization process thus reduced the distance between normal and skewed distributions. Generalization also concerned the application of these types of function, because the generalized version fitted in different areas and fields.

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10.5 Statistical equilibrium and aggregate entities The kinetic theory of gases metaphor raises the problem of certain characteristics of the laws governing the micro-constituents of a macroscopic system. Macroscopic systems have so many particles that we could never assign initial conditions to them all. This state is called ergodicity: the system evolves toward a stable condition, ‘forgetting’ its initial state. Pareto implicitly adopted this condition: but is it true of economic systems? 10.5.1 Felice Vinci The insight on probability contained in Pareto’s Cours was used by Felice Vinci (1890–1962) to anchor his economic analysis to statistical mechanics (Vinci 1921, 1924). Consistently with Cantelli and most of the other scholars of Pareto’s law, Vinci claimed that the analysis had to start from the condition in which the distribution concerned groups of earners, not individual agents. Vinci’s articles published in the 1920s revolved around two conceptual difficulties. The first, amply debated at the time, concerned the assumption that only income ≥ x0 could be considered. Vinci was convinced the function should include all levels of income, right down to the lowest level needed to survive. For this purpose, Vinci rewrote Pareto’s law in terms of the density of the distribution function (1921, 368), stressing the probability of the random variable coming within a given range of values, rather than taking on any single value. He wrote: f ( x ) = Cx − p−1e° /x

(10.7)

where γ, p > 0; C is a normalizing constant; and f(x) is the number of agents with the probability p of earning the income x, i.e. a function equation generating a Pearson Type V curve, also known as an inverse gamma distribution (see Kleiber and Kotz 2003, 172). While underscoring Cantelli’s contribution to the debate, Vinci delved into a second point. He avoided any causal explanation for the distribution, saying that the latter should be interpreted as the result of many indefinite random factors. To his mind, it was impossible to link the final distribution with any initial conditions. Vinci argued (1924, 127) that such intellectual prudence was also detectable in Pareto ([1896–1897] 1964, sec. 962 note 1). In 1924, Vinci proposed a probabilistic interpretation of the hyperbolic shape of Pareto’s curve. The hyperbolic form of country distribution was justified by the fact that, when income levels increased, barriers to entry increased, while individual qualities counted for less. This means that the income distribution necessarily tended to be hyperbolic. According to this interpretation, agents should be grouped by their probabilities of reaching a given income level. Groups of agents with a probability of earning a low income are more numerous than those with the probability of earning more. This remains a finding of the analysis.

Statistical equilibrium in Italian economics 277

10.5.2 Arrigo Bordin Although Arrigo Bordin (1898–1963) never neglected to acknowledge Pareto’s mastery, this clever but little-known economist finally adopted a systemic rather than individualistic perspective on the economy. During the 1920s and 1930s, Bordin strengthened the probabilistic branch of Pareto’s legacy, focusing mainly on the uncertainty and dynamics characteristic of the mathematical theory of general equilibrium at the time. Amending Pareto’s assumption that the income curve is inconsistent with a simple probabilistic model, he said that the curve is consistent with a mixed model. In his little-known Equilibrium theory and probabilistic schemes (1933), Bordin recognized the importance of Cantelli’s work (1921). He continued to investigate the link between the initial and final conditions, including the continuous, small perturbations in an economic system. He also referred directly to Maxwell’s theory on the distribution of molecular velocities. Bordin considered the constant C in Cantelli’s equation (1921, 85): a1 f ( x1 ) + a2 f ( x 2 ) + + ar f ( xr ) = C

(10.8)

as the monetary wealth of a given society, resulting from the sum of the wealth owned by individuals gathered in groups x1, x 2, …, xγ, and given a series of constants a1, a2, …, aγ. That constant can be seen as the potential energy of Maxwell’s law. Given this constraint, Bordin argued that a distribution system reaches a condition of equilibrium whatever the initial distribution (1933, 4). Brief ly, he accepted the ergodic condition, i.e. that a system forgets its initial condition, particularly when referring to income distribution. But what does it mean for a system to forget its starting point because the individuals it contains move continually? The very large number of small causes inf luencing the distribution between two or more groups makes it impossible to forecast this distribution, which is ultimately a product of ‘random factors.’ This concept is actually common to all the scholars we consider here. So, an agent’s belonging to one group instead of another was a matter of probability. The conclusion reached by Bordin in his article of 1933 on probabilistic equilibrium is quite simple. Given a quantity of goods a, b,…, m, in any initial distribution, if the goods were free to circulate within a group, they would ultimately become distributed in an average way between the n agents in the group (1933, 6). It is important to emphasize that Bordin spoke of within-group equilibrium, meaning a group of individuals in which each individual has the same amount of wealth. Widening the analysis to the whole distribution, Bordin wondered whether his probabilistic scheme could be applied to Pareto’s distribution of wealth. Given the amount of wealth in physical terms, the above-mentioned Pareto II equation is verified if all prices remain equal when the distribution of goods changes (Bordin 1933, 12). But this condition may contradict another important constraint: individual equilibrium. Bordin’s

