History of Economic Thought

These guided readings trace the development of the theories of value (prices of commodities) and distribution (incomes and wealth) and their relation to the arguments for and against laissez-faire.

The readings will be organized as:

• Adam Smith sets the agenda for economics

• The transition from Classical Economics to the Marginalist Revolution of the 1870’s (Neo-classical Economics)

• Austrian Economics and Market Socialism

• The transition from Neo-Classical Economics to the Incentive Revolution of the 1970’s.




• Adam Smith sets the agenda for economics

As background for Smith, a brief review of:




– Theory of Moral Sentiments

– Lectures on Jurisprudence

– Wealth of Nations

• The transition from Classical Economics to the Marginalist Revolution of the 1870’s (Neo-classical Economics)

– Classical Economics

∗ Malthus
∗ Ricardo
∗ Mill

– Pre-cursors of the Marginalist Revolution

∗ Bentham
∗ Gossen
∗ Cournot
∗ Dupuit

– Marginalist Revolution

∗ Jevons
∗ Menger (Austrian School) → Weiser, Bohm-Bawerk
∗ Walras (General Equilibrium) → Pareto

Marginal Productivity: Wicksteed, Clark, Edgeworth

Cambridge School: Sidgwick, Marshall, Pigou

• Austrian Economics and Market Socialism

– Austrian

∗ Mises, Hayek

– Market Socialists

∗ Lange, Lerner


• The transition from Neo-Classical Economics to the Incentive Revolution of the

– Game Theory and Modern Duality

∗ von Neumann

– Incentives

∗ Nash
∗ Vickrey, Hurwicz, Spence, Rothschild-Stiglitz, Alchian-Demsetz, etc., etc.


(∗ indicates especially relevant reading.)

I. The Founding Statement

*Smith, A., Theory of Moral Sentiments, 1759, (Prometheus Books, 2000).
*Smith, A. Wealth of Nations, 1776, (Modern Library, ed. E. Cannan. (1937)) Schumpeter, J., History of Economic Analysis, Oxford University Press, 1954,
Viner, J., “Adam Smith and Laissez-faire,” Journal of Political Economy, 1927, 35,
Rosenberg, N. “The Institutional Aspects of the Wealth of Nations”, Journal of

Political Economy, 1960, 68, 557–570.

Hayek, F., “Dr. Bernard Mandeville” and “Adam Smith’s Message in Today’s
Language,” in New Studies in Philosophy, Politics, …, Chicago, 1978.
Fleischacker, S., On Adam Smith’s Wealth of Nations, Princeton University Press,
Phillipson, N., Adam Smith: An Englightened Life, Yale University Press, 2010.

II. Classical Economics

*O’Brien, D.P., The Classical Economists, Chs. 1-5 and 8.
Spiegel, H., The Growth of Economic Thought, 3rd ed., Duke University Press, 1991, chps. 14-16.
Knight, Frank, “The Ricardian Theory of Production and Distribution,” Canadian Journal of Economics and Political Science, Feb. and May 1935. Reprinted in Knight’s On the History and Method of Economics.
Schumpeter, J.A., History, 575-604, 645-87.
Stigler, G.J., “Ricardian Theory of Value and Distribution,” Journal of Political

Economy, June 1952. Reprinted in Stigler’s Essays in History of Economics.

Cannan, E., A History of the Theories of Production and Distribution from 1776 to

1848, 3rd ed., 1917. (Kelley Reprint, 1967.)

III. Founders of the Marginalist Revolution


*Jevons, William S., The Theory of Political Economy (including preface to the second ed. and reprint of article read before the British Association in 1862).
Marshall, Alfred M., “Mr. Jevons’ Theory of Political Economy,” in Memorials of
Alfred Marshall, 93-100, A.C. Pigou (ed.)
Marshall, Alfred M., Appendix I, in Principles of Economics, 8th ed.
Keynes, .J M., “William Stanley Jevons,” Journal of the Royal Statistical Society,
1936, pp. 516-48. Reprinted in Keynes, Essays in Biography (1951), and in The
Development of Economic Thought, H.W. Spiegel (ed.) Schumpeter, Joseph A., History of Economic Analysis, 909-20.
Schabas, M., A World Ruled by Number: William Stanley Jevons and the Rise of

Mathematical Economics, Princeton University Press, 1990. Mitchell, Wesley C., Types of Economic Theory, Vol. II, 1-85. Blaug, Mark, Economic Theory in Retrospect, 4th ed., Ch. 8.

Ekelund, Robert B., and R. F. Herbert, A History of Economic Theory and Method, Ch. 10.
Roll, Eric, History of Economic Thought, 404-25.


*Menger, Carl, Principles of Economics, trans. by Dingwall and Hoselitz, including
Introduction by Hayek. Ekelund and Herbert, Ch. 11.
Stigler, G.J., “The Economics of Carl Menger,” Journal of Political Economy, Spring 1937. Reprinted as Ch. 6 in Stigler’s Production and Distribution Theories and in Essays in Economic Thought, J. Spengler and W. Allen (eds.)
Schumpeter, J. A., “Carl Menger,” in Ten Great Economists, 80-90.
Streissler, Erich, “To What Extent was the Austrian School Marginalist?,” in The
Marginal Revolution in Economics, R.D. Collison Black, et al. (eds.)


