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Growth and economic development
ELSEVIER
Journal of Economic Dynamics and Control 21 (1997) 1259-1262
Book review K. Vela Velupillai Department of Economics, Queen’s Universiry of Belfast, Belfasi BT7 INN, UK
Siro Lombardini, Growth and Economic Development, (Edward Elgar, Cheltenham, Glos., UK; Brookfield, Vermont, USA) ISBN 1 85898 394 0; g49.95
historians and economic theorists can make an interesting and socially valuable journey together, if they will. It would be an investigation into the sadly neglected area of economic change’
‘Economic
Schumpeter:
“The Creative Response in Economic History” Journal of Economic History, Nov. 1947, p. 149
This collection of imaginative essays by the doyen of Italian academic economics, Siro Lombardini, is ‘an interesting and socially valuable journey’ by a supreme economic theorist, who is also a master of the history of economic thought. I cannot easily think of any other economist who can wear the Schumpeterian mantle without the slightest discomfort and, indeed, make its glow illuminate novel paths along the evolutionary journey that the pioneers of our subject initiated and the frontiers seem to be encapsulating. Lombardini’s essays tread as easily among the propositions of our classical predecessors as they do in the company of their new classical descendants. Ricardian propositions on functional income distribution mingle with Lucasian calibration of parameters that characterise such distributions; and, in the same breadth, it is asserted, with impeccable doctrine-historical documentation and analytical rigour that neither provide theories of economic development. For that, Lombardini suggests - he is too civilised in manner to be assertive to the extent of being dogmatic - we must return to Smith and Schumpeter and the case is made with a variety of analytical, doctrine-historical, empirical and computational tools that he wields, occasionally with younger collaborators, with finesse and pedagogical panache. The book is composed of seven chapters of which four are co-authored by Lombardini with his younger colleagues, Enrico Canuto and Francesco Donati. The book, despite its heterogeneous authorship, has a smooth and flowing texture in that the senior author has interlaced it with exemplary background 0165-1889/97/$17.00 0 1997 Elsevier Science B.V. All rights reserved PI1 SO165-1889(97)00047-X
1260
K. Y Velupillai /Journal
ofEconomicDynamics
and Control 21 (1997) 1259-1262
introductions on the basic conceptual, analytical and theoretical building blocks of modern growth theory. Besides, this book is one of the finest primers, at any level, on what, for want of a better phrase, I shall call Schumpeterian dynamic economics. Together with the modern classic by Nelson and Winter, this book could easily provide the basic reading material for an innovative graduate or advanced undergraduate course on growth and development from an evolutionary and computational perspective. The first chapter is an elegantly conceived and exquisitely executed introduction to growth theory which is broader in sweep and deeper in content than anything this reviewer has seen on the genesis of the subject: from Smith to Lucas and Romer and, indeed, even before and somewhat beyond. It is almost the whole sweep of Schumpeter’s magnum opus, History of Economic Analysis, in a microcosm, but updated. Lombardini leads the modern, technically dazzled but conceptually ahistorical, economic theorist of growth and development literally by the hand with vignettes on the mercantilists and the cameralists; on Smith and Ricardo, on Walras and Pareto, and on Hayek and von Neumann. It is a tour deforce on the origins of today’s macrodynamic frontiers and the reader emerges, as this reviewer did, with a refreshed belief in Marshall’s oft neglected, sometimes derided, epitaph: Natura Non Facit Saltum. One feels that the classical preoccupation with growth and development, inspired by the Enlightenment concepts of progress and order, remain the touchstone of dynamic economics - and has always been so. The grafting to these innovative origins the later conceptuaI advances, primarily an evolutionary paradigm, is done with a sympathetic critique of the neoclassical detour which took us away from classical dynamics. It is as a loving parent admonishing a wayward, but intrinsically curious child, that Lombardini uses Smith and Schumpeter to discipline the powerful Walras-Pareto edifice. If the first chapter is an uncompromising exposition of magnijcant dynamics (pace Baumol), the second is almost equally unblemished in probing the limits of the neoclassical closure (preferences, endowments and technology) in providing useful foundations for everything that is economic. Lombardini has no quarrel with the aim; only with its feasibility. Hence, he probes the limits of its feasibility and then guides the perplexed sceptic to some of the possible worlds that lie beyond the frontiers determined by the above triptych. This is a glimpse into the world inhabited by Simon’s boundedly rational agents satisficing their way through entrepreneurial life with procedurally rational mechanisms. In sum, these chapters are an elegant, but rigorous, plea for an amalgam of the visions advocated by Schumpeter and Simon on the foundations built by our classical and neoclassical predecessors. It is not about micro and macro with the former providing the underpinning for the latter. It is, rather, about entrepreneurs and innovation, about evolution and institutions, about adapting and computing, about procedures and policies, and about applying Marshall’s
