Law of Lauriston (1907), and P.Harsin, Étude critique sur la bibliographie des oeuvres de John Law (1928). One of his plans was concerned with a land bank that was to issue legal tender paper money up to a certain proportion of the value of land and to receive as deposits for placement money that would otherwise lie idle, so that money would never be either too cheap or too dear. In this he followed the English land-bank projectors who must now be mentioned briefly. The landed gentlemen in the House of Commons were no more, than were and are any other agrarians, able to see why they should not borrow as easily and cheaply as traders or financiers, and they did not take kindly to arguments about the difference between a bill and a mortgage. A land bank that, among other things, might satisfy these longings eventually became a Tory plank when the foundation of the Bank of England was in the offing. At the right time (1693) an intellectual, Hugh Chamberlen, an obstetrician by profession, presented a plan of a land bank where landowners would get loans at 4 per cent and the government would get more money than it had got from the Bank of England. The plan, which failed through lack of financial support, need not detain us. But there were supporters who attempted to supply it with an analytic background. Barbon, as we already know, was one. John Asgill (Several Assertions Proved…1696, republ. in the Hollander series) was another; his tract illustrates the truth, which I try incessantly to emphasize, that the fact that we may be able to see some point in that scheme does not in itself salvage every devious argument that may have been put up for it. But John Briscoe (Discourse on the Late Funds…1694; abstract of it in the same year), who claimed to have been plagiarized by Barbon and Asgill and was himself accused of having plagiarized Chamberlen, did provide some analytic groundwork with respect to which all those accusations are meaningless. Many economists would call him a metallist because he attributes importance to a stock of gold and silver. On reflection it will be realized, however, that a man’s belief in the usefulness of a stock of universally acceptable commodities proves nothing about his views concerning the nature of money. We cannot, and need not, go into the literature pro and con the foundation of the Bank of England. Not uninteresting in other respects, it was, so far as I know, sterile in the one that interests us here. Barbon was more definite than anyone else in renouncing theoretical metal. lism on the ground that ‘money is a value made by law,’ to which the value of its material is not essential. John Law implies rather than states the same thing when emphasizing the virtues of paper money, which consist in its quantity’s being amenable to rational management. Berkeley is, as far as I know, the author of the ticket analogy: ‘Whether the true Idea of Money, as such, be not altogether that of a Ticket or Counter?’ (Querist, no. 23). The only effort at building a theory of money on an antimetallist basis stands to the History of economic analysis 282 credit of Sir James Steuart. But he made so little headway and slipped up so often that the promising beginning was lost in the metallist current. The point is this. The practice of the epoch, especially the practice of the four great clearing and deposit banks, 12 had familiarized economists with the idea of a money of account which was defined by quantities of metal and which existed only as a bookkeeping device for the purpose of facilitating large-scale trade and finance in a world of numberless and ever-changing currency systems. In this sense the money of account also entered monetary theory of the metallist type. Galiani called it moneta ideale or moneta immaginaria, 13 and distinguishes it from moneta reale, which consists of actual pezzi di metallo. Steuart (Principles, Book III) makes the same distinction between ‘money of accompt’ and ‘money-coin,’ but with him this distinction acquired a different meaning. Having previously (Principles, Book I, p. 32 of the edition of 1767) defined money as ‘any commodity which purely in itself is of no material use to man but which acquires such an estimation from his opinion of it as to become the universal measure of what is called value…’—a faulty way of defining a pure numéraire of which he thus may be called the discoverer 14 —he then starts from a money of account, considered as an ‘arbitrary scale’ for measuring values and, unlike the money of account of practice and also of metallist theory, devoid of any commodity connotation. He tries unsuccessfully to find primitive instances of such a unit, 15 and does not succeed in explaining how such a unit can be theoretically constructed and how it might function in practice. But he had the idea and he also saw metallic money in its true light, namely, in the light of a very special case. The economists of that period had before their eyes, as had the scholastics, almost all the forms of bimetallism that it is possible to conceive and hence all the practical problems that are incident to this system. It is the more surprising that so little progress was made with its analysis. In particular, the essential point about the legal ratio of the two metals does not seem to have been noticed: theorists realized, of course, that the metal which this ratio overvalues with respect to the other will tend to drive out the one it undervalues; they had discussed this phenomenon at least from Molina’s time—one may in fact, if one so desires, subsume it under Gresham’s law; but they failed to see that, so long as both metals are in circulation, this mechanism will tend to increase the market value of the one and to decrease the market value of the other and thus tend, within limits, to stabilize the market values of both, which is the most interesting property of bimetallism. Locke, who was monometallist on principle, even argued on general grounds that there should be no legal 12 Of Amsterdam, Hamburg, Genoa, and Venice. 