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conclusions led him to say that transactions occur in conditions of disequilibrium as well (1933, 16). His aggregate or statistical equilibrium was not microfounded. But this means that the stability of the probabilistic distribution was grounded on factors other than individual behavior. Bordin claimed that it is only by assuming that individuals continue to change the same amounts of goods despite any perturbations that we can clearly see the shift from a probabilistic scheme to a Pareto distribution. Bordin’s conclusion can be reformulated in the following question: does assuming that many small causes can disrupt any link between the initial and final distribution of wealth also mean neglecting individual equilibrium? Clearly, the answer cannot be ‘yes’ from a general economic viewpoint, but it needs to be here for the purposes of this probabilistic equilibrium. 10.5.3 Alfonso De Pietri-Tonelli The behavior of aggregates, and statistical uniformities are topics that Alfonso De Pietri-Tonelli (1883–1952) inherited from Pareto and further investigated, mainly in the 1930s. The inf luence of Pareto’s Treatise is plain to see in this more sociological than economic analysis of individuals showing a social identity. In his Corso di politica economica (Course of Economic Policy) (1931), De PietriTonelli discussed the sociological differences between social groups such as ‘owners,’ ‘reconcilers,’ and ‘politicians’ in terms of economic degrees of greed (maximum in the ‘owners’) and interests (economic for the owners, political for the politicians). De Pietri-Tonelli’s proposed social dynamics could not explain the makings of any hyperbolic distribution, however. They focused instead on the relationships between the different groups, each of which represents a unit: Human society must be conceived in both space and time, not as a coneshaped entity as scientific and statistical-economic analyses conceive it, but as a heterogeneous complex of innumerable social circles kept together by different features in a continuous process of making, changing, transforming …human society appears as a tangle … and heterogeneity, or the inequality among individuals, characterizes both different circles and individuals belonging to the same circle. (De Pietri-Tonelli 1931, 5–6) As group relationships were based on power, it seemed unworkable to apply the kinetic theory of gases. Within groups where similar individuals interact or collide (like gas molecules), this would produce a result that would affect heterogeneous individuals and therefore could not be extended to the whole of society: … just as it is impossible to study the movement of each gas particle against the bottle containing it, but it is feasible to deal with pressure

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and gas mass by means of statistical averages, … so too is it impossible to study the impulses of each individual. But it is possible to deal with the uniformities resulting from averages and sums of the actions of heterogeneous individuals belonging to a given social circle or class, according to the random distribution of such impulses. (De Pietri-Tonelli 1931, 43) Statistical equilibrium is useful for analyzing not society as a whole, but groups: ‘The equilibrium of many individuals within a class is a statistical equilibrium … of individuals adopting different behaviors … What can be known is the resultant of the entirety of individual actions in a class.’ (De Pietri-Tonelli 1931, 43). In short, De Pietri-Tonelli built a model in which individuals with opposing interests formed opposing pairs. The result of each opposition could be zero or not zero. There was statistical equilibrium within a group, or class, when the sum of all the results was nil (1931, 44). Individuals were seen as having powers, or energies, that were destined to fade. The problem was that these energies were not measurable, so social balance could not be ascertained a priori. Even more than physical or intellectual characteristics, heterogeneity meant different levels of individual energy, widely represented in the corporate, political, and social sectors. The actions prompted by some individual energies thus triggered reactions from other individuals, inf luencing the actions of the groups to which the individuals belonged. Conf lict between social groups built on characteristics shared by individuals gave rise to social instability. This prevented any application at social level of statistical equilibrium, which could be employed instead to study relationships within and between groups. Drawing on Pareto, De Pietri-Tonelli judged that social equilibrium characterized relations between groups, while statistical equilibrium was a within-group matter. His interpretation of the social order brings to mind Marx’s well-known analysis (the young De Pietri-Tonelli had strong leftist sympathies), with the difference that he interpreted the potential instability as a natural consequence of human relationships and social evolution, seen as something similar to natural evolution. 10.5.4 Harro Bernardelli Harro Bernardelli (1906–1981) was a Viennese mathematician and economist, but he is included in this paper because of his family’s Italian origins (see Donoghue 2007, 25; Moscati 2013, 920). He returned to Pareto’s income distribution, treating it as a frequency distribution that could be analyzed through statistical equilibrium. Bernardelli started from the common assumption that a given distribution at a time, t, is a function of the initial distribution x(0), which changes over time. Thus, x(t) can be presented as an unknown function of x(0):