K. V. Velupillai
/ Journal of Economic Dynamics and Control 21 (1997)
1259-1262
1261
epitaph in endogenising these features on the structures that we have inherited from Smith and Ricardo; from Walras and Pareto. The third chapter is a concise and clear summary of the state of affairs at the analytical frontier of endogenous growth theory. This reviewer has successfully used it as background preparatory reading material for an introductory course on growth theory for advanced undergraduates with felicitous results. Chapter 4 continues, in a more detailed form, the theme of Chapter 3. However, the subtle analytical point, in Chapter 4, is to locate the boundaries where market dysfunctions limit growth processes. The authors introduce the concept of a competitive market equilibrium path (CMEP) and contrast it with the more usual optimal growth path. Given Lombardini’s important research agenda for computational growth models, it might be useful to note that CMEP, mildly reinterpreted, is equivalent to recursive competitive equilibrium paths (RCEP), routinely determined when real business cycle models are empirically implemented. This analogy is, in fact, deeper than may seem from this cursory remark. Exploring and explaining the link would be too much of a detour for the limited scope of this note and must be left for a different exercise. Machlup, many years ago, castigated economists for making a weaselword out of the evocative term, structure. ‘Schumpeterian’ might be said to suffer a similar fate at the hands of economists. Within the compass of just 20 pages, Lombardini (with Donati) redresses this state of affairs with a neat formal characterisation of ‘A Schumpeterian Path of Economic Development’ (Chapter 5). The authors graft Schumpeterian insights on a nine-point stylised set of assumptions to set a growth model in its paces. The originality of this scheme depends almost entirely on the central role given to the variety of ways the authors attempt to weave into the formal model the subtle role played by innovations (and, ultimately, innovating entrepreneurs in a flexible institutional setting) in facilitating growth processes. The repositories and the progenitors of innovations are the key actors in the drama that makes growth become development and, then, evolution: the entrepreneurs. Chapter 6, the longest, technically the most demanding and, ultimately, the most ‘innovative’ part of the book, synthesises the various partial insights, tools and concepts that had been assembled and constructed in the previous chapters. The central conceptual principles that enable economic development to be interpreted and generated become adaptation, selection and evolution in an individual and social setting. The origins of the Marshallian epitaph itself become the centrepiece but Darwin is not the sole driving force; Lamarck is given his due nod. If one may be permitted to pursue the obvious analogies a little further, we have here an exposition of the genotype and the phenotype of economic dynamics. Hence, a natural investigation of the institutions that may foster, or hinder, economic evolution. The message seems to be that theories of growth and development, even if interpreted from an evolutionary point of view,
1262
K. V. Velupillai f Journal of Economic Dynamics
and Control 21 (1997) 1259-1262
remain in Clapham’s proverbial empty boxes, unless given an institutional underpinning. We return, albeit implicitly, to the womb; to the twin enlightenment concepts that we began with, of progress and order, but in a social setting where institutions and agents, richly endowed with dynamic potential and complex structure, are analysed computationally for their evolutionary splendour. They bifurcate and converge from equilibria to exotic and unpredictable trajectories to more desirable equilibria whilst traversing disequilibrium paths of development. The summarising final chapter weaves the threads together and suggests some of the many directions in which Lombardini thinks his ingenious synthesis can and should be developed. I believe I can detect a computational bias in the desirable direction he advocates. But my detection may only emphasise a personal prejudice. This is a book for the connoisseurs, but also for those who aspire to that status.
