A History of Italian Economic Thought

Riccardo Faucci

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317704164
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book provides the non-Italian scholar with an extensive picture of the development of Italian economics, from the Sixteenth century to the present. The thread of the narrative is the dialectics between economic theory and political action, where the former attempts to enlighten the latter, but at the same time receives from politics the main stimulus to enlarge its field of reflection. This is particularly clear during the Enlightenment. Inside, this book insists on stressing that Galiani, Verri, and Beccaria were economists quite sensitive to practical issues, but who also were willing to attain generally valid conclusions. In this sense, "pure economics" was never performed in Italy. Even Pareto used economics (and sociology) in order to interpret and possibly steer the course of political action.

Within this book it illustrates the Restoration period (1815-48). There was a slowdown of the economists' engagement, due to an adverse political situation, that prompted the economists to prefer less dangerous subjects, such as the relationship between economics, morals, and law (the main interpreter of this attitude was Romagnosi). After 1848, however, in parallel with the Risorgimento cultural climate, a new vision of the economists' task was eventually manifested. Between economics and political Liberalism a sort of alliance was established, whose prophet was F. Ferrara. While the Historical school of economics of German origin played a minor role, Pure Economics (1890-1940 approx.) had a considerable success, as regards both economic equilibrium and the theory of public finance. Consequently, the introduction of Keynes's ideas was rather troubled. Instead, Hayek had an immediate success.

This book concludes with a chapter devoted to the intense relationships between economic theories, economic programmes and political action after 1945. Here, the Sraffa debate played an important role in stimulating Italian economists to a reflection on the patterns of Italian economy and the possibilities of transforming Italy's economic and social structure.

1 General problems of interpretation

Schumpeter’s lesson

This profile of the history of Italian economic thought aims to illustrate, through comprehensive reference to texts, the contribution provided by Italian economists to the development of economics over the last five centuries. Their achievements were not confined to analysis, i.e. to the complex of specialist techniques of enquiry into economic phenomena, but also embraced vision, namely, the political and ideological (pre)conceptions that shaped the common ground of the economists’ profession through the centuries. Both aspects are deemed here to be important in the formation of economics. Economists never limited themselves to such issues as the effect a tax on consumption goods might exert on the level of prices, or the impact of money expansion on employment; economists were and are implicitly or explicitly inspired by some design of an ideal society in which a meaningful role is assigned to the economic measures they advocate. In short, vision in this book corresponds to German Weltanschauung. It includes both value judgements on what is, and on what is to be (Schumpeter 1994 [1954], Chapter 4; Dobb 1973, Introductory).

A comparison with Schumpeter is of interest. Despite the fact that he considered science and ideology as two conceptually distinct moments, it should not be disregarded that they represented focal points of his attention throughout his entire experience as a thinker, and were often closely interlaced. For instance, his entrepreneur is also a sociological Idealtypus, his analysis of ‘socialism’ is strongly ideological and paves the way for his pessimistic forecast with regard to the future of a ‘free’ society. Moreover, glancing at another leading character among twentieth-century economists, it can hardly be overlooked that Keynes’s analysis of uncertainty, speculation and the inducement to invest heavily depends on his scepticism concerning the possibility of spontaneous reform of historical capitalism, and on his strong conviction that economic collaboration among countries was vital to provide the necessary support for recovery from the economic collapse of the 1930s.

These commonsense considerations may justify the present writer’s opinion that no clear-cut demarcation can be made between a merely internal (theoretical) approach, and a so-called external approach focusing on the intellectual and material context in which economic ideas arose. Paraphrasing Kant, pure theory separated from its historical context is empty, while descriptive history without theory is blind.

