I Themes in Cambridge Economics

Cambridge's Contribution to the Revival of Classical Political Economy

Nuno Ornelas Martins

Introduction

The idea of a revival of political economy has been pervasive throughout the development of Cambridge economics. Thomas Robert Malthus, who was regarded, at least at one point, by John Maynard Keynes (1933 [1972]: 71), as ‘the first of the Cambridge economists’, claimed he was recovering Adam Smith’s approach, against David Ricardo’s development of it which had, according to Malthus, led to a distortion of Smith’s perspective. However, Malthus did not establish a school of thought at Cambridge. This was done by Alfred Marshall, who established the Cambridge Faculty of Economics and Politics in 1903. Like Malthus, Marshall also thought he was recovering the essence of Smith’s thought, and also of classical political economy, so much so that Thorstein Veblen called Marshall’s approach ‘neo-classical’ economics, in order to distinguish it from the ‘Austrian’ approach of other marginalists like Carl Menger.

Marshall believed he was continuing classical political economy not only as developed by Smith but also as continued by Ricardo and John Stuart Mill. It may seem that Marshall was already in contradiction with Malthus, who

For most useful comments on an earlier draft, I am grateful to Geoff Harcourt, Tony Lawson, and Anthony Waterman.

N.O. Martins (*)

Catolica Porto Business School and CEGE, Universidade Catolica Portuguesa, Portugal

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R.A. Cord (ed.), The Palgrave Companion to Cambridge Economics,

DOI 10.1057/978-1-137-41233-1_1

wanted to recover Smith’s analysis against Ricardo’s alleged distortion. But in truth, what happened is that in Marshall’s day, ‘Ricardian’ economics meant something very different from what Ricardo himself thought, so much so that we may say that during Marshall’s life Malthus would have been more of a ‘Ricardian’ than Ricardo himself. The supply and demand analysis that Marshall developed is fully in line with Malthus, and with Malthus’s early criticism of Ricardo’s emphasis on cost of production as the ultimate determinant of value. Malthus, like Marshall later, focused on supply and demand forces as the ultimate determinants of value, unlike Ricardo who focused on cost of production.

However, Marshall’s interpretation of Ricardo was just the standard interpretation that had been developed throughout the nineteenth century in Britain. The difference between Ricardo and the nineteenth-century ‘Ricardians’ was elaborated by Karl Marx, and became again clearer after Piero Sraffa provided his own interpretation of Ricardo, which showed the difference between Ricardo’s study of production and the ‘neo-classical’ supply and demand analysis. In so doing, Sraffa interprets Ricardo in a very different way from Marshall, who in turn had interpreted Ricardo in a very different way from Malthus. Moreover, just as Marshall’s approach generated an important stream of thought in Cambridge, so did Sraffa’s approach, which combined with Keynes’s and Michal Kalecki’s work, led to the emergence of another central stream of economic thought within the Cambridge tradition, namely Post-Keynesianism. This approach gained prominence during the Cambridge controversies in the theory of capital, in which authors like Joan Robinson and Sraffa criticised the marginalist framework, developing the classical theory of value according to their own interpretation of it—see Harcourt (1972, 1976) and Cohen and Harcourt (2003, 2005).

The Marshallian neoclassical approach and the Post-Keynesian approach thus emerge as attempts at a revival of classical political economy. But these two traditions, which are the two key branches of the wider Cambridge economic tradition, are very different. In fact, both advance incompatible and opposing interpretations of classical political economy. But both aim at recovering classical political economy, each in its own way. The revival of classical political economy is thus a recurring theme in the Cambridge tradition, which influenced its two key streams of thought. In this chapter, I intend to address the Cambridge contribution to the revival of classical political economy, a contribution which was most significant not just for the revival of classical political economy but also for the development of the Cambridge economic tradition itself.