13 If there be any difference between these two phrases, it has escaped me. 14 It will be observed that the use of the word commodity does not make him a metallist. For a commodity that, by definition, is incapable of serving any purpose outside of its monetary function is not a commodity in the relevant sense of metallist theory. 15 He mentions the macute, a unit that is supposed to have been current among West African tribes. Perhaps this was suggested to him by Montesquieu (Esprit des lois, Book XXII, ch. VIII), who was also an antimetallist and used the macute as an instance of a monetary unit that was a signe [of value] purement idéal. But the instance is of doubtful validity. Value and money 283 ratio at all—no more than a legal rate of interest or a legal exchange rate—without observing that in this case the system becomes indeterminate. 16 Beccaria and others are not more satisfactory on this matter. It will be convenient, before going on, to touch briefly upon a number of topics, some of them of great importance in themselves, that cannot be dealt with fully in a history of economic analysis. First, questions of coinage were bound to be eagerly discussed under circumstances in which the state of the currency continued to give trouble. The large literature on technique, principally Italian, contains little that is of interest to us. But we may mention the question of seignorage. The old feudal privilege of kings and princes to coin money and to levy a tax in doing so, often in addition to a fee (brassage as it was sometimes called), was onerous even when it did not lead to frequent recoinage and produced an irresistible popular demand for free coinage. Accordingly, in England seignorage was abolished in 1666, while in other countries the tendency was to reduce it to the cost of coinage. There are two points about this that are relevant to the theory of money. One is that some writers, among them Sir William Petty, maintained that free coinage was essential for gold and silver to fill the function of money: if any charge at all were made for coining, they would no longer be true measures of the value of other things—which looks like a theoretical slip. The other is that the act which introduced free coinage was motivated by a desire to attract gold and silver—the costs to be defrayed by import duties on other commodities—and therefore was a typically ‘mercantilist’ measure. Economists were by no means in love with it and practically the entire free-trade chorus from North to Smith and from Smith to Mill recommended a cost-covering charge as did most continentals, though in the case of the German economists we might be tempted to attribute this to the fact that they were advising poor governments. This naturally leads, secondly, to the discussion of devaluation or debasement (‘raising the coin’). The old arguments, characteristic of strict metallism, that to debase was to defraud continued to be repeated: we find them in a host of writers, including Locke, Justi, and A.Smith. 17 But economists came increasingly to take another and much more interesting view of the matter: they began to attend less to rights and wrongs and more to the effects of debasement upon the economic process. Sporadically, we find considerations of this type even in the sixteenth century, when people discussed whether 16 I know of no clear recognition of this fact until Walras pointed it out, but Galiani recognized it implicitly. For he argued for the legal—though variable—ratio on practical grounds, one of which looks very much like it. A similar claim may be made for Massie. 17 If economists were more given to clear statement than they are, the question what this fraud precisely consists in might well serve as a test for the presence or absence of metallist belief. If the fraud be held to consist in depriving the creditor of part of the metal that is due to him, we behold a metallist. If the fraud be held to materialize only, if, as, and when debasement or devaluation increases the money in circulation and hence decreases the creditor’s potential share in the things that may be bought for money, then we behold a cartalist. The logical justification for this distinction is too obvious to require comment, but it may be well to point out that there is also a prac-tical difference: devaluating governments need not and often do not inject the corresponding amount of money into circulation. They may hold it—wholly or in part—or use it for payments to foreign creditors, and there are other reasons why this access of money need not act upon prices. It even may be used in ways that benefit creditors. In fact, modern