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x (t ) = f [ x (0) ,t ] , taking into account that the particular feature of the function f lies in that, with time, x(t) will tend, ceteris paribus, toward the following limiting distribution: lim f [ x(0), t ] = f [x(0),°] = x(°)

t˛°

(10.9)

Thus, the longer the time, the more the system tends toward a final equilibrium distribution. Following in Pareto’s footsteps, Bernardelli assumed that ‘equilibrating forces’ would lead to the final condition of x (1943, 352). So what we need to understand is how the distribution changes over time until it reaches the point of equilibrium. To study the transition x(0) ˜ x(t ) ˜ x(°), from an early to a final, stable distribution, Bernardelli established that the rate of change of x was proportional to the deviation of x(t) from the equilibrium state x(˜), which is dx = A [ x(t ) − x(˙)] dt

(10.10)

where A is a real square matrix of order n. Stating that n→∞, Bernardelli applied the expansion theorem drawn from quantum mechanics. In this case, this means that the number of groups n is taken to be sufficiently large.3 Bernardelli wanted to know ‘how the initial distribution inf luences the final state’ (1943, 354). To find out, he hypothesized two different initial distributions, x(0) = a, and x(0) = b. His finding was that both satisfy the homogeneous system Af = 0, with rank n–1. He thus reached the following conclusion: The curious fact thus emerges that the shape of the equilibrium state, x(z), is completely independent of the initial distribution, x(0). Whatever ‘fancy’ distribution we may select to begin with, it will in due course surely be transformed into x(z), the shape of which is solely determined by the properties of the matrix A. (Bernardelli 1943, 354) He also added: ‘It is tempting to use this observation as an explanation of the futility of revolutions’ (ibid.). The final state of the system is therefore totally independent of the initial conditions, but it is also true (as Pareto said) that the skewed distribution is stationary. Bernardelli could not be satisfied with such an intriguing conclusion, however. He wanted to know if his hypothesis and implications squared with reality. Answers could come from moving to the microscopic level. Bernardelli tried to test his conclusion by focusing on the probability that an agent receiving a given income climbing up or down the social ladder. The probability of people’s social standing changing depends both on internal

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factors (their own abilities), and on the more or less dynamic nature of their society (institutional factors). Assuming that society is split into different groups, Bernardelli added: It is interesting to observe that x(0) perpetuates itself in a somewhat different manner. Approaching equilibrium, all income groups are continuously reshuff led and alter their internal composition. They lose elements too, and receive elements from other groups. (Bernardelli 1943, 357) The crux of the matter was to establish in ‘what manner, finally, the kth group in equilibrium is made up of the original groups in x(0).’ Bernardelli’s answer entitles him to be quoted among the forerunners of econophysics: ‘each income group reproduces in miniature the original composition of the whole society’ (1943, 357). Bernardelli anticipated the scale invariance that was subsequently widely investigated in statistical mechanics and other disciplines. He specified in a note: It should be noted that this law of circulation is entirely independent of the special assumptions [according to which during dt the whole content xk of the kth group is removed and distributed between the neighboring classes k–1 and k+1,]. x(0) perpetuates itself in the manner described irrespective of the shape an equilibrium matrix A acquires. (Bernardelli 1943, 357, note 1) A distribution that reproduces itself at different social levels means that it is culturally and socially rooted in society, and that—before any economic reasons come into play—it is explained by other power-related, institutional, or cultural factors. Bernardelli recalled Pareto when he wrote that the circulation of income earners among the lower classes is minimal: the social composition of the power classes as regards origin changes very little: they receive only a small contribution, proportionately, of declassés from the higher strata. The proletarian block remains solidly proletarian. The reverse takes place on the upper end of the income scale. There, the higher classes absorb an enormous proportion of proletarian upstarts, and they are thus, as regards ‘birth and breeding,’ very much diluted. (Bernardelli 1943, 358) The stability of the equilibrium, or of the income distribution, depends on the probability of agents having to move from one income level to another. Bernardelli believed that institutional factors are responsible for transitions between income levels. Ten years later, Champernowne reached a similar conclusion but (unlike Bernardelli) anchored the probability of an individual changing class or group to completely random factors (1953).

