ABSTRACT
There are essentially two views about the development of economic theory. According to the one that nowadays appears to be almost universally accepted, the history of economic theory is a one-way avenue leading from primitive conceptualizations of the demand and supply approach to all sorts of economic phenomena to ever more sophisticated ones, merely leaving behind errors of reasoning and unnecessarily restrictive assumptions. According to the alternative view, the history of our subject is not characterized by a linear development. A theory that once dominated the discussion rather tends to get abandoned for a variety of reasons, some of which are internal to that theory and concern its scope and coherence, while others are external to it and concern its ability to explain the facts. A theory may be replaced by fundamentally different ones: a theory may be “submerged and forgotten” at some stage, as one commentator remarked perceptively; it need not, but may, come back at a later stage, especially when new formulations of the theory succeed in overcoming the difficulties encountered by its earlier versions. In this essay we will attempt to support the discontinuity thesis by considering
an important episode in the history of our subject: the abandonment of the classical approach to the theory of value and distribution for what is now known as the neoclassical approach. More specifically, we shall deal with LéonWalras’s “Exposition and Refutation of the English Theory,” by whichWalras meant the theory of the classical economists, paying special attention to David Ricardo’s contribution, in lessons 38-40 of part 7 of Walras’s Elements of Pure Economics ([1874-77] 1954). To the best of our knowledge these lessons have never received the attention they deserve. Holding an early variant of the Whig point of view, the strategy of Walras’s criticism was obvious. Three objections were leveled at the classical authors: (1) Walras accused them of having committed “fundamental errors”; (2) to the extent to which their argument can be said to have been correct, he took it to cover but special cases of a more general analysis; and, closely related to the second objection, (3) Ricardo and his followers were criticized for failing to develop, and indeed failing to see the very possibility of developing, “a unified general theory to determine the prices of all productive services in the same way” (416).1
Such a unified general theory, Walras contended, had been elaborated by himself by generalizing the principle of “scarcity,” which the classical economists had limited to natural resources, to all goods and factors of production alike.2