experience clearly shows that devaluation and depreciation are different things, and they are universally distinguished by now. History of economic analysis 284 debasement was advantageous or disadvantageous for the public finances. In the second half of the seventeenth and in the eighteenth century, discussion turned to the effects on the foreign trade and on the economic development of a country. Let us take cursory notice of a few beacon lights on this route. First, the English currency (silver monometallism with an increasing actual circulation of gold), having fallen into bad repair in the last decades of the seventeenth century, William III’s Whig government, in which Charles Montague managed financial affairs, carried a bill (1698) according to which the silver coins were to be restored to their old weight and fineness at the public expense, this expense to be covered by a window tax, an operation that was completed by 1699. The debate on the measure is glorified by the name of Locke, who was the literary protagonist on the side of the government, and its interest to us reduces to the light his contribution sheds on the extent of his comprehension of monetary phenomena. Unfortunately, it is a sorry picture that unfolds itself before the eyes of Locke’s reader. It is not only that he mainly worked the fraud line—this is a moral judgment and is his affair, not ours—but he failed to see (a) that recoinage at an average of the actual silver content of the silver coins could not be called debasement or could be called so only with the qualification that the economic situation was already adapted to it, so that in effect he was advocating overvaluation of the coin and undervaluation of the silver contained in it; (b) that in consequence, unless all prices adapted themselves promptly—which was not to be expected and would have, if it had happened, greatly accentuated the prevailing depressive conditions—silver would emigrate, as in fact it did; (c) that the presence of gold coins in actual circulation was at all relevant to the problem. He even went so far as to hold that what he called debasement was futile—in fact impossible—on the ground that an ounce of silver could never be worth more than an ounce of silver! His case and his defense of it was below that of his chief opponent, Lowndes—this is what happens to the man ‘who gives up to party what was meant for mankind.’ It is curious and melancholy to note that both the measure and Locke’s advocacy of it have been eulogized, sometimes in extravagant terms, for more than two centuries. Next we shall note, from the French discussion of the monetary troubles during and after the last wars of Louis XIV, the duel between Melon and Dutot [text breaks off at this point]. 3. DIGRESSION ON VALUE Work in this field also proceeded from the scholastic background. We know that the scholastic doctors had developed the essentials of a realistic analysis of value, cost, and price—including a rudimentary concept of equilibrium—that needed only to be elaborated in content and perfected in technique. To some extent this is exactly what was done during the period under discussion. This work was powerfully propelled by the preoccupation with the problem of the value (purchasing power) of money. The metallist theory, as a theory of money, may not be much good in itself. But it certainly leads the economist who accepts it to inquire more closely into the problem of value in general. We shall therefore not be surprised that a great part of the best work in this field was done by students mainly interested in monetary phenomena. This is why this section stands where it does. We are going to try to bring out, by means of a brief survey of Value and money 285 outstanding performances, the points that are most important for subsequent developments. [(a) The Paradox of Value: Galiani.] The Italians from Davanzati on (Lezione delle moneta, 1588) were the first to realize explicitly how the Paradox of Value—the paradox that many very ‘useful’ commodities such as water have a low exchange value or none at all whereas much less ‘useful’ ones such as diamonds have a high one—can be solved and that it does not bar the way toward a theory of exchange value based upon value in use. The astounding fact that both Smith and Ricardo thought it did is, however, seen in its full significance only if we add that, for the century and a half after Davanzati, a lengthy list of writers might be compiled who understood quite well precisely how the element of utility enters into the process of pricing and that there were several Englishmen among them. John Law, in particular, in the tract quoted above (Money and Trade considered…1705), gave a short but excellent account of the matter—actually using the examples of water and diamonds. However, we shall confine ourselves to the economist who carried this analysis to its eighteenth- century peak, Galiani. 