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10.6 Concluding remarks The analogy between the behavior of gas particles and the behavior of individuals within an aggregate, that was used to explaining Pareto’s asymmetrical curve as a function of probability distribution, led almost all the scholars considered here (with the significant exception of Pareto himself ) to assume they were discussing an ergodic system. Accepting the ergodic axiom or hypothesis, which is fundamental to the modern theory of probability, implicitly leads us to conceive ‘the path of any economic system’s events over time into the future as governed by a stochastic generating process, then an event can be accurately forecasted in terms of probability distribution’ (Davidson 2015, 4; for a further discussion of ergodicity in a post-Keynesian context, see Chapter 9.6). It is amazing that mathematicians like Cantelli, economist-statisticians like Vinci, statisticians like D’Addario, and economists like Bordin, De PietriTonelli, and Bernardelli independently arrived at the same conclusion using different analytical tools. This goes to show that such a conclusion is due to the distribution being interpreted in probability terms. It is the outcome that determines the path. The final distribution is independent of the initial one, a common outcome that can be interpreted by saying that the distribution depends on perturbations, which determine the point of arrival irrespective of the starting point and human capabilities and qualities. Lastly, the above authors confirm the conclusion that Pareto reached without any recourse to the analogy with the kinetic theory of gases. The income curve remains a mere empirical fact, or law, even when it is interpreted probabilistically, where ‘mere empirical’ is used to mean that the explanation for it should be sought outside the boundaries of economics.

Notes 1 Residues are ‘manifestations of sentiments and instincts’ ([1916] 1935, sec. 875). 2 Among others, see Benini 1897; Bresciani Turroni 1939; Gini 1921; Mortara 1911; Pietra 1935; Ricci 1916; and, recently, Maccabelli 2009. 3 A similar assumption stating ‘an enumerable infinity of income ranges’ can be found in Champernowne’s famous model on income distribution (Champernowne 1953, 319).

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Name Index

Note: Page numbers followed by “n” denote endnotes. Åckerman, J. 251 Albury, W.R. 72n13 Alvarez, C. 257 Amoroso, L. 175, 271, 274–275 Anderson, K. 99, 113n35 Appel, M. 145, 149, 150 Aristotle 212 Arlía, C. 38 Arrarte, P. 173 Arrese, A. 15n9 Arrivabene, G. 28 Artoni, R. 42n40 Ashton,T.S. 113n47, 114n50 Augello, M.M. 34, 41n25, 41n31 Azcárate, G. 174 Babbage, C. 104, 112n28, 133, 152 Babson, R.W. 124, 128 Backhaus, J. 146, 161n5, 163n15 Baddeley, W.H. 99 Bagni, T. 270 Baranzini, R. 11, 41n35 Barger, H. 233 Barker, J. 23 Barlow, N. 72n16 Barone, E. 175 Barucci, P. 28 Baxendell, J. 102 Beckmann, U. 162n12 Benard, T.-N. 69 Benini, R. 34, 270, 282n2 Benzi, M. 272 Bergmann, E. 162n12 Bernácer, G. 12, 13, 172, 175–184, 184n3, 185n4, 185n5 Bernardelli, H. 271, 279–282 Bernardo, T. 42n38

Bertolini, A. 36 Besomi, D. 3, 7, 9–11, 13, 14n3, 15n12, 21, 40n3, 41n34, 41n35, 53, 55, 70, 71n8, 74n9, 73n17, 73n19, 77n64, 104, 110, 112n25, 114n51, 127, 142n4, 162n11, 173, 174, 180 Bianchini, M. 41n31, 42n40 Bickes, H. 15n9 Bini, P. 41n27, 42n39 Black, M. 206n1 Blanch, L. 40n13 Blumenberg, H. 2 Bobulescu, Roxana 256 Boccardo, G. 24, 26, 27, 32, 34–36, 41n37 Boettke, P. 205 Böhm-Bawerk, E. 187, 201, 238, 239 Bona, D. 34 Bonis, C. 36 Bontadossi, A. 23 Boot, H.M. 113n44 Bordin,A. 271, 277–278, 282 Bosellini, C. 31 Boumans, M. 140 Bounegru, L. 15n9 Bouniatian, Mentor 9 Bowley,A.L. 134, 140, 210, 211, 270 Boyd, R. 189, 190 Bozzalla, L. 26 Brambilla, F. 271 Branca,V. 40n15 Bresciani-Turroni, C. 267, 270, 282n2 Briaune, J.-E. 55, 59, 73n19 Brown, J. 22 Brück, A. 146 Bücher 152 Bufalini, M. 23 Bunsen, R. 101

