Economic ideas over the long-term
The age of mercantilism
After the age of humanism, modern political economy develops through the major schools of mercantilism, political arithmetic, physiocracy, and the classical school.
In general terms modern political economy is focused on acquiring wealth: that reflects the fact that wealth — alongside with military strength and political skills — increasingly becomes a major pillar of political power. Adam Smith's 1776 Wealth of Nations, as the best known title of modern political economy, effectively refers to that main issue. The different schools of political economy signal the fact that it proves difficult to agree on a definition of what wealth is and to have a consensus on policies, i.e. on the means for acquiring wealth. Mercantilism is in favor of state regulation and puts forward a view of economic growth based on monetary factors and on financial innovation. It is during the mercantilist age that the main institutions of money and finance — such as central banks, stock exchanges, public debts — are created. Physiocracy, on the other hand, reacts vigorously against mercantilist conceptions of wealth and policies for growth typified by Colbertism. Physiocracy goes to the opposite extreme by emphasizing the competitive market and the notion of real wealth acquired through rising real incomes. The classical school, especially with Smith, would later follow suit and put the accent on the division of labor and increasing returns in manufacturing.Accordingly the Italians begin during the sixteenth century with the analysis of monetary factors. The first authors of the modern age are Gasparo Scaruffi (1519—84) and Bernardo Davanzati (1529—1606). Both write during the 1580s on money. It is here that the question of value and utility crops up in economics and the first attempts are made to overcome the so- called “paradox of value,” which states that utility cannot be the source of value, simply because we see in practice that the most useful objects (air or water) have little value, while a number of superfluities (gold and diamonds) actually bear a high value.
That is indeed a sophism, as many authors in Italy undertook to prove (notably Galiani). The Italians are basically supporters of metallism, i.e. the idea that the value of money depends on the value of the precious metal of which it is made. The Italians are also in the limelight in introducing the idea of what would (much later) be called the “quantity theory of money,” in the form of a relationship between the quantity of money and the price level. During the mercantilist era the quantity theory was sometimes taken as a theory of prices, as just said, but it was also interpreted as a theory of the level of income. Other important authors in Italy developed the mathematical side of monetary theory: an outstanding example is given by Geminiano Montanari (1633—87).Mercantilism is not, in itself, a typical Italian phenomenon. Nevertheless a mercantilist culture and a number of first rate intellectual contributions of a mercantilist character were offered by the Italians. Probably the best representatives in that sense are Antonio Serra — who in 1613 contributed a Breve Trattato or Short Treatise; the title of which draws attention to “the causes that can make kingdoms abound in gold and silver even in the absence of mines” — and Giovanni Botero (1544—1617). These two authors develop a fully fledged theory of development and of the wealth and poverty of nations. Botero also treats extensively the topic of population. They also criticize bullionism, i.e. the quasi-identification of wealth with gold.
Italian Enlightenment
The Italian Enlightenment is of one of the great intellectual achievements of Europe's siecle des lumieres. It is also the greatest contribution of Italian culture to the development of a common European tradition of civil rights and enlightened governance. It shares with the French Enlightenment an interest in rational governance and with the Scottish Enlightenment a special focus on civil society. However, it is different from both of them in its attention to the interplay between legislation and moral sentiments, civic culture and economic development, fiscal technique, and social structure.
“The honors of the field” — Schumpeter wrote — “of pre-Smithian system production should go to the eighteenth-century Italians.” “In intent, scope and plan” — Schumpeter perceptively added — “their works were in the tradition of... systems of Political Economy in the sense of welfare economics” (emphasis added). To the Italians “the old scholastic Public Good and the specifically utilitarian Happiness” came together “in their concept of welfare felicita pubblica).” As noted by one of its greatest historians, Franco Venturi, the tension between utopia and reform is central to the Italian Enlightenment and explains most of its achievements. Echoing Antonio Genovesi’s main title, we may add that the Italian Enlightenment is to a very considerable extent a civil enlightenment in the sense that it takes sociability as its starting point. At the same time the Italian Enlightenment is pragmatic and a large number of its contributions have to do with administrative and economic arrangements of a self-governing polity, and economics, justice, and legislation are addressed together both by the Milanese and by the Neapolitans, i.e. the two main branches of the economic school.