1 Unlike Law, he was so uncompromising a metallist that he felt compelled to inquire into the value of gold and silver considered as commodities and therefore into the value of all commodities. In doing so he displayed sure-footed mastery of analytic pro-cedure and, in particular, neatness in his carefully defined conceptual constructions to a degree that would have rendered superfluous all the nineteenth-century squabbles—and misunderstandings—on the subject of value had the parties to these squabbles first studied his text, 2 Della moneta, 1751 (outlined in the preceding section of this chapter). Having resolutely (first Book, ch. II) defined the term Value to mean a relation of subjective equivalence between a quantity of one commodity and a quantity of another— the objective equivalences on the market are treated as a special case of this, but he did 1 This, of course, involves injustice to his predecessors, to whom, in fact, he was unbelievably unfair himself. For instance, in developing Davanzati’s argument, he writes in a vein of quite unwarranted superiority. Moreover, it must not be forgotten that the theory he developed was really that of the scholastics. It was not only in this matter that Galiani—like other economists—failed to acknowledge indebtedness properly. In his sociology—or, if readers prefer, social philosophy—he leaned heavily on Vico without acknowledging this debt either. See Tagliacozzo, op. cit. pp. xv (the most beautiful page in the whole Vico literature, so far as I know it) et seq., and F.Nicolini (‘Giambattista Vico e Ferdinando Galiani,’ Giornale storico della letteratura italiana, 1918, and the Note to his edition of Galiani’s Della Moneta, 1915; but, being a philosopher, Nicolini is inclined to exaggerate the dependence, which amounted to little, so far as technical theory is concerned). 2 There was another Italian writer on money, Giovanni Ceva (De re nummaria, quoad fieri potuit [!] geometrice tractata…1711), an engineer in Mantua, who did not, so far as I can see, add anything new to the theory of money, but whom no history of economic analysis can afford to pass by because of his insight into the nature of economic theory: real phenomena are always obscure and unmanageably complex; practice is always minus exacta; to understand the principles of things we must hence construct rational models by means of assumptions (petitiones) or else we must always move in the darkest of nights (versari in obscurissima nocte); and the proper way of dealing with these models is by mathematics, a methodology that took two centuries to assert itself. History of economic analysis 286 not work out the transition from subjective to objective values in this sense—so that the phrase Value of a Commodity has no meaning except with reference to a given quantity of another, Galiani answers the question on what this value depends by Utility and Scarcity (utilità e rarità), and proceeds to develop these concepts in much the same way in which I suspect they are explained in many an elementary course today. Utility is not usefulness as understood by the observer—‘useful’ in the economist’s sense is everything that produces pleasure (piacere) or procures welfare (felicità). Fashion, prestige value, and altruistic components are all trotted out in due course. And scarcity is the relation between the existing quantity of a thing and the uses one has for it and explains why a golden calf is valued more highly than a natural calf. To repeat, all that was not original with Galiani. The famous ‘paradox of value,’ which was gravely discussed again in the nineteenth century—the fact that obviously useful things fetch a low price and much less ‘necessary’ ones a high price—had been resolved several times before. But never before, or for more than a century to come, was this theory put forth so completely and with so full a sense of its importance. What separates Galiani from Jevons and Menger is, first, that he lacked the concept of marginal utility—though the concept of relative scarcity comes pretty near it—and, second, that he failed to apply his analysis to the problems of cost and of distribution. The first shortcoming is perhaps a reason why he stops short of a satisfactory theory of price, though he could have got further than he did in spite of it, as Isnard’s later success suffices to show. Even so, however, he left his mark upon the subject. Having indicated how price derives from utility and scarcity, he ran up against the fact that this price, by limiting the quantity of the commodity consumers can procure, reacts in turn upon scarcity as felt by these consumers. It at the same time regulates, and is regulated by, demand (consumo). He knew perfectly how to deal with this phenomenon of interde-pendence. And in the three pages he devotes to the subject he actually discovered the concept of long-run equilibrium and sketched out the profit mechanism that works to bring it about, visualizing a country, hitherto Mohammedan and teetotal, that suddenly embraces Christianity and thereupon develops a demand for wine. There is a Mandeville flavor about these pages that perhaps detracts a little from what otherwise would have to be considered as a remarkable display of originality. But this does not alter the fact that but little care and patience would have been sufficient to evolve from this a much more perfect body of theory than was to be presented by A.Smith. While Galiani thus foreshadowed much later developments (marginal utility), he also anticipated the value theory of the next hundred years (Ricardo and Marx). For, with surprising abruptness, he turns from rarità, by way of quantity of commodities, to labor (fatica) and forthwith enthrones it as the only factor of production and the only circumstance che dá valore alla cosa. In one sense this spoils his theory of value, but in another it is highly interesting. Fatica means quantity of labor—corrected for the social habits that determine how many days a year and how many hours a day a man actually works and for the differences in natural ability (talenti) which account for the different prices of the fatica of different people—and, with a qualification for the monopoly price of unique things (Venere de’ Medici, for instance), equilibrium value is made proportional to that quantity (temporary fluctuations being duly attended to). But this is in all essentials and in many details the theory of Ricardo and Marx, and more Value and money 287 satisfactory—if we place ourselves on a Ricardian standpoint—than that of A.Smith. 