286

Name Index

Burkett, P. 164n23 Burton, J. 97, 98 Bussi, G.C. 23 Cairnes, J.E. 94, 108 Cameron, L. 14n2 Cantalamessa, F. 36 Cantelli, F.P. 271–273, 276, 277, 282 Cantoni, G. 34 Cardinali, F. 21 Carrington, R. 102, 113n36, 113n39 Carter, K.C. 58, 60, 72n13–16 Cassata, F. 175 Castelnuovo, G. 271 Cattaneo, C. 33 Cerini, G. 40n13 Chaloner, W.H. 113n47 Champernowne, D.G. 266, 281, 282n3 Chao, H.-K. 133 Charteris-Back, J. 15n9 Chomel, A.-F. 72n15 Chong, I. 256 Ciccone, A. 26 Clark, J.B. 247 Clark, S. 100 Coase, R. 123, 125, 141n1, 211 Cockburn, R. 55 Cognetti de Martiis, S. 26, 35, 36, 38, 41n33 Cohen, A. 254 Cojanu,V. 256 Collini, S. 107 Colmeiro, M. 173 Concioli, O. 22, 23, 40n4 Conrad, J. 147 Contilli, C. 40n11 Cooke, J.E. 72n12 Coquelin, C. 55, 59, 73n19 Cory, I.P. 55 Costanzina, D. 24 Cottrell, P. 110, 113n47 Cowen, T. 201 Crusoe, R. 221–222 D’Addario, R. 268, 271, 275, 282 D’Alberti di Villanuova, F. 21 Dangel-Hagnauer, C. 51 Danson, J.T. 104, 113n41 Dardi, M. 142n5, 142n15 Darwin, C. 164n31, 213, 214 Davidson, G. 257, 258 Davidson, P. 257, 258, 282 De Johannis,A.G. 42n38 De la Pichardais, R. 38

De Pietri-Tonelli,A. 247, 278–279, 282 De Renzi, S. 40n6 De Vito,A.J. 42n46 Dean, P. 140 Desjardins, F. 23 Dixon, R. 110 DonniniMacciò, D. 41n27 Donoghue, M. 279 Dore, M.H.I. 8, 220, 230, 241 Doria, G. 24 Dove, H. 97, 98, 100 Ducheyne, S. 73n18 Dunoyer, C. 32 Ðurovic´, T. 15n9 Eatwell, J. 254 Ebeling, R.M. 187, 195, 199 Ebner, A. 163n18 Edgeworth, F. 214 Ehnts, D. 257 Einaudi, L. 34, 41n32 Ellis, A. 236 Engels 152, 164n28, 164n29, 167n51 Ennis, T. 15n9 Errera,A. 38, 42n44 Estrada,A.F. 32, 172, 173 Eulenburg, F. 150, 162n12, 163n20, 167n52 Evans,A.S. 58, 72n14 Fanfani, P. 38 Farjoun, E. 265, 272 Fawcett, H. 235, 236 Feiwel, G.R. 254 Fernández-Baños, O. 175 Ferrara, F. 27, 32, 34, 35, 38 Fetter, F.A. 248 Fink, R. 201 Fisher, I. 5, 6, 127, 214, 244 Fitzroy, R. 97–100 Flores de Lemus,A. 174, 185n4 Foley, D.K. 273 Forceville, C. 15n9 Fossick,W.G. 134, 135 Foster, J.B. 164n23 Fracasso, L. 40n12 Francis, M.J. 63, 74n39 Friedman, M. 111n18 Friedman, W. 128 Frisch, R. 6, 13, 216–220, 222, 233, 248, 249, 260n2 Frobert, L. 72n15 Fujimoto, T. 265 Fussell, P. 206n3

