Arthur Pigou introduced the iconic two-road model in the first edition of The Economics of Welfare (1920), and it has been thought that this model was intended to demonstrate the need for Pigouvian taxes to mitigate traffic congestion. However, Pigou’s intention was to show that efficient output for industries subject to decreasing returns required a tax on output. Pigou was incorrect, but the two-road model (correctly considered) became the starting point for the analysis of traffic congestion in the 1950s. This paper recounts the doctrinal history of decreasing returns industries and the two-road model.

I read your “…Historiography…” (Blaug 1990) with interest and profit. You were kind to me—probably too kind. But let me explore a point. Let's accept for the sake of the argument that in some instances a “rational reconstruction” can deviate from a “historical reconstruction.” Query: When I attributed to Smith the “canonical classical model” (Samuelson 1978), did I provide your readers with such an instance of deviation? No, I say. And your text does not adduce otherwise. Nor does Hollander's rhetoric (1980) in reaction to me. Actually, Hollander said: Yes, that model is in Smith but one has to work hard not to overlook it (particularly because its pieces are in scattered and unlikely places).

Richard Posner’s “What Do Judges and Justices Maximize?” (1993b) is not, as usually believed, the first analysis of judges’ behaviors made by using the assumption that judges are rational and maximize a utility function. That analysis arrived at the end of a rather long process. This paper recounts the history of this process, from the “birth” of law and economics in the 1960s to 1993. We show that economic analyses of judges’ behavior were introduced in the early 1970s under the pen of Posner. At that time, rationality was not modeled in terms of utility maximization. Utility maximization came later. We also show that rationality and incentives were introduced to explain the efficiency of common law. Around this theme, a controversy took place that led Posner and other economists to postpone their analysis of judicial behavior until the 1990s. By then, the situation had changed. New and conclusive evidence of judges’ utility maximizing behavior demanded a general theory to be expressed. In addition, the context was favorable to Chicago economists. It was time for Posner to publish his article.

In this paper, we build on data on officials of the Federal Reserve System, oral history repositories, and hitherto underresearched archival sources to unpack the tortuous path toward crafting an institutional and intellectual space for postwar economic analysis within the Board of Governors of the Federal Reserve System. We show that growing attention to new macroeconomic research was a reaction to both mounting external criticisms against the Fed’s decision-making process and the spread of new macroeconomic theories and econometric techniques. We argue that the rise of the number of PhD economists working at the Fed is a symptom rather than a cause of this transformation. Key to our story are a handful of economists from the Board of Governors’ Division of Research and Statistics (DRS) who did not hold a PhD but envisioned their role as going beyond mere data accumulation and got involved in large-scale macroeconometric model building. We conclude that the divide between PhD and non-PhD economists may not be fully relevant to understand both the shift in the type of economics practiced at the Fed and the uses of this knowledge in the decision-making process. Equally important was the rift between different styles of economic analysis.

Albeit concerned with the biological element in social evolution, Albert B. Wolfe was among the very few economists of the progressive era who openly expressed their concerns about certain implications of eugenic rhetoric for the social science. Specifically, Wolfe questioned the strong hereditary boundaries that more extreme eugenicists suggested about human beings. A careful examination of Wolfe’s writings reveals that his reaction was rooted in the belief that many of the social problems that eugenicists attributed to hereditary limitations were actually imputable to the influence that the social, economic, and physical environment exercised on the individuals.

The economics of education gradually became institutionalized in the period following the Second World War. Human capital theory was the central pillar in this process. Nevertheless, it did not go unchallenged. The first challenges came from within the mainstream itself, but economists affiliated to other paradigms also called human capital theory into question. This applied in particular to the work of the radical economists. The aim of this article is to document this critical episode in the history of ideas in the economics of education. To that end, the nature of the radical economists’ critique is examined and it is shown how it connects to human capital theory.