For these reasons, one cannot be fully content with a history of economics of the ‘economic theory in retrospect’-type (here, reference to Mark Blaug’s textbook is almost compulsory), which searches for continuity of theorizing throughout the various phases of the history of economic thought – starting from the present state of economics – and then seeks antecedents in the past, to be reshaped in a modern guise for the sake of rendering it more familiar or appealing to a present-day reader. Of course, in endeavouring to reconstruct the evolution of some crucial and specific economic concepts, such as the theory of interest, or control of the money supply, the measurement of ‘utility’, and so forth, such an approach could be highly fruitful. But if the intention is to give a general account of the evolution of economic thought in a specific nation or culture, the ‘economics in retrospect’ approach may not be the optimal solution.

Moreover, the category of ‘economic thought’ is broader than that of ‘economic analysis’. Far from being a mere aggregate of pieces of theory, the concept of economic thought transcends each individual stage; it aims at a comprehensive picture of the role and outcomes of a highly complex phenomenon, namely the construction of a twofold science which is not only a ‘box of tools’, but also an agenda for political choice, a pedagogy for the ruling (and ruled!) classes. In a nutshell, ‘economic thought’ represents a crucial moment of a nation’s autobiography.

This unique dual nature of economics, which constitutes its special feature in the domain of the social sciences, should always be kept in mind. Throughout its history, economics has fought to establish a demarcation line that would set it apart from morals and theology. In modern terms, economics has become less and less normative in the sense of ought to be, and more and more positive, in the sense of to be. This movement towards scientific autonomy has led to the formation of a special language and methodology that is increasingly ‘scientific’ and theoretically based.

While this may be the expected evolution from a normative complex to a science in the proper sense, there can be no doubt that since the beginning of the modern age many Italian economists have shown a special interest in theoretical concepts, in accordance with their ambition to build up an entirely value-free discipline. These remarkable efforts, which to some extent parallel those carried out by Galileo Galilei in the physical sciences, represent a distinctive feature of Italian economics, and prompt interesting comparisons with the enquiries pursued by English and French economists in the same years.

It should be made clear that in drawing a contrast between ‘positive’ and ‘normative’, we are referring to the historical evolution of economics as a science and its emancipation from subjection to morals and religion. It is not a question of the differentiation between positive and normative economics in a modern sense; that is, in the sense that the Pareto optimum is a normative, non-positive concept. Such a distinction is absolutely internal to economics, and, although it may imply a reconsideration of the influence of value judgements in economics, it by no means calls for a rethinking the foundations of economics itself.

While this conclusion can be considered as acceptable to all contemporary economists, it cannot be disputed that the evolution of economic science over the five centuries of our review coincides with the emancipation of economics from non-economics; namely, from religion, morals, philosophy and kindred spheres of reflection. Even more significantly, it can be observed that economists have singled out from the terrain of these doctrines only what was of use for the improvement of their own theories – for instance, the progress of physics and mathematics influenced many theoretical economists of the twentieth century. Naturally, this is not in contrast with the idea of the growth of economics as an autonomous discipline – it is a validation of this process, tending to enrich economics in its tools and scope.

Below, we will describe the normative prescriptions which, although springing from outside the terrain of economics stricto sensu, belong to the closely related field of politics and inevitably contribute to influencing the economist’s choices.

Two versions of economic liberalism

From the mid-eighteenth century onwards, Italian economic thought – following the evolution of the general course of economic ideas in Europe – gradually abandoned its primitive positions favourable to political absolutism, and manifested an increasingly sympathetic attitude towards liberalism. It is undeniable that the doctrine of political liberalism – taken as a doctrine of the limits of state power over individuals – is the current of thought that most profoundly permeated the European economists, especially in the Enlightenment, to such an extent that some of the major figures, from Locke to Smith, are considered as classics in both fields. The nexus between political liberalism and economic liberalism (in Italian, the latter concept is expressed with the term liberismo, which corresponds to libertarianism and, in the last analysis, to laissez faire) has become entangled over the course of time.