Name Index 287 Gadda, G. 37 Galassi, L. 23 Galen 22 Galileo 180 Gallegati, M. 42n37 Galton, F. 140 Garegnani, P. 254 Garibaldi 22 Garnier, J. 55, 58, 71n7 Gasparini, A. 22 Gazzeri, G. 30, 31 Genovesi, A. 24 George, H. 176, 178, 183 Georgescu-Roegen, N. 255, 258, 261n7 Giffen, R. 35 Gini, C. 175, 270, 282n2 Gioberti,V. 23 Gioja, M. 28, 31, 32, 33, 41n22, 41n29 Giordano, M. 26 Gooday, G. 102, 113n34 Goodwin, R.M. 15n8 Gossen, H. 214 Grandke, H. 165n33, 165n40 Grau, P. 175 Green, D. 82 Grmek, M.D. 58 Groenewegen, P. 255 Guidi, E.L.M. 34, 41n31 Haberler, G. 162n9, 244 Haeckel, E. 12, 124, 146, 154, 156, 157, 160, 165n37, 165n38, 166n45, 166n47 Hagemann, H. 145, 146 Hahn, F. 258 Hamlin, C. 72n13 Hamouda, O. 72n15 Hansen, A.H. 147 Harcourt, G.C. 254 Harrod, R.F. 9 Hayek, F.A. 9, 187, 194, 195, 200–206, 207n12, 214 Hazlitt, H. 247, 248 Henderson,W. 188–191, 204 Henle 57, 58, 72n14 Herf, J. 146, 149, 161n3 Herrmann, E. 158 Herschel, J. 102, 113n35 Herschel, W. 102 Hesse, M. 157, 166n44 Hewins, W.A.S. 123 Hippocrates 22, 23 Hock, W. 149 Hodgson, G.M. 40n1, 41n36, 123, 141n2, 214

Hoffman, R.R. 1, 2, 14n1 Hoffmann, W. 163n19 Hooper, F. 233 Horner, J.R. 15n9 Horwitz, S. 205 Hourwich, I. 237, 238 Howard, L. 99 Hubbard, G.J. 112n20 Hume, D. 213 Huntington, E. 164n24 Hurtado, P. 174 Huskisson, W. 53 Hutter, M. 146, 185n4 Ingrao, B. 215 Israel, G. 215 Jaffé, W. 15n5 James, S. 29, 30, 41n17 Jannaccone, P. 269 Jevons, F. 112n21 Jevons, T.E. 112n21 Jevons,W.S. 12, 41n37, 80–84, 87–110, 111n2–4, 111n6, 111n8, 111n12, 111n15, 112n19, 112n21, 112n23, 112n31, 113n37, 113n40, 113n41, 114n52, 124, 129, 133–135, 140, 164n24, 246 Jones, L.B. 214 Juglar, C. 11, 41n35, 51–70, 71n1, 71n4, 72n11, 73n22, 73n24, 73n25–33, 74n34–41, 75n42–48, 76n49–60, 77n61–63, 110 Kaemtz, L.F. 99 Kapp, E. 158 Kelly, P. 15n9 Kelvin, L. 216 Kerr, P. 254 Keynes, J.M. 9, 113n48, 125, 140, 177, 182, 184n3, 200, 211 Kinnear, J.G. 3 Kirchoff, G. 101 Kirzner, I.M. 205 Klamer, A. 185n6 Kleiber, C. 272, 275, 276 Klein, J. 140 Knight, F.H. 242, 243 Knot, K. 223n1 Koertge, N. 73n18 Kotz, S. 272, 275, 276 Krause, W. 161n3 Kuntze, K. 163n16 Kuster, M. 12

288 Name Index Kuznets, S. 9, 245 Kydland, F.E. 220 Lagasquie, A. 72n16 Lagueux, M. 190, 191, 206n2 Laidler, D. 113n49, 125–128, 133, 187, 193, 196, 199, 200 Lalanne, L. 99, 113n33 Lampato, F. 25 Landes, D. 149 Langton,W. 106, 107, 109, 113n45, 113n47 Lawson, J.A. 56, 59, 73n19 Layton,W.T. 128, 142n6 Le Gall, P. 73n19 Le Maux, L. 89 Lebovics, H. 150 Lederer, E. 147 Lenger, F. 163n18 Leonard, T.C. 185n6 Leontief, W. 211 Leopardi, G. 23 Leslie,T.E.C. 93, 112n25, 114n51 Limoges, C. 124, 157, 160, 161n4 Lindahl, H. 199, 200, 205 List, F. 166n43 Liu, M. 180 Loasby, B. 123 Lobbia, C. 38 Locke, J. 212 Lorenzini, C. 38, 42n42, 42n43 Louçã, F. 13, 213, 216, 218, 219, 264 Loulergue, J. 9 Low, G. 14n2 Löwe, A. 9 Lucas, R. 219–221 Lundberg, E. 195, 198–200, 205 Lunghini, G. 230 Luo, L. 180 Luxemburg, R. 145, 163n15, 163n21 Lybeck, E.R. 179 Maas, H. 12, 110, 111n10, 112n29, 112n31, 133, 137 Maasen, S. 21, 26, 33 Mabson, R.R. 135 Mac Culloch, J.R.63, 74n39, 97 Mac Leod 63, 74n39 Maccabelli, T. 282n2 Macchioro, A. 41n22 Machlup, F. 245 Machover, M. 265, 272 Magri, A. 40n8 Malthus 26, 27, 33, 41n27, 41n28, 213, 214