Journal of Economic Dynamics and Control 21 (1997) 1259-1262
Book review K. Vela Velupillai Department of Economics, Queen’s Universiry of Belfast, Belfasi BT7 INN, UK
Siro Lombardini, Growth and Economic Development, (Edward Elgar, Cheltenham, Glos., UK; Brookfield, Vermont, USA) ISBN 1 85898 394 0; g49.95
historians and economic theorists can make an interesting and socially valuable journey together, if they will. It would be an investigation into the sadly neglected area of economic change’
‘Economic
Schumpeter:
“The Creative Response in Economic History” Journal of Economic History, Nov. 1947, p. 149
This collection of imaginative essays by the doyen of Italian academic economics, Siro Lombardini, is ‘an interesting and socially valuable journey’ by a supreme economic theorist, who is also a master of the history of economic thought. I cannot easily think of any other economist who can wear the Schumpeterian mantle without the slightest discomfort and, indeed, make its glow illuminate novel paths along the evolutionary journey that the pioneers of our subject initiated and the frontiers seem to be encapsulating. Lombardini’s essays tread as easily among the propositions of our classical predecessors as they do in the company of their new classical descendants. Ricardian propositions on functional income distribution mingle with Lucasian calibration of parameters that characterise such distributions; and, in the same breadth, it is asserted, with impeccable doctrine-historical documentation and analytical rigour that neither provide theories of economic development. For that, Lombardini suggests - he is too civilised in manner to be assertive to the extent of being dogmatic - we must return to Smith and Schumpeter and the case is made with a variety of analytical, doctrine-historical, empirical and computational tools that he wields, occasionally with younger collaborators, with finesse and pedagogical panache. The book is composed of seven chapters of which four are co-authored by Lombardini with his younger colleagues, Enrico Canuto and Francesco Donati. The book, despite its heterogeneous authorship, has a smooth and flowing texture in that the senior author has interlaced it with exemplary background 0165-1889/97/$17.00 0 1997 Elsevier Science B.V. All rights reserved PI1 SO165-1889(97)00047-X
1260
K. Y Velupillai /Journal
ofEconomicDynamics
and Control 21 (1997) 1259-1262
introductions on the basic conceptual, analytical and theoretical building blocks of modern growth theory. Besides, this book is one of the finest primers, at any level, on what, for want of a better phrase, I shall call Schumpeterian dynamic economics. Together with the modern classic by Nelson and Winter, this book could easily provide the basic reading material for an innovative graduate or advanced undergraduate course on growth and development from an evolutionary and computational perspective. The first chapter is an elegantly conceived and exquisitely executed introduction to growth theory which is broader in sweep and deeper in content than anything this reviewer has seen on the genesis of the subject: from Smith to Lucas and Romer and, indeed, even before and somewhat beyond. It is almost the whole sweep of Schumpeter’s magnum opus, History of Economic Analysis, in a microcosm, but updated. Lombardini leads the modern, technically dazzled but conceptually ahistorical, economic theorist of growth and development literally by the hand with vignettes on the mercantilists and the cameralists; on Smith and Ricardo, on Walras and Pareto, and on Hayek and von Neumann. It is a tour deforce on the origins of today’s macrodynamic frontiers and the reader emerges, as this reviewer did, with a refreshed belief in Marshall’s oft neglected, sometimes derided, epitaph: Natura Non Facit Saltum. One feels that the classical preoccupation with growth and development, inspired by the Enlightenment concepts of progress and order, remain the touchstone of dynamic economics - and has always been so. The grafting to these innovative origins the later conceptuaI advances, primarily an evolutionary paradigm, is done with a sympathetic critique of the neoclassical detour which took us away from classical dynamics. It is as a loving parent admonishing a wayward, but intrinsically curious child, that Lombardini uses Smith and Schumpeter to discipline the powerful Walras-Pareto edifice. If the first chapter is an uncompromising exposition of magnijcant dynamics (pace Baumol), the second is almost equally unblemished in probing the limits of the neoclassical closure (preferences, endowments and technology) in providing useful foundations for everything that is economic. Lombardini has no quarrel with the aim; only with its feasibility. Hence, he probes the limits of its feasibility and then guides the perplexed sceptic to some of the possible worlds that lie beyond the frontiers determined by the above triptych. This is a glimpse into the world inhabited by Simon’s boundedly rational agents satisficing their way through entrepreneurial life with procedurally rational mechanisms. In sum, these chapters are an elegant, but rigorous, plea for an amalgam of the visions advocated by Schumpeter and Simon on the foundations built by our classical and neoclassical predecessors. It is not about micro and macro with the former providing the underpinning for the latter. It is, rather, about entrepreneurs and innovation, about evolution and institutions, about adapting and computing, about procedures and policies, and about applying Marshall’s