3 [(b) Bernoulli’s Hypothesis.] But let us bear in mind that it was the ‘subjective’ or ‘utility’ theory of price that had the wind until the influence of the Wealth of Nations—and especially of Ricardo’s Principles—asserted itself. Even after 1776, that theory prevailed on the Continent, and there is an unbroken line of development between Galiani and J.B.Say. Quesnay, Beccaria, Turgot, Verri, Condillac, 4 and many minor lights contributed to establishing it more and more firmly. They all linked price and the mechanism of pricing directly to what they conceived to be the fundamental purpose of economic activity, the satisfaction of wants. They all accepted Cantillon’s definition of richesse, not only as a phrase to be forgotten as soon as stated, or, as in the case of Smith, to be remembered only in order to recommend policies favorable to consumers, but as the starting point of price analysis. Moreover, with all of them, the price phenomenon was rooted in the calculus of pleasure and pain, exactly as it was with Jevons: in this respect they were Benthamites by anticipation, and stronger Benthamites than were to be Bentham’s adherents among English economists. Thus, they were not only the forerunners of the ‘subjectivists’ of the second half of the nineteenth century, but they also sealed that unfortunate alliance between the theory of value and utilitarianism that was to prove so embarrassing a century later. 5 For the moment, however, we shall not go into this any further but instead notice a performance that, besides presenting a number of other points of interest, anticipated the theory of marginal utility still more definitely. In a paper 6 written in 1730 or 1731, Daniel Bernoulli, the eminent scientist whom we have already had occasion to mention, suggested the hypothesis that the economic significance to an individual of an additional dollar is inversely proportional to the number of dollars he already has. Referring this to income rather than, as Bernoulli did, to the monetary value of the total net assets of an individual, we readily identify this additional dollar with what, in the terminology of a later epoch, was to be the marginal dollar, and its significance with what, in the same terminology, was to be its marginal utility, the statistical measurement of which has been attempted by Fisher and Frisch 3 Quantity of labor in turn is, in one place, equated to the expense of the laborer’s subsistence (spesa del nutrimento). Though not Ricardian in form, this passage can be interpreted in a Ricardian sense. But it rather harks back to Cantillon. 4 Le Commerce et le gouvernement (1776), see above, chs. 2 and 3. 5 See below, Part III, ch. 3, sec. 1a. 6 ‘Specimen theoriae novae de mensura sortis,’ publ. 1738 in the Commentarii academiae scientiarum imperialis Petropolitanae. The German translation by Professor Alfred Pringsheim (Die Grundlage der modernen Wertlehre: Daniel Bernoulli… 1896) contains instructive notes by the translator as well as a very useful introduction by Ludwig Fick. It is, however, highly characteristic of the haziness of our knowledge of doctrinal developments that Mr. Fick not only hailed Bernoulli as a precursor of Gossen, Jevons, Menger, and Walras, but also as one of the first, if not the first, to recognize that value is not an inherent property of things but a relation between a valuating person and the things valued—though this was perfectly clear to the scholastic doctors and, in any case, to dozens of eighteenth-century writers who did not know of Bernoulli’s paper. History of economic analysis 288 in our own time. 7 No less interesting are the applications to business practice that Bernoulli made of his hypothesis (op. cit. 15, 16). The underlying idea is that even where the probabilities of gains and losses are strictly calculable—as are, for instance, the chances of loss in sea transport if long experience affords sufficient material—rational action is not determined by the value of these probabilities alone. It is also necessary to take into account the importance to the individual businessman of given gains and losses, which differs of course according to the individual’s means, and Bernoulli’s hypothesis supplies a method for effecting this. Thus he deduces a criterion by which to decide whether or not it is advantageous for a man to pay a given sum for insuring his cargo, and also a rule by which to evaluate the advantage to be derived from transporting a given quantity of wares in several ships, or from investment of a given sum in several securities instead of in one—important suggestions for a theory of business risks and of investment that even now are not fully exploited. And there may be point in recalling a sentence from Bernoulli’s text (op. cit. 17): ‘Precisely because these results agree so well with observed business behavior, it does not seem right to neglect them like unproven statements that are based on insecure hypotheses.’ I lament the impossibility of 7 This will be particularly clear on exact formulation. Let x denote an individual’s income and y the ‘satisfaction’ derived from it. Bernoulli’s hypothesis then says that the factor of proportionality (K), being a constant for every individual, but different for different individuals—the range of variation in the individual K’s taking account of individual differences of tastes or intensities of feeling (Bernoulli seems to have attributed the same K to all individuals excepting uninteresting abnormalities, but never mind)—dy/dx is obviously the marginal or final degree of utility, which therefore put in explicit appearance in 1738. As stated by Bernoulli, his fundamental idea was anticipated (1728) by the mathematician Cramer, who offered, however, a different hypothesis about the form of the marginal utility function, viz., but Bernoulli’s hypothesis is, within moderate intervals, quite reasonable though it fails to make use of all we know, or think we know, about the behavior of this function (see below, Part IV, ch. 7). Since even believers in the measurability of utility or satisfaction will not think it safe to say anything about its behavior in desperate situations, for instance, for in comes below which the individual cannot survive, we had better exclude such a ‘minimum of existence’ from consideration. If we call it a, total satisfaction derived from an income of the amount b may then be represented by the definite integral Value and money 289 discussing other points 8 about this paper that are of absorbing interest to the student of the ways of the human mind and of the mechanism of scientific progress. [(c) The Theory of the Mechanism of Pricing.] As regards the theory of the mechanism of pricing, there is very little to report before the middle of the eighteenth century. The contributions of even the brightest lights, such as Barbon, Petty, Locke, do not amount to much, and the vast majority of the Consultant Administrators and Pamphleteers of the seventeenth century were content with the kind of theory they found or could have found in Pufendorf. They attended to practical problems of regulative policy, but the analytic side they took largely for granted and were slow to realize the need of rigorous conceptualization and proof. A few examples will illustrate the situation. People were quite familiar with the pattern of monopoly, on which they bestowed an impulsive hatred, and with competition, which they conceived to be the normal pattern without bothering to define it. But as early as 1516, it occurred to Sir Thomas More (Utopia, see ch. 3 above) that for competition to prevail it is not necessarily sufficient that a commodity be sold by more than one seller. Prices may fail to fall to the competitive level also if sellers are few, quod…si monopolium appellari 8 Brief allusion to two of them may be permissible, however. The first is that it remained practically unknown to economists until it was noticed by some who had arrived by themselves at the same or similar ideas. Fick mentions Hermann (1832), F.A.Lange, Die Arbeiterfrage…(1865), and especially Jevons, and I have no names to add. This neglect is remarkable owing to Laplace’s sponsorship of the Bernoulli formula in his Théorie analytique des probabilités (1812), which was of course widely known. The second fact is that Bernoulli’s attempt to solve the paradox of the St. Petersburg game is not among the many valuable contributions of his paper, although it was the primary object of it. The problem is this. A coin is to be tossed n times. X promises Y to pay $1 if heads turns up on the first throw; $2 if heads, having failed to turn up the first time, turns up the second time; $4 if heads, having failed to turn up the first two times, turns up the third time, and so on. The series of Y’s possible gains is hence 1, 2, 2 2 , 2 3 ,…2 n−1 . We derive his mathematical expectation of gain by multiplying each of the possible gains by its probability, that is, if the coin be perfect, ½, ¼, ⅛, and so on. It is seen that this multiplication reduces each item to ½ so that, summing up, we get for Y’s total mathematical expectation n/2, and if n is allowed to increase beyond any assigned limit, an expectation greater than any sum we care to mention. Nevertheless, it is the fact that nobody will pay X any considerable sum for it, as the reader can easily find out for himself. Why? Bernoulli thought that all we need to do in order to answer this question is to correct the possible gains by applying his hypothesis to them, which would in fact produce a finite ‘moral’ expectation in the place of the ‘infinite’ mathematical one. But this procedure, though not in itself meaningless, does not solve the problem. Neither do, for that matter, the points made by Professor Pringsheim in a footnote to his translation, although they, too, are by no means irrelevant. We cannot go further in this subject. But the