Early liberalism was imbued with the concept of ‘natural laws’. According to the physiocrat Mercier de la Rivière, the sovereign himself was subject to the ‘natural’ laws of the economy, and had neither the power nor the right to violate such laws; indeed, should he have the audacity to do so, damage would occur. In Italy, owing to the political fragmentation of the peninsula, divided up as it was among small regional states, this general conclusion did not come to the fore so clearly. Nevertheless, such writers as Ferdinando Galiani – himself an adversary of the Physiocrats, as we will see – reveal a clearly perceptible awareness that the market, insofar as it presupposed impersonal yet necessary relations, constituted a mechanism independent of the individual will of the statesman. Thus it was imperative for political reforms to be in accordance with economic laws; failure to fulfil this requirement would spell doom for such reforms. The cogency of economic laws therefore seemed to validate Horace’s line in his Epistulae: ‘Natura furca expellas, tamen usque recurret.’ In fact, as we will see, Galiani adopted an approach to economics – and to politics as well – which approximated methodological individualism. Subsequently, from Joseph A. Schumpeter through to Karl R. Popper, the latter concept became a cornerstone of modern liberal thought.

As is well known, the existence of so many currents of liberalism flourishing in Europe during the nineteenth century, demonstrates that what was at stake was not a drastic alternative between ‘omnipotent government’ and absolute laissez faire, but rather a reasonable balance between the prerogatives of the government and fundamental individual rights. Naturally, the demarcation line was subject to variations, due to changes both in the structure of the economy and in the degree of social consciousness. Reasonably, the liberal jurist and economist Giandomenico Romagnosi, claimed that economic freedom should not be left ‘unbridled’, but should be subordinated to equity and justice. Similar conclusions were reached by the Risorgimento statesman Marco Minghetti in his 1859 book on the relationship between economics and morals (see Chapter 4 below).

These criteria may nevertheless appear somewhat generic. More pragmatically, in his action as a statesman, Count Camillo Cavour embodied a liberalism open to British liberal-reformist influences, and awarded a prominent role to state expenditure – especially in public works such as railways – as an engine of economic growth.

Among the Risorgimento economists, Francesco Ferrara alone professed an extreme libertarianism, with tones that anticipate Murray Rothbard: ‘Government, claiming to represent all people, represents nobody’ (Ferrara 1992 [1858]: 235). But as we will see below (Chapter 5), his was a lone case.

This overview of the positions in the field would not be complete if one were to disregard the fact that several economists active in politics were imbued with the principles of Catholic social thought, which they attempted to reconcile with those of liberalism. The current of Catholic liberals featured many important leaders, including Manzoni, Gioberti, Rosmini and Lambruschini in the spheres of literature, philosophy and educational sciences, and Messedaglia, together with Lampertico, in the realm of economics and statistics. Despite Pius IX’s severe condemnation of Catholic liberalism in his Syllabus (1864), this stream of thought actively contributed to the Risorgimento, and to the post-Unity intellectual movement.

A watershed between ‘old’ and ‘new’ liberalism can be located around 1890, when a new version of pure economic liberalism arose, mainly owing to the influence of Austrian thought. This school, which set the rational consumer at the centre of the economic scene, posited that all operators were endowed with perfect knowledge and assumed full competition between all sellers as well as an absence of institutional barriers. Economic individualism and political individualism were seen as two sides of the same coin. Maffeo Pantaleoni’s 1889 book Principii di economia pura was the main product of this particular kind of subjectivism, where political theory and economic theory converged (see Chapter 6).

