This paper seeks an answer to the following question: By what process did the utility concept in economics evolve from its Benthamite to its modern form? Jeremy Bentham applied his principle of utility to ethical, legal, and constitutional issues, and only after more than a century of adaptation did it become the dominant explanation for consumer choice. The paper identifies fitness for mathematical analysis as the underlying principle of selection for this evolutionary success, exemplified in particular by the mutations of utility between Bentham and W. S. Jevons, and between Jevons and Alfred Marshall.

It has always been a puzzle why nineteenth century political economists were quite so gloomy. Why did they picture economic actors as motivated so single-mindedly by self-interest? Why did they see ahead the negative effects of diminishing returns, especially falling profit rates and rising rent shares, while all around them the evidence was pointing in the other direction? Why did they go on about the stationary state at a time when technical change was everywhere the norm? This gloom was hardly foreshadowed by the eighteenth century founders of political economy—Hume, Smith, and the Physiocrats (although for a contrary view see Robert Heilbroner 1973). It seems to have begun with Malthus and Ricardo, but it remained strong in the marginalist economists as well. Alfred Marshall and his followers rested their case for the necessity of careful marginal allocation of resources, and the intolerability of the costs imposed by trade unions and other rent seekers, on the ground that there were just not enough goods and services to go around. The notion of scarcity legitimized gloom.

All attempts to define American institutionalism, whether in terms of a set of key methodological or theoretical principles or in terms of the contributions of the three generally accepted “founding” figures of Thorstein Veblen, Wesley Mitchell, and John R. Commons, have run into a problem with the apparent disparities within the movement. In terms of the three “founders” there are obvious and quite dramatic differences between the methodologies and theoretical directions of the three men. Veblen is associated with an evolutionary approach, a key distinction between pecuniary institutions and technological or industrial requirements, and a biting critique of orthodox theory and business practices; Mitchell with quantitative methods and detailed research on business cycles, an approach he established at the National Bureau of Economic Research (NBER); Commons with documentary histories, work on labor issues and public utility regulation, and an analytical scheme emphasizing the evolution of legal institutions and processes of dispute resolution. The same problem shows up with more explicit types of definition that often seem to capture only some parts or aspects of the movement and not others, or are so broad as to lack much specific content. Institutionalism easily appears as incoherent, as little more than a set of individual research programs with nothing in common other than a questioning of more orthodox theory and method. Thus, Mark Blaug has stated that institutionalism “was never more than a tenuous inclination to dissent from orthodox economics” (Blaug 1978, p. 712), and George Stigler has claimed that institutionalism had “no positive agenda of research,” “no set of problems or new methods,” nothing but “a stance of hostility to the standard theoretical tradition” (quoted in Kitch 1983, p. 170). This view still finds wide currency— for example Oliver Williamson has recently argued that “unable or unwilling to offer a rival research agenda, the older institutional economics was given over to methodological objections to orthodoxy” (Williamson 1998b, p. 24; see also 1998a).

A central message of Allyn Abbott Young's (1928) seminal paper on increasing returns and economic progress was the seeming tautology that “the division of labor depends in large part upon the division of labor.” From this he deduced that a major source of growth is growth itself. In this fundamental sense growth is endogenous and cumulative. He spoke of the “togetherness” of economic phenomena and doubted that the apparatus of supply and demand and marginal productivity theory could be integrated to give the social picture or explain why growth tends to be self-sustaining rather than self-exhausting.

In 1885 John Kells Ingram published a lengthy article on the history of political economy in the Encyclopaedia Britannica, and in 1888 he republished this same article, with only minor changes, as a book entitled The History of Political Economy. Ingram unashamedly interpreted the historical development of political economy from a Comtean variant of the historicist perspective, and, for this reason, these publications became extremely important for the methodological debate, known as the English Methodenstreit, then raging between the orthodox and historical economists. Although the historicist message dovetailed into Ingram's historical narrative was clearly contentious and polemical, the reviews of both versions of this history from either side of the conceptual divide were overwhelmingly positive. Two exceptions were damning anonymous newspaper reviews in The Scotsman: one in 1885 in response to the Encyclopaedia Britannica article, and another in 1888 in response to the book. It is apparent from an entry made in the diary of John Neville Keynes that the first of these reviews was written by Joseph Shield Nicholson (JNK, July 28, 1885, Add 7834), and since the articles are strikingly similar in tone, substance, and style, and since Nicholson wrote other reviews for The Scotsman, it is safe to assume that the second article was also written by Nicholson. The substance of Nicholson's critique can be reduced to two main accusations: first, that Ingram was neither qualified to write a history of political economy nor competent to comment on the methodological issues then under scrutiny, and second, that Ingram had brazenly plagiarized passages drawn from various German histories of political economy.