Maneschi, A. 256 Manfredi, M. 30 Mankiw, G. 221 Manzoni, A. 42n46 March, L. 275 Margaroli, G.B. 25, 40n12 Marshall,A.12, 123–136, 138–141, 141n1, 141n3, 157, 210, 211, 238, 250–252 Martello, T. 38 Martin, M.-J.-D. 69 Martin, P.W. 176 Martineau, H. 257 Marx, K. 113n43, 145, 146, 151, 152, 154–157, 158, 160, 161n2, 163n23, 164n25, 164n27, 164n28, 164n30, 164n31, 165n34, 216, 221 Mazzini 22 McCloskey, D.N. 190 Memminger, A. 42n45 Ménard, C. 124, 125, 157, 160, 161n4 Mendelsohn, E. 21, 26, 33 Menger, C. 201 Meyerson, E. 216 Migliorini, M. 41n18 Mignacca, D. 42n37 Mill, J.S. 53, 91, 103–109, 112n23, 113n46, 113n47, 142n8, 234, 235, 237, 245 Mills, I.P. 114n51 Mirowski, P. 124, 141n2, 214 Mises, L. 194, 200–206 Mitchell,W.C. 9, 147, 164n24 Montaldo, E. 42n38 Montano, G. 41n22 Montemartini, G. 26 Moore, H.L. 164n24 Mora, J. Joaquín de 173–174 Morgan, H. 164n28 Morgan, M., 140, 142n14 Mori, G. 28, 113n43 Mornati, F. 268 Mortara, G. 270, 282n2 Moscati, I. 279 Moss, L.S. 202 Mosselmans, B. 246 Murphy, R.E. 261n7, 266 Myrdal, G. 193, 195, 205 Narbona, O. 176 Naylor, S. 97, 113n35 Newmarch,W. 82, 83, 105, 111n12, 113n46 Newmark 63, 74n39 Newton, I. 212

Name Index 289 Neymarck, A. 53 Nicholls, N. 97 Nicholson, J.S. 128 Niman, N. 123 O’Driscoll, G.P., Jr. 201 Okun, A. 220 Oldenberg, K. 163n17 Opdyke, G. 231, 232 Osborne, M.F.M. 265 Pagliani, S. 26 Paley-Marshall, M. 126 Pancaldo, E. 22 Pantaleoni, M. 39, 274 Paolini, A. 41n24 Paret, L.V. 176 Pareto,V. 14, 15n7, 40n1, 42n44, 221–222, 266–282 Parinello, S. 265 Parisi Acquaviva, D. 41n25 Parker, W. 99 Pascual, J. 175 Passy, F. 53 Pastor, L.M. 173, 184n1 Peart, S. 108, 246 Pebrer, P. 173 Pecchio, G. 24, 28, 29, 31, 41n16 Pellico, L. 24, 40n11 Perri, S. 34 Peters, O. 257 Peterson, R. 99 Peukert, H. 146 Piddington, H. 98, 100, 112n30 Pietra, G. 282n2 Pignacca,A. 22, 40n5 Pigou, A.C. 241–243 Piromalli, E. 15n9 Playfair, P. 260n1 Playfair,W. 82, 133 Plosser, C.I. 221, 222 Poettinger, M. 11, 34, 38, 41n31, 42n41 Pohle, L. 163n17 Poincaré, H. 215 Popper, K. 214 Potthoff, H. 161n1, 163n16 Preda,A. 104, 113n40 Prescott, E.C. 220 Proctor, R.A. 80 Prychitko, D. 205 Raffaelli,T. 123, 124, 141n2 Rees-Mogg, W. 111n18