For Adam Smith, a crime is not the result of a rational calculation of loss and gain but the consequence of envy and a vain desire to parade wealth to attract the approbation of others, combined with a natural systematic bias in overestimating the probability of success. Similarly, Smith does not conceive of legal sanctions as a rational deterrent but as deriving from the feeling of resentment. While the prevailing approach of the eighteenth century is a rational explanation of crime and a utilitarian use of punishment, Adam Smith instead builds his theory of criminal behavior and legal prosecution consistently on the sentiments. A well-functioning legal system is thus an unintended consequence of our desire to bring justice to the individual person, not the result of a rational calculation to promote the public good, just like a well-functioning economic system is the unintended consequence of our desire to better our own condition, not the result of a rational calculation to promote public good.

Ralph G. Hawtrey was not a man of the backwaters. Through the parallel study of Treasury files and Hawtrey’s scholarly publications, this work reveals his direct influence upon the most commanding minds of the Treasury and the Bank of England, the two institutions that, after WWI, shared primary responsibility over the British austerity agenda. After the war, Hawtrey advocated drastic budgetary and monetary rigor in the name of price stabilization. From 1922, Hawtrey admitted the need to decrease the bank rate; yet he remained an adamant supporter of the gold standard, insisting on its maintenance even if it required further monetary revaluation. Hawtrey’s policy prescriptions stemmed directly from his economic model. The “crowding-out argument,” the centrality of credit and of savings, together with the operational priority of technocratic institutions, were essential theoretical underpinnings of Hawtrey’s agenda: implementing the so-called Treasury view.

One of Joan Robinson's favorite sayings was: “As I never learnt mathematics, I have had to think.” A by-product of this characteristic is that her writings abound with striking intuitive propositions, often tossed off as asides from the flow of the main argument. We mention this aspect of Robinson's personality as the introduction to the history of one such aside.

The subject of this essay is best introduced by two statements written many years apart. One is by J. S. Mill:

[Adam Smith] speaks as if labour were intrinsically the most proper measure of value, on the ground that one day's ordinary muscular exertion of one man, may be looked upon as always, to him, the same amount of effort or sacrifice. But this proposition, whether in itself admissible or not, discards the idea of exchange value altogether, substituting a totally different idea, more analogous to value in use. If a day's labour will purchase in America twice as much of ordinary consumable articles as in England, it seems a vain subtlety to insist on saying that labour is of the same value in both countries, and that it is the value of the other things which is different. Labour, in this case, may be correctly said to be twice as valuable, both in the market and to the labourer himself, in America as in England (Mill, 1909, p. 567).

The paper draws on Stephen Siegel (1984) to argue that, while paving the way for constitutionalizing the free market in Lochner v. New York (1905), the reproduction cost method that the Supreme Court established in Smyth v. Ames (1898) as the preferred technique for assessing the value of a business for regulatory purposes also exposed the conventional character of any valuation exercise, against the claims of objectivity made by classical economists and mainstream jurists. The inconsistency between recognizing that “value is not a fact” and the classical laissez-faire philosophy underlying the Court’s jurisprudence did not escape progressive critics, who concluded that government could legitimately fine-tune regulation in order to affect a business’s value and pursue alternative socio-economic goals.

Milton Friedman (1968)—his famous Presidential Address to the American Economic Association—contains an elementary error right at the heart of what is usually supposed to be the paper’s crucial argument. That is the argument to the effect that during an inflation, changing expectations shift the Phillips curve. It is suggested that the fact of this mistake and of its having gone all but unnoticed are points of historical interest. Further reflections, drawing on the arguments of Forder (2014), Macroeconomics and the Phillips Curve Myth, are suggested.

Walter Bagehot is an excellent example of the mid-Victorian polymath. He was a banker, journalist, editor, biographer, literary critic, economist and political analyst. The educated reader of today remembers him as the author of The English Constitution, which, though published in 1867, remains one of the best introductions to the workings of the Westminster political system. Economists, on the other hand, vaguely recall him as the monetary commentator who wrote Lombard Street (1873b) and edited The Economist (1861–1877). Only a few historians of economic thought cite Bagehot for his participation in the English Methodenstreit. He played a significant role in this largely forgotten Victorian debate between the historical and orthodox economists. He was one of the first orthodox economists to respond to the historicist challenge, and, in doing so, he articulated a highly controversial relativist interpretation of the orthodox doctrines. Specifically, in response to the historicist claims that recent evidence gathered from custom-bound societies falsified the orthodox