In Chapter 2, Book IV, of The Wealth of Nations, Adam Smith assesses the appropriateness of the policy of tariff retaliation or reciprocity. His deliberations are prefaced by a discussion of two rather innocuous cases that turn out to have very little to do with the main topic. In the first case it is advantageous “to lay some burden upon foreign, for the encouragement of domestic industry” (WN, p. 463) when that particular industry is necessary for the defence of the country. Smith's second case refers to the situation when some domestic tax is being imposed on a good produced at home. In this situation Smith believed it reasonable that an equal tax should be imposed on the same good when it was imported (WN, p. 465).

The term “neoclassical economics” was born in 1900; in this paper I am proposing economist-assisted terminasia; by the powers vested in me as president of the History of Economics Society, I hereby declare the term neoclassical economics dead. Let me be clear about what I am sentencing to death—it is not the content of neoclassical economics. As I will discuss below, it is difficult to determine what that content is, and even if I wanted to kill the content, I have no role in determining content. The role of historians of thought is to record, not determine, content. What I am declaring dead is the term.

Frank Steindl poses a surprising question in the title of his 1997 article, “Was Fisher a Practicing Quantity Theorist?” and reaches the conclusion that, “Clearly, with the decade of the Great Depression, Fisher was no longer a practicing quantity theorist” (Steindl 1997, p. 259). Such a change in Fisher's monetary economics would sharply revise the view of Irving Fisher generally prevailing in the history of monetary economics, which is based primarily on The Purchasing Power of Money (Fisher with Brown 1911). Fisher's photograph (along with photographs of Marshall and Wicksell) appears on the cover of The Golden Age of the Quantity Theory (Laidler 1991). As Mark Blaug (1995, p. 3) put it, “isn't Irving Fisher the quintessential quantity theorist if there ever was one [?]” Perhaps the most striking tribute to Fisher in the quantity theory tradition is from Milton Friedman, who, addressing the American Economic Association on the question “Have Monetary Policies Failed?” and having quoted from Fisher's 1910 exchange with J. L. Laughlin, remarked “And now I must cease quoting from Fisher, with whom I am in full agreement, and proceed instead to plagiarize him—albeit with modifications to bring him down to date” (Friedman 1972, p. 12).

Despite its recent re-emergence to analytical importance, the phenomenon of increasing returns remains outside the central core of neoclassical economics. The history of this idea (or set of ideas) might have been quite different if Adam Smith's explanation of the origins of trade had not been replaced by that of David Ricardo. To Adam Smith, mutually beneficial exchange emerges because of specialization, which, in its turn, implies the presence of increasing returns to the size of the exchange nexus. Even in a world of equals, trade offers mutuality of gain. There is no need for participants in the economic nexus to differ one from another. In the Ricardian logic, by contrast, trade presumably emerges because productive resources differ in their capacities to create economic value, at least among separate “goods.” Specialization is a “natural” feature of resource endowments—a feature that is exploited by trade. Comparative advantage ensures the mutuality of gain. But, in this explanation, there is no direct linkage between the size of the exchange network and the degree of specialization that is viable. There is no need to introduce increasing returns. Comparative advantage may be present even if there are constant returns to scale, both for the economy and for its separate productive sectors.

The central theme of this session is the changing relationship between “orthodox” (i.e., mainstream, neoclassical) and “heterodox” economics, especially in the USA, during the past two or three decades. Economics is such a large and heterogeneous discipline that it cannot be characterized both briefly and accurately. Alongside the growth of formalization and mathematization, and the high degree of uniformity in the undergraduate and graduate curricula and in the leading textbooks, there are also within the subject a number of dissenting or deviant doctrinal schools, rival methodological approaches, and innovative developments designed to remedy its defects and/or overcome its limitations. Moreover, many of the outspoken criticisms of the status quo, proposed remedies, and innovations, originate with or are endorsed by prominent economists with impeccable professional credentials. Indeed, in some cases their contributions threaten the discipline's foundations and can, therefore, be considered a species of “orthodox subversion.”

