A Journey with the Catallactists John Creedy

1. A Journey with the CatallactistsJohn Creedy

2. Richard Whately The name I should have preferred as the most descriptive, and on the whole least objectionable, is that of CATALLACTICS, or the “Science of Exchanges”.

3. New Palgrave entry on ‘Marginal Revolution’ • From conclusions: • … picking out a single theoretical or methodological innovation that explains why the marginal revolution was apparently so important has proved difficult. • The reason may be that … these changes owed as much, if not more, to deeper changes in the social, political and intellectual context in which economists were working as to any specific innovation in economic theory.

4. The ‘true’ nature … • Shift of focus to exchange as central problem • Marked the birth of welfare economics • (‘utility maximising’ approach gives meaning to being ‘better off’)

5. Hicks • The construction of a powerful economic theory, based on exchange, instead of production and distribution, had always been a possibility. The novelty in the work of the great catallactists is just that they achieved it.

6. Schumpeter They realised the central position of exchange value … is but a special form of a universal coefficient of transformation on the derivation of which pivots the whole logic of economic phenomena

7. Edgeworth • ‘It may be said that in pure economics there is only one theorem, but that it is a very difficult one, the theory of bargain in a wide sense’ • … the Theory of Exchange … constitutes the ‘kernel’ of most of the chief problems of economics.

8. Furthermore … • Although early writers appeared to be using different models, they are fundamentally the same, with simple connections. • Applies particularly to Jevons and Walras • The clearest analysis of aggregate utility, and gains from trade, has been subject to most unfair criticism • Non-utility exchange models produced (in international trade context) before utility maximisation was added

9. My path … • Late 1970s: asked to write chapter on Edgeworth for book on Pioneers. • Late 1980: asked to write chapter on Marshall and international trade for Principles centennial volume [trade work dates from early-mid 1870s] • Led to work on Mill (1829/1848) and Whewell (1850), and Cournot (1838) • Routes taken independently by Walras (1874) and Jevons (1863/1871) • Obtained copy of Launhardt (1885) … light on Wicksell (1893)

10. The contributions …

11. Essential ingredients of exchange model • First recognized by J.S. Mill in his ‘great chapter’ on international trade • 1. Concept of demand as a function of relative price • 2. Concept of reciprocal demand and supply:

12. All trade is in reality barter, money being a mere instrument for exchanging things J.S. Mill

13. A’s offer of X for Y [My curves] … were set to a definite tune, that called by Mill. y B’s offer of Y for X x O

14. Whewell in Diagrammatic form Relative Price px/py A’s Supply B’s Supply A’s Demand B’s Demand Quantity of X Quantity of Y

15. Cournot’s model (single good)Marshall/Cunynghame diagram Price Excess Supply Supply Supply Demand Demand Excess Demand Region B Region A quantity quantity

16. Extending Cournot’s Model to More Goods … It would be necessary to consider each of these nations as acting simultaneously the part of an importing nation and that of an exporting nation, which would greatly complicate the question and lead to a complex result.

17. Walras I rationally derived from the demand curve of each commodity the supply curve of the other and demonstrated how current equilibrium results from the intersection of the supply and demand curves

18. One of Walras’s diagrams

19. Launhardt

20. Wicksell

21. Return … to Jevons (1863/1871)

22. The ratio of exchange of any two commodities will be the reciprocal of the ratio of the final degrees of utility of the quantities of commodity available for consumption after the exchange is complete.

23. Focus on equilibrium • ‘The last increments in an act of exchange must be exchanged in the same ratio as the whole quantities exchanged’ • The ‘Law of Indifference’ • This gives:

24. Walras • Walras obtained, from Paul Piccard, the equivalent of Jevons’s equations of exchange • But, having produced a non-utility analysis of exchange, he took a different turning point at a crucial stage.

25. The equations of exchange B’s Demand for X as function of p A’s Supply of X as function of p Eliminate y in expressions for marginal utility, using reciprocal demand and supply relation:

26. All the diagrams can be derived geometrically using Edgeworth’s box diagram • And much more … ‘Mechanique sociale’ may one day take her place along with ‘Mechanique Celeste’, throned each upon the double-sided height of one maximum principle

28. John R Hicks While the classics looked at the economics system primarily from the production angle, the catallactists looked at it primarily from the side of exchange.

29. Hicks It was possible, they found, to construct a “vision” of economic life out of the theory of exchange, as the classics had done out of the social product. It was quite a different vision.’

30. Welfare economics was captured by the catallactists and it has never got quite free.

31. The Market for Good X Relative Price px/py A’s Supply Unstable Stable B’s Demand Quantity of X

32. The Market for Good X Relative Price px/py A’s Supply Two Equilibria Stable from above Unstable from below B’s Demand Quantity of X

33. A’s offer of X for Y y Unstable from above Stable from below B’s offer of Y for X x O