Scholarly discussions of the eighteenth-century luxury controversy invariably acknowledge the important role of David Hume, usually identifying him as one of the first to have made a strong case against the traditional view that luxury is morally corrupt and inimical to the survival of the state. But, having said this, they tend to treat Hume rather summarily, often focusing exclusively on the 1752 essay “Of Refinement in the Arts” and generally agreeing with one leading commentator that “Hume's arguments are straightforward, and can be dealt with briefly.” On closer examination, however, it appears that Hume's treatment of luxury was more complex in its historical development, and more subtle in its final form, than some have supposed. The first part of the following discussion considers the historical progression of Hume's thinking while the second consists in an analysis of “Refinement,” with particular attention to an important but overlooked distinction between the appropriate moral and political responses to luxury.

The aim of this paper is to analyze the state of the quantity theory in the United States prior to the publication of Irving Fisher’s The Purchasing Power of Money in 1911. We start by presenting the participants in the monetary debate. Next, we analyze the controversies regarding prices, purchasing power of money, and credit, prior to the Gold Standard Act of 1900, in particular the opposing views of Francis Amasa Walker and James Laurence Laughlin. We then go on to study of the restatement of the quantity theory at the beginning of the twentieth century, through the introduction of credit in the analysis and the statistical tests of the exchange equations. Finally, we study the problems and management of the gold standard, focusing on the elasticity of money supply, the characteristics of the gold exchange standard, and the contrast between the fixed price of gold and its fluctuating purchasing power. We show the improvement of the quantity theory and the new issues that emerged from the rich and original American monetary debate, prior to the publication in 1911 of Fisher’s book.

The paper discusses the interpretation of the Great Depression and the policy decision making by four Harvard economists: Lauchlin B. Currie, Jacob Viner, John H. Williams, and Harry D. White. All were eminent scholars in the field of monetary and international economics, and were deeply involved in policy decisions during the New Deal. We will discuss how their Harvard training provided them with a common methodological and analytical perspective, and how this common perspective translated into specific policies when they moved from the academia to public service in the US administration. Their interpretation of the causes of the Great Depression and their policy proposals show the eclectic approach that these four economists had to monetary, fiscal, and economic analysis, and the points of contact with both the US monetarist tradition and the work of John Maynard Keynes. At the same time, this very eclecticism, far from making them part of the monetarist or the Keynesian schools, characterized them as a group of their own: a network of scholars who, by virtue of their studies and the evolution of their professional careers, developed a style of analysis and policy prescriptions that deeply influenced the nature of the New Deal.

The aim of this paper is to explain the process of diversification of normative economics by presenting the work of two authors—Tibor Scitovsky (1910–2002) and Amartya Sen (1933–). While these two authors first contributed to traditional welfare analysis from within, they were subsequently involved in the development of two different, and even opposed, programs: the economics of happiness; and the capability approach. They focused on different concepts of well-being: the “joy” of satisfied consumers for Scitovsky; and the “capabilities” of deprived individuals for Sen. In imposing new theoretical frameworks and applications, as well as new concepts of well-being, which are measureable, the capability approach and the economics of happiness represent two major attempts to renew normative economic analysis.

Harry Dexter White is remembered today as the “other” founding father of the International Monetary Fund (IMF) and the World Bank, almost always as an afterthought as homage is paid to his far more renowned British counterpart, John Maynard Keynes. In the months leading up to and beyond the U.S. entry into World War II, White and Keynes independently drafted plans for a postwar stabilization fund aimed at restoring multilateral trade with convertible currencies. They traded plans in 1942 and then worked jointly on increasingly detailed proposals that led eventually to the creation of the IMF and World Bank. White is also remembered as a man who was accused of being a Soviet spy during the war, who died of a heart attack in 1948 just three days after giving a spirited and emotional public defense of his character before the House Un-American Activities Committee, and whose name was dragged out prominently five years later in an ugly battle between the Eisenhower Administration and former President Truman. Squeezed into the shadows between the luminosity of Keynes and the glaring excesses of McCarthyism, White's reputation has long been in need of a more sober inspection in the light of history.