Nearly a half-century has passed since Ronald Meek (1956, p. 63) warned us that Adam Smith's notion of the labor commanded by a commodity in the marketplace is to be understood not as an expression of the “substance” of value, varying “directly with the quantity of social labor used to produce” the object, but rather as nothing more than a unit of value measure with no fixed relationship to the labor “embodied” in production. It was this distinction that he sought to fix in our minds with his memorable image of the magnet. Indeed, it is more than three times as long since John Stuart Mill (1848, p. 568) conveyed the same distinction with his particularly apt metaphor of “the thermometer and the fire.” Further, it is now forty years since Mark Blaug (1959), reminding us of that distinction, returned our attention to Smith's use of his measure as an expression of potential productive capacity (a view advanced earlier yet by Hla Myint 1948, pp. 20–21 and by Meek 1956, p. 65), but one that conveys a subjective dimension as well. Yet in spite of a now widespread concurrence in this reading, the “legend” that Smith's concept of labor commanded is to be understood as expressing, in some way, price ratios proportional to ratios of labor embodied in production remains remarkably resilient.

On September 22, 1994 we signed a contract with Edward Elgar Publishing Limited to edit The Elgar Companion to Classical Economics (ECCE) (Kurz and Salvadori 1998). Dr. Terry Peach accepted our invitation (dated January 10, 1995) to contribute an entry to ECCE by July 15, 1995. He was reminded of the deadline in a letter dated June 19 and again in a letter dated August 28, when we suggested a new deadline of September 30. Our only response from Peach was a letter dated September 5, also to the publisher, informing us that he had “to rescind [his] offer to contribute an entry.” This unexpected withdrawal was justified on the following grounds:

My critical position on the Sraffa-inspired history of economic thought, and particularly on the “Sraffian” interpretation of Ricardo, is probably well known to you. After long deliberation I have decided that I cannot in all conscience make even a minor contribution to a project which, to a pronounced degree, apparently seeks to promote a particular version of the history of economic thought to which I am profoundly opposed.

I do not think that it would serve much of a purpose to answer Hollander and Peart (1999) point by point, to repeat old arguments, and to once again cite long quotations from Mill. Furthermore, I doubt that the Editor of this Journal would give me the space and time to do so. Instead I propose to ask a number of basic questions about Mill's methodology, give my answers to them and show why I find fault with what I take to be Hollander and Peart's answers. I doubt that this will convince my adversaries. But I hope to show our readers what the major issues are in the disagreement and, perhaps, even to get Hollander and Peart to agree that these are the issues that separate us. If I fail in this latter task they will have the opportunity to point this out in their Rejoinder.

Smith explicitly spells out the term “invisible hand” in only three texts, each in a different work. What is embarrassing to neoclassical welfare theory is that these explicit references have little to do with what came to be understood by the metaphor. In particular, the explicit reference to the invisible hand in The Wealth of Nations (WN) is not about the efficiency of the market in allocating resources. Rather, it is about, ironically, how impediments in the international capital market generate great benefits.

There is great variety within contemporary economics. As Coats (2000) points out, not only are there several schools of thought that would conventionally be labeled “heterodox,” there are numerous economists whose work is in a significant sense unorthodox or unconventional. How, then, can a dividing line be drawn between dissent within orthodoxy and dissent from orthodoxy? The suggestion I make here is that a heterodox school of thought has to satisfy three criteria.

Professors Kurz and Salvadori seem aggrieved by my review article of their Companion (Peach 1999; Kurz and Salvadori 1998). They give the impression that the article should never have been published, apparently on the grounds that I had “disqualified” myself from writing it: I was not an “unprejudiced reviewer.” At the same time, they pronounce that the article “has not much to offer,” which makes it all the more curious that they should trouble themselves to discredit its author.

The dispute between Hollander and Peart, and Hirsch, turns on the nature and role of verification in Mill's perception of the appropriate method for Political Economy. Professor Hirsch maintains against us that, for Mill, the models constructed by political economists are insulated from verification. His case is based on two counterclaims. First, that when Mill writes of “verification” in Book III of the Logic, he has in mind a procedure differing from that appropriate for Political Economy, which allows only “indirect verification” (outlined in Book VI). Hirsch finds that Hollander and Peart confuse the two. Secondly, since the contexts of our case studies often relate to policy formulation, Hirsch finds our elucidations of an appeal to experience of a more basic order to be unconvincing.

There was no Jevonian revolution in international trade theory. The new ideas of marginal analysis entering British economics in the late nineteenth century seem to have left the field untouched. According to Schumpeter (1954, p. 609), Marshall “did not do more than polish and develop Mill's meaning … Edgeworth's famous restatement added many interesting details but also did not go beyond Mill in fundamentals.”

What are the prospects for progress in heterodox economics? The question posed for this roundtable discussion raises a wide range of important issues, for heterodox economics and for economics as a whole. In order to clarify some of these issues, this contribution approaches the question from a practical point of view: what strategy would promote the progress of heterodox economics?