After 1900, however, Pantaleoni abandoned his faith in the symmetry between economic and political theory and his belief that they were governed by the same static, maximizing rules. Instead, he became more and more attracted by dynamics, an approach he considered to be more appropriate for an evaluation of the impact of the various social systems on the whole structure of society. Pantaleoni admitted the existence of different kinds of dynamics, varying according to the type of social organization. Thus, he acknowledged a ‘first type’ dynamics corresponding to an absolutely free society, and a ‘second type’ dynamics corresponding to a society hampered by artificial constraints (such as monopolies and paternalist government). Overall, Pantaleoni lost faith in political liberalism – more properly, in democratic liberalism that he considered as a degeneration from pure liberalism – which, he now felt, not only failed to confirm economic liberalism, but paved the way to socialism and therefore was destined to bring about its own downfall. For these reasons he opted to embrace authoritarian – and, in the last analysis, Fascist – positions in politics, believing that such positions were by no means incompatible with economic freedom.

Vilfredo Pareto also contrasted economic liberalism with political liberalism, although in different terms. Economic liberalism, on which general economic equilibrium was based, was to lead to the so-called Pareto optimum, and to the two theorems of Welfare Economics, a mathematical translation of the Verri-Helvétius–Bentham ‘maximum of happiness’ principle. But political liberalism, Pareto argued, had degenerated into an unstable regime, leaning towards ‘demagogic plutocracy’, a perverse alliance between monopoly capitalists and protected workers. Economics and (political) sociology were an expression of two different spheres of human conduct that could never go hand in hand.

The complexity of these issues was solved, so to speak, by another Italian economist who discussed at length the relationship between laissez-faire and political liberalism: Luigi Einaudi. Unlike most previous writers, Einaudi represented economic and political liberalism not only as pure theoretical abstractions, but also as convergent and connected systems which had sometimes found their full accomplishment in the course of history – e.g. in ancient Greece or in Italian medieval towns – and in more modern times whenever strong self-regulating social institutions were interposed between the State and the individual. In this sense Einaudi, himself an advocate of secularism, praised the Catholic Church as a voluntary organization of worshippers in a context of small enterprises scattered throughout a district characterized by a number of workers’ unions interacting in mutual, constructive, competition. He viewed such a situation as allowing both economic and political liberalism to reach their optimal equilibrium. The late medieval and early humanist rhetoric of the civic virtues – summarized in Ambrogio Lorenzetti’s famous fresco of ‘Buongoverno’ in Sienna – was relaunched in a more persuasive form (see Silvestri 2008).

An opportunity for fruitful cooperation between political and economic liberalism was provided by the Italian theory of public finance. Reflection on the nature of the relationship between state and its citizens in order to make a comparative assessment of the cost of the tax burden versus the benefit of the public expenditure was a peculiarity of the Italian school of public finance during the 90-year period between 1850 and 1940, a school whose merits have been acknowledged by such distinguished scholars as J. M. Buchanan and R. E. Wagner (see De Bonis and Fausto 2003).

In the vision of this school, the nature of either ‘monopolist’ or ‘democratic’ state can influence the tax system and hence the degree of freedom that citizens can enjoy (see Chapter 6).

The political engagement of Italian economists in the Risorgimento

The economists qua intellectuals who took an active interest in the crucial political issues of their time exerted a generally positive role in Italy. Not only did they fulfil the function of enlightening the ruling class as to the most suitable manner of addressing the complex aspects of governance and of avoiding mistaken procedures, they also often played a challenging – and frequently successful – substitutive role in the many situations in which the traditional political forces proved unable to master situations involving economic crises and/or social unrest. This feature, probably shared by all countries where democracy was not solidly established, was recurrent in Italian history.

At the origin of this phenomenon there lay a process of class diversification. Throughout the eighteenth century and up to 1848 the ‘economists’ qua social group mainly belonged to the class of landowners or gentlemen farmers. The...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Acknowledgements
• 1 General problems of interpretation
• 2 Machiavelli to Genovesi
• 3 The heyday of eighteenth-century Italian economics
• 4 Strengths and weaknesses of the early nineteenth century
• 5 Francesco Ferrara and the economic schools in Italy (1850-90)
• 6 Pure economics in Italy (1890-1920)
• 7 The post-Pareto generation (1920-45)
• 8 Post-war and recent decades
• References
• Index