*Walras, Leon, Elements of Pure Economics, trans. by William Jaffe. Blaug, Mark, Ch. 13, 521-35.
Ekelund and Herbert, Ch. 12, 307-30.
Hicks, J.R., “Leon Walras”, Econometrica, Vol. 2, 338-48. Schumpeter, J.A., History, 998-1026.
Kolm, Serge-Christophe, “Leon Walras’ Correspondence …,” American Economic

Review, Dec. 1968, 1330-41.

Walker, Donald A., “Leon Walras in Light of …,” Journal of Political Economy, July-Aug. 1970.
Jaffe, W., “Leon Walras’ Role …,” in The Marginal Revolution in Economics.
Jaffe, W., “Menger, Jevons and Walras De-Homogenized,” Economic Inquiry, Dec.
Jaffe, W., “Walras’ Economics as Others See It,” Journal of Economic Literature, June 1980, 528-49.
Ingrao, B. and G. Israel, The Invisible Hand: Economic Equilibrium in the History of Science, MIT Press, 1990.
(Jaffe’s writings on Walras are found in William Jaffe’s Essays on Walras, edited by
Donald A. Walker, Cambridge 1983.)


Hutchinson, T.W., “The Marginal Revolution and the Decline and Falls of English
Classical Political Economy,” History of Political Economy, 4.2 (1972), 442-68.
Stigler, G.J., “The Adoption of Marginal Utility Theory,” History of Political

Economy, same issue as above.

Howey, R. S., The Rise of the Marginal Utility School, Columbia University Press
1960. (Reissued in paperback, 1989.)

IV. Marginal Productivity Theory

*Wicksteed, Philip H., Essay on the Coordination of the Laws of Distribution, 1894.
*CIark, J.B., “Distribution as Determined by a Law of Rent,” Quarterly Journal of

Economics, April 1891.

Blaug, “Marginal Productivity and Factor Prices,” Ch. 11 in Economic Theory in


Stigler, G. J., Production and Distribution Theories, especially Ch. XII.
Wicksteed, Philip H., The Common Sense of Political Economy, especially Ch. IX, Vol I and Chs. V and VI in Vol. II. Also, 705-54 and 772-97.
Henry, J. F., “John Bates Clark and the Marginal Product: An Historical Inquiry
Into the Origins of Value-Free Economic Theory,” History of Political Economy,
15.3 (1983), 375-89.
Wicksell, K., Selected Papers on Economic Theory, E. Lindahl (ed.), 93-130. Edgeworth, F.Y., “Theory of Distribution,” Quarterly Journal of Economics, Feb.
1904. Reprinted in Edgeworth’s Collected Works, Vol. I.
Chapman, S., “The Remuneration of Employers,” Economic Journal, Dec. 1906. Hicks, J., “Marginal Productivity and the Principle of Variation,” Economica, 35,
Feb. 1932, 79-88.
Robinson, J., “Euler’s Theorem and the Problem of Distribution,” Economic Journal, Sept. 1934, 398-414. Reprinted in Readings in Microeconomics, W. Breit and H. Hochman (eds.)

V. Perfect Competition and Its Absence

*Cournot, A., The Mathematical Principles of the Theory of Wealth, 65-82.
*Edgeworth, F.Y., Mathematical Physics, 15-56. Knight, F., Risk, Uncertainty and Profit, 3-290.
Stigler, G.J., “Perfect Competition, Historically Contemplated,” Ch. 8 in Stigler, Essays in the History of Economics.
McNulty, P., “A Note on the History of Perfect Competition,” Journal of Political

Economy, 1967.

Sraffa, P., “The Laws of Returns Under Competitive Conditions,” Economic

Journal, Dec. 1926. Reprinted in AEA Reading in Price Theory.

Robinson, J., “What is Perfect Competition?,” Quarterly Journal of Economics, Nov. 1934. Reprinted in Readings in Microeconomics, W. Breit and H. Hochman (eds.)
Chamberlin, E., The Theory of Monopolistic Competition, 9th ed., pp. 3-10, Chs. IV-VII, and Appendix H.
Triffin, R., Monopolistic Competition and General Equilibrium Theory.
Ekelund, R., and R. Herbert, A History of Economic Theory and Method, Ch. 16. Samuelson, P., “The Monopolistic Competition Revolution,” in Monopolistic

Competition Theory: Studies in Impact, R. Kuenne (ed.)

VI. External Economics in Industry

*Marshall, A., Principles of Economics, 9th ed., 240-90. Stigler, G.J., Production and Distribution Theories, 68-83.
Young, A., “Increasing Returns and Economic Progress,” Economic Journal, 1926. Reprinted in AEA Readings in Welfare Economics, K. Arrow and T. Scitovsky (eds.)
Robertson, D., “Those Empty Boxes,” Economic Journal, 1924. Reprinted in AEA Reading in Price Theory, Stigler and Boulding (eds.)
Viner, J., “Cost Curves and Supply Curves,” Feitschrift fur Nationalokonomie,
1931. Reprinted in AEA Reading in Price Theory.
Ellis, H., and W. Fellner, “External Economies and Diseconomies,” American

Economic Review, 1943. Reprinted in AEA Readings in Price Theory.