reader would be much mistaken if he thought that it is without interest to the economist. The theory of games of chance is on the contrary highly important for many problems of economic logic. If proof were needed, a recent book by Professors Morgenstern and von Neumann would supply it (Theory of Games and Economic Behavior, 1944). And the first pointer in this direction still stands in Bernoulli’s name. In economics it may take 206 years from a first step to the second—just about the same length of time as in the case of the statistical demand curve. History of economic analysis 290 non potest…certe oligopolium est. 9 Thus More introduced the concept of oligopoly. We might expect that this hint would have led to closer analysis of the concepts of monopoly and competition, especially in England, where the interminable discussion of monopolies of various types and of restraints of trade of all types—both the restraints that competitors agree on in order to further their common interest, and the restraints monopolists impose upon other people—that preceded and again followed the Statute of Monopolies of 1623/4, furnished all the motive and material one can desire. But there was hardly anything of the kind. Politicians, lawyers, and some businessmen fought ‘monopolies’ passionately, much as they do today—particularly those of the chartered trading companies—and the attacked interests defended themselves as best they could, also much as they do today. Intellectually, both sides made a poor show, once more much as they do today. Though practical results were achieved and though the historian of economic thought and policy finds plenty to record, 10 the historian of economic analysis goes from that literature almost empty-handed. Not to neglect any crumbs, however, let us notice, first, the tendency to extend the concept of monopoly beyond the case of a single seller 11 and, second, the rudiments of the argument that monopoly while striving to maximize profits—as we should say—changes the conditions with reference to which this maximization is attempted and so need not necessarily set a higher price than would prevail under competition working under different conditions. 12 We may also mention again Becher’s attempt to classify—illogically—market patterns into monopolium, propolium, and polypolium, that is, monopoly, forestalling, and unregulated 9 I am indebted to Mr. E.Marz for having drawn my attention to this passage. The fact is curious. Sir Thomas did not only use—and so far as I know coin—the term (oligopoly) that plays so great a role in modern theory, but he used it in order to denote exactly the same thing, and he at once pointed to a feature of it that modern theory was to emphasize—after a lag of about 410 years. Yet the thought is no doubt suggestive and important. And the Utopia was very widely read. It is true, however, that this passage does not occur in the English translation of the Latin original. 10 The reader is referred to Professor Heckscher’s Mercantilism I, pp. 269 et seq., for a masterly interpretation of that struggle for ‘free trade’ in the seventeenth-century sense. If he follows this advice, he cannot fail to be impressed by the distressing observation that popular and political discussion of this matter—as of others—shows practically no progress at all. 11 See Heckscher, op. cit. pp. 273–4, especially the argument of Sir Edwin Sandys (an ardent trust- buster) put forth in the House of Commons debate in 1604, to the effect that the ‘name of monopoly…is fitly extended to all improportionable paucity of sellers… If ten men had the only sale of all the horses in England, this were a monopoly.’ Viewed as an analytic effort, this is of course somewhat short of admirable. But it is clear that there is something in what Sir Edwin unsuccessfully strove to express. 12 Other arguments used for defense turned either on denials of the presence of monopoly—mostly quite true if monopoly be defined strictly, but inconclusive precisely because of this—or on the assertion that in certain cases—especially those of trade with uncivilized countries where protection was an important consideration—monopolistic organization was a practical necessity, or on other points that, whatever their practical weight may have been, are of no interest from the standpoint of analytic technique. One of the best, if not the best, expositions of ‘defensive’ arguments I have come across is John Wheeler’s A Treatise of Commerce. Wherein are showed the Commodities arising by a well ordered and ruled trade…(1601). This was no doubt ‘special pleading’ on behalf of the Merchant Adventurers, of which company Wheeler was an attorney. But there is, from our standpoint, no reason for ruling it out on that account. Value and money 291 . briefly upon a number of topics, some of them of great importance in themselves, that cannot be dealt with fully in a history of economic analysis. First, questions of coinage were bound to. see, add anything new to the theory of money, but whom no history of economic analysis can afford to pass by because of his insight into the nature of economic theory: real phenomena are always. are of absorbing interest to the student of the ways of the human mind and of the mechanism of scientific progress. [(c) The Theory of the Mechanism of Pricing.] As regards the theory of the