In 2009, the European Journal of the History of Economic Thought (EJHET) and the European Society for the History of Economic Thought (ESHET) launched the initiative to publish a special annual issue of EJHET with a selection of papers presented at the ESHET conference of the year before. In the eleventh year of this collaboration, the result is one more time a fruitful special issue that testifies to the shared commitment of ESHET and EJHET in disseminating a panel of original research in History of Economic Thought.
The 23rd annual ESHET conference took place at Sciences Po Lille (France) from 23 to 25 May 2019. The theme of the conference was “Money, Banks and Finance in Economic Thought”. The motivation behind this theme hardly needs repeating, and the present crisis due to the SARS-CoV-2 pandemic adds new ground for inquiring about it. The 2008 crisis and its aftermath – the euro area debt crisis – reminded the profession that the banking sector could be a major source of economic instability, even in developed countries. Public policies used to stem the crisis (asset relief programs, recovery and investment programs) lead to question mainstream ideas on central banking and banking regulation. The subsequent blooming of research and critical assessments of the current state of monetary theory and modelling practices led to an opportune rediscovery of economists of the past, such as Walter Bagehot, Hyman Minsky, John Maynard Keynes and Irving Fisher. Historians would add many other names to the list. In sharp contrast with DSGE models used in central banks, which prior to 2007 had no role for banks and other intermediaries, financial institutions figured prominently in the writings of, for instance, Richard Cantillon, Adam Smith, Karl Marx, Joseph Schumpeter, and Ralph Hawtrey. From the bullionist controversy to the interwar period, the role of the banking system in the ups and downs of the economy has been a recurring issue. Once the Arrow-Debreu model had become a new starting point for economic theorising and modelling, financial intermediaries receded into the background, moving to the margins of macroeconomics, microeconomics and finance. The reasons for this shift needed to be addressed within a long period view.
As is customary in ESHET annual conferences, the sessions were not confined to the conference theme. Many of the 321 papers that were presented in 86 parallel sessions dealt with other topics. In addition, there were three plenary sessions – two on the conference theme and one other. Marc Flandreau (Howard Marks Professor of Economic History, University of Pennsylvania) gave a keynote lecture on “Frauds, Computers, and Rational Expectations: The London Stock Exchange and the Rise of Financial Economics in the 19th Century”. Frank Smets (Director General of the Directorate General Research of the European Central Bank) lectured on “The efficacy of the ECB's Monetary Policy in a Low Interest Rate Environment”. The Blanqui lecture was delivered by Harro Maas (University of Lausanne) and Andrej Svorenčík (University of Mannheim) on “The Emergency of a Witness Seminar: A History”, setting the focus on the making of experimental economics.
The papers selected for this issue reflect the wide range of subjects covered and methods used by the participants of the conference. The call for papers had led to the submission of 34 papers. After the completion of the reviewing process nine papers were accepted for publication.
The first two papers in this issue question the standard coupling of the quantity theory of money with institutional reality. In each of the two, the channels of transmission and other institutional features such as convertibility are key points in re-evaluating the originality of economic thinkers. “Orthodox versus unorthodox views on Ricardo’s theory of money” by Ghislain Deleplace continues the reflection initiated by the author in his 2017 book, Ricardo on Money a Reappraisal. This contribution allows clarifying his interpretation of David Ricardo’s theory of money within the historiography of the subject. After explaining why he rejects the “orthodox” interpretation of Ricardo as the defender of a “hard-line version” of the Quantity Theory of Money, Deleplace identifies points of agreements but also the disagreements within what might be viewed as the unorthodox camp of Ricardian scholars. According to the orthodox view, Ricardo sees a direct and proportional influence of the quantity of money on the money prices of all commodities. The unorthodox consider that the quantity of money affects money prices only indirectly through its influence on the market for gold. A difference that makes it difficult, if one follows Deleplace, to continue to see Ricardo through the prism of quantitativism.
In “Simon Newcomb’s Monetary Theory: A Reappraisal”, Sofia Valeonti addresses a paradox. Celebrated by Irving Fisher as one of the first proponents of the equation of exchange, Newcomb argued that the causality and the proportionality postulates of the quantity theory of money do not always apply. Building on the distinction between the classical monetary theory and the quantity theory of money introduced by Jürg Niehans, Valeonti identifies the reason for this unorthodox view in the fact that Newcomb applied the quantity theory of money only to the case of inconvertible paper money while considering that convertible bank issues were regulated by their demand. She then uses her interpretation to clarify Newcomb’s position in the monetary debates surrounding the Reconstruction period after the US Civil War.
The two following papers in this issue deal with problems generated by liquidity crises, the first one in the context of Marx’s works and the second in relation to the way central bankers have used references to Bagehot to discuss their role as lender of last resort after 2008. In “Marx and the ‘Minsky moment’ – liquidity crises and reproduction crises in Das Kapital” Anthony De Grandi and Christian Tutin revisit the views of banks and finance in Karl Marx’ theory of crisis on the basis of observations and arguments scattered across the three volumes of Capital and the Contribution to the Critique of Political Economy. Challenging the dominant view of Marx as espousing a “real” explanation of crisis, based on sectoral disproportions or a falling rate of profit, they show that Marx consistently suggested that monetary factors play an essential role in the emergence and occurrence of crises. They draw attention to the close relationship between Marx’s ideas and Hyman Minsky’s notion of financial fragility, arguing that monetary factors need be taken into account in any attempt at making Marx’s theory of crisis more complete.