Among the many economists of the period we may single out, as the key figures of the Italian civil Enlightenment among the Milanese economists, Cesare Beccaria and Pietro Verri together with the Tuscan economist Pompeo Neri. From the Neapolitan school we mention Paolo Mattia Doria, Ferdinando Galiani, Antonio Genovesi, Gaetano Filangieri, and Mario Pagano. There are a number of other contributors in Italy which are not mentioned here, such as the Venetian monk Giammaria Ortes (1713—90). The Italian Enlightenment has recently become a focus of international interest with works for example by scholars such as John Davis, Anthony Pagden, and John Robertson.
Recent contributions (Bruni and Zamagni, 2007; Quadrio Curzio, 2007) argue that the tradition of economic thought in Italy has a characteristic expression in the form of economia civile, which is the result of the combination of three different elements: 1) a conception of the economic order based on civil society rather than based on state authority; 2) a view of the evolution of institutions through continued reform; 3) an emphasis on practical applications or policy issues.
The resulting discipline has showed since the start a tendency to cluster around the following: a) a social and ethical concern, leading to a close analysis of institutions and the relation with extra- economic elements; b) an interest in dynamic economics; c) the adoption of Schumpeter’s idea of history of economic analysis, considering a retrospective understanding of theory as an essential element of economic knowledge. These are the basic characters of the Italian tradition down to the present day.The Neapolitan School
The phrase economia civile means a special approach to the discipline in the language of the intellectual leader of the Neapolitan School, Antonio Genovesi (1713—69). He is the heir of the previous generation of Neapolitan thinkers, Giambattista Vico, Pietro Giannone, and Paolo Mattia Doria, who lived under the spell of Cartesianism and neo-Platonism. Genovesi instead lived in an age of reforms with a strong drive to achieve independence through economic and civil development. Under another angle the scholastic notions of natural law and of bonum commune lay behind Genovesi’s work: Lezioni (1765) is his main work. To Genovesi the idea of well-being is fundamental to explaining the functioning of the civil economy, together with relationships created by informal norms and conventions. This includes reciprocity, mutual friendship, confidence, and trust. Thus the idea of civil economy exhibits continuity with the humanist ideal. In Genovesi’s system there are three levels of agency: the individual, civil society, and the state, whereas in Hobbes, civil society and the state are coincident. This tripartite scheme is reminiscent of Montesquieu’s insistence on the significance of the corps intermediaries: Montesquieu is a large influence on the Italian Enlightenment. Genovesi was convinced that culture, philosophy, and science must serve society and produce felicita pubblica, i.e. public happiness.
Genovesi's lectures (Lezioni, esp.
ch. 10) contend that the desire for relationships with our fellow citizens stems from the natural (or “ontological”) character of human being. Sociality is “an indelible feature of our nature.” Genovesi argues that what is typical of man as an animal species is “reciprocal assistance,” and maintains (ch. 1) that each person has a natural right to reciprocal assistance and a duty to provide it to others. In agreement with the Italian civic tradition, Genovesi understands economic relations, such as market exchange and production, precisely as relations of reciprocal assistance: in an economy, each agent is helping others to satisfy their wants in a way that presupposes reciprocal trust, and is virtuous and rational. His idea of rationality is quite different from the cold cynical idea used in rational-choice theory. The difference is mainly due to an emphasis on we-thinking. Social relations cannot be explained by instrumental rationality, for they are not just means of (or constraints against) pursuing self-interest. For Genovesi, the advantage of society is not only to be found in its production of material goods, but also in the enjoyment of social relationships. Finally, Genovesi puts forward a theory of spontaneous order, which can be summarized thus: 1) human beings naturally look out for their interests; 2) their true interest is happiness; 3) happiness means eudaimonia, full self-realization by means of virtue, i.e. the promotion of the happiness of others. He accepts as a universal law that it is impossible to make our happiness without facilitating the happiness of others; 4) if all people act with a view to happiness, they will be virtuous and public happiness will result.Parallel to Genovesi, though considerably younger, Ferdinando Galiani (1728—87) is the other outstanding economist of the Neapolitan school. His treatise Della Moneta (1751) is one of the Italian glories. A metallist philosophy lies behind Galiani's idea of monetary reform. Galiani's book is famous for the complete solution it gives to the paradox of value (the “water-diamond paradox”).
