Napoleoni's Economic Thought of the Twentieth Century
This book is written as a textbook, with a minimum of flourish, perfectly threading the needle between scope and concision.
Napoleoni truly shines in his discussions of the struggles which dominated 20th century economics up until the consolidation of the Keynesian consensus after World War II. To do so, he is required to reach back into the 19th century on numerous occasions, in particular to construct a suitable understanding of Walras’ equilibrium theory and its derivatives, as well as the concomitant developments of Pareto. Napoleoni lucidly establishes the ramifications of “the Walrasian system” — enabling the concept of a “marginal rate of transformation” and a “marginal rate of substitution” for “the economic system as a whole”, and thereby grounding the essential concepts of a technological equivalence in production and a psychological equivalence in consumption. From here, Napoleoni builds a view of economics that eventually splits into a Keynesian school (then still ‘in power’ at the time of Napoleoni’s writing in 1963) and the neo-Walrasian tendency which reanimates in the wake of the demolition of competitive equilibrium theory by Sraffa and Joan Robinson in the 1930s. This new charge of economic equilibria, spearheaded by John Hicks, J. Von Neumann, and finally Leontief, finally admits an idea of growth and change to the equilibrium model that doesn’t come bundled with a fatalist augury like Schumpeter’s theory of development.
This is a perfect example of the utility of Napoleoni’s analysis, perhaps aided by the snappy pace and high-level gloss afforded by such a short book — all of 20th century economics appears as a litany of attempts to establish a rationality, or perhaps even a logic, upon market activity in capitalist society. There is an esoteric reading, then, of the ultimately doomed fate of such endeavors, though at no point does Napoleoni allow himself to take a particular stance. But it’s hard to avoid such an idea, especially in his discussion of formulations of “monopolistic competition” or “oligarchy” as a critique of Marshallian local equilibrium in a particular industry. Napoleoni is definitely interested in the promise of Sraffa’s work, so his pessimism about equilibrium as a possibility is no surprise. The simple recognition provided by Sraffa et al. is that perfect competition does not exist, and neither does perfect monopoly, and thus theories that assume either are effectively useless as description of real conditions. In oligarchic conditions (as defined by Edward Chamberlain, specifically, but also Joan Robinson), a firm in a monopoly position “knows, by definition, what the reactions of the market will be to its actions; that is to say it can tell what quantity it can sell at any particular price”. As a result, “such a market has a structure of its own, independent of the actions of the firm under consideration, a structure which is reflected in a well-defined demand schedule”. Thereby the “conduct of a firm will noticeably affect all the other firms individually” and a firm engaged in traditional economic analysis using cost and demand curves will find these have no referent to economic activity as any singular action by the firm “must take into account the reactions of all the other competing firms” and these firms must likewise plan “on the basis of the actions of the first firm”. Despite the fact that “oligopolistic situations are the most common form of market structure in modern capitalist markets” there is a nearly complete indeterminacy which reigns in the inchoate theories which govern this market configuration, thus raining “doubts as to whether a theory of capitalist markets is possible” at all.
Finally, Napoleoni deals heavily with theories of stagnation. Interestingly, and obviously as a product of his own Keynesian context, Napoleoni treats stagnation as essentially analogous to theories of crisis, including that of Marx’s tendency of the rate of profit to fall, which Napoleoni dismisses out of hand (!), along with the stationary state of Ricardo (in which a capitalism hamstrung by dependence on the strict marginal rate of profit on land would disappear under the rule of decreasing returns and only rent and wages would be returned socially, thereby removing inducement to invest) and the languid technological utopia of Mill. He then addresses both Keynesian theories of stagnation and the Schumpeterian.
The Keynesian theory is developed primarily by Alvin Hansen, and essentially indicates a condition in which there is a “tendency to grow more slowly than the increase in the labor force would allow” due to multiple factors: firstly, “the U.S. economy has now completely exploited its own territory” and in general "(in the 60s!) capitalism “has already reached its geographical boundaries”; secondly, technological progress, however fast, is slow to be employed in production due to the fact that its installation usually requires a loss in the as-yet-amortized value contained within existing plant, as well as the fact that monopolies as such do not need to so ruthlessly seek a technological advantage given their market position. For this reason, Keynesian policies enacted permanently seek to aid the “full utilization of available resources” including constant capital plant and means of production, not just labor-intensive unemployment actions, as well as maintaining or pumping effective/aggregate demand. One could argue the fear of stagnation is, in effect, the fearful engine at the heart of all Keynesian positions.
On the other hand, Schumpeter offers an intriguing perspective which, as Napoleoni notes, shares much with Marx and the classics in that he realizes “the crisis of capitalism cannot be resolved within the ambit of capitalism itself” as opposed to Keynesian proposals that the system may be kept alive and shepherded by government intervention. However, Schumpeter’s reasoning for the crisis is bizarre, referred to by him as the “mechanization of the entrepreneurial function”, in which greater and greater computational power, coupled with monopolization’s effect of moving entrepreneurial activity from the realm of inspired individual caprice to the studied activity of groups of managers and analysts, will essentially routinize capitalist activity, depersonalize it, and thereby remove the individual industrial bourgeois from the system as a whole. For Schumpeter, it is solely the activities of the entrepreneurial class, undertaken individually, that animates capitalism as a whole; with the disappearance of these individuals, capitalism as we know it would disappear in favor of an economy with market elements but ultimately planned, similar to Lange’s proposal in his critique of Hayek.