The contribution by Emmanuel Carré and Sandrine Leloup, “Threadneedle street meets Lombard street: Bagehot and central bankers in the aftermath of the Great Recession,” shows how a history of thought perspective can help clarify current monetary policy debates within central banks. Starting from cutting edge knowledge of Walter Bagehot’s contribution to the Lender of Last Resort doctrine and a bibliometric study, Carré and Leloup analyse central bankers’ discourse from 1999 to 2017. They find a notable upsurge of references to the name of Bagehot in central bankers speeches after 2008. Digging into those speeches, they show how Bagehot’s rules for lending of last resort are used not to defend Bagehot’s position, but to support two alternative views that they call “liberal” and “conservative” regarding monetary policies.
The next two papers deal with the making and criticism of Keynesian macroeconomics. In “Jacob Marschak and the Cowles Approaches to the Theory of Money and Assets”, Robert Dimand and Harald Hagemann offer an account of Marschak’s contribution to the theory of money and asset pricing evolving from his days as a student of Eugen Slutsky in Kiev around 1916 to his position as the Director of the Cowles Commission in Chicago and as a senior member of the Cowles Foundation in Yale until 1960. They discuss the influence of Marschak on the formation of more well-known figures such as Harry Markowitz, Don Patinkin and James Tobin. They examine Marschak’s role in the elaboration of the mean-variance model of portfolio choice and emphasise the importance of the Lectures on Income, Employment and the Price Level (1951), probably the first graduate textbook published in macroeconomics.
Pierrick Clerc and Rodolphe Dos Santos Ferreira discuss in their article “On Keynesian Economics and the Economics of Keynes after fifty years” aspects of Axel Leijonhufvud’s argumentation that have been mostly disregarded by other commentators. Economists have correctly understood Leijonhufvud’s message as saying that chronic unemployment in Keynes’ theory was a consequence of information and signalling problems related to the decentralised nature of a market economy. But most of them in the 1970s interpreted this position in the light of Leijonhufvud’s assertion that Keynes introduced a reversal in the relative speed of price and quantity adjustment. In so doing, they disregarded two pillars of Leijonhufvud’s interpretation of Keynes, namely the notions of “aggregative structure” and of “transaction structure”. Clerc and Dos Santos Ferreira examine the meaning and the implication of these “structures” and argue that they are the key to understand Leijonhufvud’s interpretation of involuntary unemployment and saving-investment imbalances as intertemporal coordination failures in systems of interdependent markets.
In their article “How macroeconomists lost control of stabilization policy: towards dark ages”, Jean-Bernard Chatelain and Kirsten Ralf propose to examine the history of macroeconomics since the Post-War era by looking at tools of control theory, a field in engineering and applied mathematics. The paper documents how various concepts of control were progressively imported into macroeconomics until the 1970s. Negative feedback control rules were then used to develop stabilisation policies. Chatelain and Ralf argue that the New Classical economists, in particular Robert Lucas, Edward Prescott and Finn Kydland, introduced a bifurcation in the history of macroeconomics by convincing economists that optimal control could be used to model the private sector but not for stabilisation policies. They point out that New Classical economists made selective use of the potent resources provided by control theory, keeping only those concepts that favoured their political views. This delayed for two decades a number of advances that finally rehabilitated stabilisation policies, a delay that John Taylor (2007) called “dark ages”.
In “Turgot’s Calculations on the Effects of Indirect Taxation”, Richard van den Berg and Daniel Russell disclose and assess the content of a manuscript mentioned by Gustave Shelle in a footnote of his Oeuvre de Turgot (1914) that had long stimulated the curiosity of scholars but had remained inaccessible before its acquisition by the French National Archives in 2015. Relying on this Appréciation des effets de l’impôt indirect, they explain how Anne Robert Jacques Turgot tried to calculate the consequences of a direct tax on the rent of land as opposed to indirect taxes to prove that taxing the revenues of the landowners was the best policy. Those calculations show that Turgot was not entirely opposed to the use of mathematics in economic reasoning, as it has been sometimes argued. The economic significance of Turgot’s manuscript is discussed in relation to works by Quesnay and Du Pont.
In “Loose ends? Discussing human capital and the economic value of education in the first half of the twentieth century” Pedro Teixeira proposes to go beyond the existing histories of term “human capital” before the latter’s development by Theodore Schultz and Jacob Mincer. Because of their retrospective bias, Teixeira argues, previous studies have failed to offer a comprehensive account of the use of the expression “human capital”, in particular during the first half of the twentieth century. His own perspective allows Teixeira to consider manifold uses of the term that have been neglected; they were made, for example, in relation to debates over the measurement of national wealth, over the cost of the First World War, in actuarial studies or in debates over child labour and social policy. Teixeira documents the polysemic nature of the human capital concept over the period and its use to analyse practical concerns that may have hindered it analytical development.
At the end of the introduction to this special issue, we would like to thank all the referees for having contributed anonymously, with competence and efficiency, to the selection of the papers and the improvement of their quality.