Together with monetary reform the important issue at the time was laissez-faire and competitive markets, particularly in the case of staple foods (the so-called problem of annona), to which Galiani devotes his second great work Dialogues sur le Commerce des Bleds (Dialogues on the Grain Trade) published in French in 1770. Differently from Genovesi, Galiani was not an academic but a learned intellectual who entered public administration and spent a number of years in Paris as the Secretary to the Embassy of the King of Naples during the 1760s. In the Dialogues, Galiani offers a great example of his dialectical skills and his (perhaps) opportunistic character, by changing sides (with respect to some of his previous treatments), and by producing a scathing attack on the physiocrats with a critique of free trade.Though Galiani is currently described as a forerunner of the marginal utility theory of value, his value analysis was ignored by Adam Smith: the latter decreed that utility was only linked with value-in-use, and had nothing to do with value-in-exchange, which reflected labor commanded. That opened the way to the cost-of-production theory of value and, ultimately, to the labor theory of value espoused by David Ricardo and Karl Marx. Smith's choice thus inspired a line of analysis on value which became dominant through the subsequent period as a hallmark of classicism in economics. It must be stated that the Italians never nurtured any significant sympathy toward the labor theory of value. Even more radically, the very idea that value theory should be pivotal to economic analysis would later come under criticism by the Italians, their serious doubts leading them to pioneer the theory of equilibrium prices and discard any pretense to discover the “causes” of value. Along that critical line, which imbued both the marginalist camp and the classical and Marxian side, we shall find both Pareto and Sraffa, i.e. the top marginalist economist on one side and the best Italian economist close to Marxism on the other. To the present day the two of them, together with Galiani, form the top Italian trio of economists in terms of international reputation.
The Milanese School
The “School of Milan,” as Voltaire called it, was established by Pietro Verri (1728—97). The notion offelicita pubblica, or public happiness, best conveys the meaning and the significance of the contribution of the Milanese School. Their concern was first of all about happiness and the utilitarian language becomes more explicit and richer in Milan. At the same time the public dimension becomes more prominent and intertwined with the practical needs for reform. Economists here are directly involved with the design and practical implementation of the Theresian Reforms in the Milanese territories. The predecessors of the generation of the Verris are Ludovico Antonio Muratori, who had put forward the ideal of public happiness and Pompeo Neri, the Tuscan economist and administrator who had worked on the practical side of the promotion of public happiness with his decisive contribution to the cadastral reform of the 1750s.
Pietro Verri also founded the Accademia dei Pugni (the punching academy, a curious name) and the periodical Il Caffe (the coffee house), a kind of Italian Spectator. Cesare Beccaria (1738—94), by far the best known name of the Italian economic school of the time, was one of his younger associates. Four main themes emerge from Verri's work: 1) money; 2) free trade, especially in staples; 3) pain and pleasure scientifically considered in order to measure happiness and public happiness in particular; 4) quantitative tools to analyse the economy and draw policy conclusions. The Italian School worked in parallel with the physiocratic school, but with a difference. Italian authors took up mercantilist themes — trade, money, public and private finance — in the context of a different agenda in which real growth, based on a concept of real production and income, takes the lead together with an emphasis on creativity in a context of trust and sociality. The competitive drive, not without exception, becomes the symbol of the abolition of privileges and obstacles. Money and trust, thereby sociality, are naturally bound together. At the same time the Italians, while they follow physiocracy on free trade (with qualifications), do not confine positive economic productivity to agriculture only. This is not so much a triumph of common sense against the excesses of rigor typical of the French economists, it is more a special sense of sociality which puts the emphasis on productive relations as a source of creativity.
The main follower of Verri certainly was Cesare Beccaria, by far the best known figure of the Italian Enlightenment, himself among the early Professors of Political Economy worldwide. Curiously he is sometimes not perceived as an economist, but more as a scholar on public law or a moral philosopher of a utilitarian breed. His reputation is almost entirely due to the pamphlet Dei delitti e delle pene (Of Crimes and Punishment) of 1764. In fact, Beccaria, ten years Verri's junior, had made his first significant contributions (published in Il Cafe) as a mathematical economist. He was still in his twenties when he acquired a worldwide reputation and his celebrated pamphlet on crimes and punishment became an explosive success. That is probably by far the best known works of the whole Italian Enlightenment. Beccaria, like Verri, was also a consultant administrator and a member of the Economic Council from 1771 in Milan. Both Beccaria and Verri contributed a number of reports, or Consulte, within the Council giving advice to the government. Beccaria also left a volume of his lectures in Milan at the Scuole Palatine: they were only published as Elementi di Economia Pubblica in Milano in the Custodi Collection in 1804.