K. V. Velupillai
/ Journal of Economic Dynamics and Control 21 (1997)
1259-1262
1261
epitaph in endogenising these features on the structures that we have inherited from Smith and Ricardo; from Walras and Pareto. The third chapter is a concise and clear summary of the state of affairs at the analytical frontier of endogenous growth theory. This reviewer has successfully used it as background preparatory reading material for an introductory course on growth theory for advanced undergraduates with felicitous results. Chapter 4 continues, in a more detailed form, the theme of Chapter 3. However, the subtle analytical point, in Chapter 4, is to locate the boundaries where market dysfunctions limit growth processes. The authors introduce the concept of a competitive market equilibrium path (CMEP) and contrast it with the more usual optimal growth path. Given Lombardini’s important research agenda for computational growth models, it might be useful to note that CMEP, mildly reinterpreted, is equivalent to recursive competitive equilibrium paths (RCEP), routinely determined when real business cycle models are empirically implemented. This analogy is, in fact, deeper than may seem from this cursory remark. Exploring and explaining the link would be too much of a detour for the limited scope of this note and must be left for a different exercise. Machlup, many years ago, castigated economists for making a weaselword out of the evocative term, structure. ‘Schumpeterian’ might be said to suffer a similar fate at the hands of economists. Within the compass of just 20 pages, Lombardini (with Donati) redresses this state of affairs with a neat formal characterisation of ‘A Schumpeterian Path of Economic Development’ (Chapter 5). The authors graft Schumpeterian insights on a nine-point stylised set of assumptions to set a growth model in its paces. The originality of this scheme depends almost entirely on the central role given to the variety of ways the authors attempt to weave into the formal model the subtle role played by innovations (and, ultimately, innovating entrepreneurs in a flexible institutional setting) in facilitating growth processes. The repositories and the progenitors of innovations are the key actors in the drama that makes growth become development and, then, evolution: the entrepreneurs. Chapter 6, the longest, technically the most demanding and, ultimately, the most ‘innovative’ part of the book, synthesises the various partial insights, tools and concepts that had been assembled and constructed in the previous chapters. The central conceptual principles that enable economic development to be interpreted and generated become adaptation, selection and evolution in an individual and social setting. The origins of the Marshallian epitaph itself become the centrepiece but Darwin is not the sole driving force; Lamarck is given his due nod. If one may be permitted to pursue the obvious analogies a little further, we have here an exposition of the genotype and the phenotype of economic dynamics. Hence, a natural investigation of the institutions that may foster, or hinder, economic evolution. The message seems to be that theories of growth and development, even if interpreted from an evolutionary point of view,
1262
K. V. Velupillai f Journal of Economic Dynamics
and Control 21 (1997) 1259-1262
remain in Clapham’s proverbial empty boxes, unless given an institutional underpinning. We return, albeit implicitly, to the womb; to the twin enlightenment concepts that we began with, of progress and order, but in a social setting where institutions and agents, richly endowed with dynamic potential and complex structure, are analysed computationally for their evolutionary splendour. They bifurcate and converge from equilibria to exotic and unpredictable trajectories to more desirable equilibria whilst traversing disequilibrium paths of development. The summarising final chapter weaves the threads together and suggests some of the many directions in which Lombardini thinks his ingenious synthesis can and should be developed. I believe I can detect a computational bias in the desirable direction he advocates. But my detection may only emphasise a personal prejudice. This is a book for the connoisseurs, but also for those who aspire to that status.