VII. External Effects

*Pigou,A., The Economics of Welfare (4th ed.), 131-35, 172-212.
*Scitovsky, T., “Two Concepts of External Economies,” Journal of Political

Economy, Apr. 1954. Reprinted in AEA Readings in Welfare Economics.

Meade, J., “External Economies and Diseconomies in a Competition Situation,”

Economic Journal, Mar. 1952. Reprinted in AEA Readings in Welfare Economics.

Coase, R., “The Problem of Social Cost,” Journal of Law and Economics, Oct.
1960. Reprinted in Readings in Microeconomics, W. Breit and H. Hochman (eds.)
Mishan E., “The Postwar Literature on Externalities: An Interpretative Essay,”

Journal of Economic Literature, Mar. 1971.

Arrow, K., “The Organization of Economic Activity: issues Pertinent to the Choice of Market versus Nonmarket Allocation,” in Joint Economic Committee Analysis and Evaluation of Public Expenditures: The PPB & System, Vol. I, 1969.

VIII. Decreasing Costs

*Dupuit, J., “On the Measurement of the Utility of Public Works,” in AEA Readings in Welfare Economics.
Ekelund, R., and R. Herbert, A History of Economic Theory and Method, 217-20,
236-43, 266-68.
Edgeworth, F., Collected Economic Papers, Vol. I, 61-90.
Edgeworth, F., “A Contribution to the Theory of Railway Rates,” Economic

Journal, 1912.

Pigou, A., Economics of Welfare, Chs. XI and, XlV-XXII. Clark, J. M., Studies in the Economics of Overhead Costs.
Robertson, D., P. Sraffa and G. Shove, “Increasing Returns and the Representative
Firm, A Symposium,” Economic Journal, Mar. 1930, 79-116. Kahn, “Notes on Ideal Output,” Economic Journal, Mar. 1935.

IX. The Marginal Cost Controversy

*Hotelling, H., “The General Welfare in Relation to Problems of Taxation…,”

Econometrica, 1938. Reprinted in AEA Readings in Welfare Economics. Lerner, A., The Economics of Control, Chs. 15-19.

Meade, J., and J. Fleming, “Price and Output Policy of State Enterprise: A Symposium,” Economic Journal, 1944. Reprinted in AEA Readings in Welfare Economics.
Coase, R., “The Marginal Cost Controversy,” Economica, 1946, 169-82.
Henderson, A., “The Pricing of Public Utility Undertakings,” Manchester School of Economics and Social Studies, 1947. Reprinted in AEA Readings in Welfare Economics.
Vickrey, W., “Some Objections to Marginal Cost Pricing,” Journal of Political

Economy, 1948, 218-38.

*Ruggles, N., “The Welfare Basis of the Marginal Cost Pricing Principle,” and “Recent Developments in the Theory of Marginal Cost Pricing,” Review of Economic Studies, 1949-50, 29-46, 107-26.

X. The Socialist Controversy

*von Mises, L., “Economic Calculation in the Socialist Commonwealth,” A. Hayek
(ed.), Collectivist Economic Planning.
Pierson, N.G., “The Problem of Value in the Socialist Society,” in Collectivist

Economic Planning.

Halm, G., “Further Considerations on the Possibility of Adequate Planning in a
Socialist Community,” in Collectivist Economic Planning.
Barone, E., “The Ministry of Production in the Collectivist State,” in Collectivist

Economic Planning.

Dickinson, H. D., “Price Formation in a Socialist Community,” Economic Journal, June 1933.
Taylor, F., “The Guidance of Production in a Socialist State,” American Economic

Review, Mar. 1929. Reprinted in B.E. Lippincott (ed.), On the Economic Theory of


*Hayek, F., “The Nature and History of the Problem,” and “The Present State of the Debate,” Chs. I and V in Collectivist Economic Planning.
*Lange, O., “On the Economic Theory of Socialism,” Review of Economic Studies, Oct. 1937 and Feb. 1937. Reprinted in Lippincott (ed.), On the Economic Theory of Socialism.
Hayek, F., “Socialist Calculation III: The Competitive ‘Solution’,” Economica, May
1940. Reprinted in Hayek, Individualism and Economic Order. Lerner, A., The Economics of Control.
Hoff, Trygve, Economic Calculation in the Socialist Society.
Lavoie, D., “A Critique of the Standard Account of the Socialist Calculation
Debate,” Journal of Libertarian Studies, Winter 1981.
Stiglitz, J., “Market Socialism and Neoclassical Economics,” in Market Socialism: The Current Debate, Oxford University Press, 1993.
Makowski, L. and J. M. Ostroy, “General Equilibrium and Market Socialism,” in

Market Socialism: The Current Debate.