Reid,W. 97, 98, 100 Renouard, Ch. 55, 71n6 Ressi, A. 28 Reuleaux, F. 158, 167n50 Ricardo, D. 27, 33 Ricci, U. 282n2 Ringer, F. 149 Riniker, D. 162n6 Rizzo, M.J. 201 Robertson, D.H. 128, 177, 184n3, 253, 259 Robinson, J. 222, 251–255, 258, 259 Rodbertus, J.K. 152, 243 Rodriguez Braun, C. 41n26 Rogers, T. 94 Romagnosi, G.D. 24, 25, 41n30 Romani, R. 41n27 Romer, P. 221 Roscher, W. 163n22 Roscoe, H. 101, 113n34 Rosenstein-Rodan, P.N. 240 Rosmini, A. 23 Rosner, P. 207n11 Rossi, P. 26, 174 Sacchi, G. 24, 32, 34 Salvatore,V. 37 Samuelson, P.A. 218, 219, 244, 249, 257, 258, 260n6 San Julián-Arrupe, J. 174 Sargent,T. 219, 220 Sauerbeck 135, 140 Say, J.B. 27, 31, 32, 52, 173 Schabas, M. 141n2 Schäffle,A. 157, 166n45, 166n46, 176 Schlegel, R. 256 Schmölders, G. 162n8 Schmoller, G. 152, 161n1, 164n29 Schumpeter, J.A. 13, 145, 147, 150, 188, 214, 216–219, 222 Scott, S.M. 13 Senior, N. 134 Serristori, L. 29 Šeškauskiene˙, I. 15n9 Shackle, G.L.S. 188 Shaw, G.H. 254 Sieferle, R.P. 163n18, 167n50 Siemens, W. 167n50 Silaški, N. 15n9 Simonde de Sismondi, J.C.L. 26, 27–33, 41n19, 41n29, 42n46 Sinclair, J. 10 Slutsky, E. 220, 221 Smith,A. 166n43, 212, 213, 215, 216

290 Name Index Smith, M. 89 Smith, R.H. 236, 237, 260n1 Snider, A. 36 Snyder, L. 129, 142n8 Soddemann, K. 15n9 Sombart,W. 12, 145–152, 154–157, 158–161, 161n1–3, 161n5, 161n6, 162n7–11, 162n13–16, 163n18, 163n20, 163n21, 163n23, 164n24–26, 165n32, 165n34–36, 165n39, 165n40, 166n41, 166n42, 166n45, 166n47–49, 167n50, 167n52, 167n53 Sommers,V. 103 Sowell, T. 41n20 Spencer, H. 157, 166n45, 166n46 Spiethoff,A. 147, 150, 162n12 Sprengel, C. 40n7 Stadler, G. 220 Stamp, J. 270 Stanley, M. 101 Steindl, F. 266 Stewart, B. 102, 103, 113n34, 113n38 Stigler, S. 99 Stronach, I. 15n9 Sybel, H. 163n16 Tartini-Salvatici, F. 30 Testa, A. 37 Thompson, W. 216 Tieben, B. 8, 13, 207n14, 230, 246 Tinbergen, J. 216 Tobin, J. 219 Tooke,T. 63, 74n39, 105, 106, 111n12 Torrens 27 Torres, M. de 175 Trautwein, H.-M. 201 Troya, C. 23, 40n4 Tugan-Baranowsky, M. 145–151, 160, 161n2, 162n12, 163n14 Tusset, G. 14, 36 Urbonaite˙, J. 15n9 Ure, A. 152

Usigli, C. 42n38 Vandellós, J.A. 175 Vara-Miguel 15n9 Varian, H.R. 221 Vieusseux, G.P. 30 Vinci, F. 268, 269, 271, 275, 276, 282 Vitale, E. 37 Volta, A. 41n28 Volta, D. 42n38 Voltaggio, F. 74n13 Volterra,V. 215 vom Brocke 146, 161n3, 162n6 Wagner, A. 163n17 Waller, J. 72n13 Walras, L. 4, 5, 14n4, 15n5, 15n6, 123, 214, 215, 217, 218, 238, 243 Walsh, R.H. 235, 260n3 Wang, H. 15n9 Ward, L.F. 178–180, 183 Weber, M. 166n47 Weingart, P. 21, 26, 33 Welton, T. 113n41 Whewell,W. 129, 142n8 Whitaker, J.K. 126, 141n1 White, M.V. 12, 15n9, 101, 110, 111n1, 111n4, 124, 141n1 Wicksell, K. 6, 13, 187, 191–198, 200, 203, 205, 206, 206n4–6, 207n8, 207n9, 217, 240, 241, 260n4, 260n5 Wiley, F.F. 245 Wilson, J. 82, 99, 103–109, 113n42–44, 231 Wirth, M. 37 Wolfson, M.H. 254 Zabalza, J.A. 12, 175, 184n2 Zamagni, S. 256 Zanini, M. 15n9 Zappia, C. 199 Zumalacárregui, J.M. 175, 176 Zweynert, J. 162n6