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88

SyloS labiniSUnpUbliShednoteSon

SchUmpeterSBusiness CyCles

Carmelo Ferlito

ABSTRACT: Paolo Sylos Labini (19202005) was the one of the most

inuential ecnmists in Italy afte the Secnd Wld Wa. Afteaduatin in 1942, Syls Labini wn a fellwshi in the USA. Aftean initial eid in Chica, he mved t Havad, whee he was ablet attend Schumetes lectues fm 1948 t 1950. Duin this eid,Syls Labini ead Schumetes Business Cycles and decided t witedwn his imessins befe ivin them t his fme fess inFebuay 1949, wh discussed them ve a cule f lessns. Thesentes ae still unublished, and Syls ave me a cy at u st meetin(2002), sayin that it was time t ublish them. This ae discussesthe cntent f the unublished ntes, fcusin n the citical asects fSchumetes business cycle they t which Labini daws attentin.

In the last sectin, I esent Syls Labinis business cycle they, aninteestin mix f Schumeteian, Keynesian and Maxian elements.

KEYWORDS: Syls Labini, Jseh Schumete, business cycles

JEL CLASSIFICATION: B25, B31, E32

D. Camel Felit ([email protected]) is an indeendent ecnmic ju-nalist and wite in Vena, Italy.

VoL. 14 | No. 1 | 88129SprINg 2011

The

Quarterly

Journalof

austrian

eConomiCs

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89Carmelo Ferlito: Sylos Labinis Unpublished Notes on Schumpeter

I. The Young SYloS labInI and SchumpeTeraT harvard

Pal Syls Labini was bn in rme n octbe 30, 1920, anddied n Decembe 7, 2005. Afte aduatin in 1942, Syls Labiniwn a fellwshi in the USA. Afte initially livin in Chica, hemved t Havad, whee he was able t attend Schumeteslectues fm 1948 t 1950.1 Syls eted that nt nly was hestnly inuenced by Schumetes wk,2 but that he was als

hihly imessed by his esnality. The Italian bseved thatSchumete was a enius and, like all eniuses, intimately lnely,with a damatic esnality.

I st met Syls Labini n Decembe 3, 2002, when I went trme t discuss my thesis with him n the intellectual heitaef Schumete in Syls Labinis wk. Duin this st meetin, Ileaned me abut hw Syls assin f ecnmics and f thecncet finnovation had develed.

In fact, the Italian ecnmists st tue assin was innvatins.Afte aduatin, the yun Syls Labini wanted t study eni-neein, in de t becme an invent. But thee was wa, andSyls fathe thuht this banch f study t ln and exensive.S pal decided t enll in the law am, which wuld becheae and shte. But he had n assin f studyin law, anddedicated his sae time t studyin mathematics and ecnmics.

When the time came t chse the subject f his thesis, Syls

Labini decided t wk n innvatin, unde the uidance fpfess pai.3 In his eseach, the yun schla was astnishedt nd s little liteatue in a eid f such eat innvatin. Hefund that the nly imtant wk n this subject was Schumete

1 When the 75-yea-ld Taussi etied in 1935, Schumete tk ve the famusecnmic they class f staduates.

2 I studied at Havad with Schumete, in 1949, just a while befe his death,bein affected--hin in the iht way--by him. Theefe my visin n inn-vatins is nt simly ecnmic, but scial t. Syls Labini (1989, . 31) (tans.Camel Felit).

3 The thesis title is gli effetti economici delle invenzioni sulla oaniz-zazione industiale.

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90 The Quately Junal f Austian Ecnmics 14, N. 1 (2011)

(1911).4

This was the st scientic cntact between Syls Labiniand the Austian ecnmist.

While he was at Havad, Syls Labini ead Schumete (1939b)5and decided t wite dwn his imessins befe ivin them this fme fess (Febuay 1949), wh discussed them vea cule f lessns. These ntes ae still unublished, and Sylsave me a cy at u st meetin, sayin that it was time tublish them. He ske abut these ntes in rncalia (1988, .

135139).The st at f this ae cmments n the cnnectins between

the ecnmic wks f the auths. In aticula, thei esectivesn maket they and inteest they ae analyzed.

The cntent f the unublished ntes is then biey discussed,fcusin n the citical asects f Schumetes business cyclethey t which Syls daws attentin.

The last sectin esents Syls Labinis business cycle they, an

inteestin mix f Schumeteian, Keynesian and Maxian elements.

The unedited ntes aea in an aendix.

II. SchumpeTer and SYloS labInI: noTeS on a

ScIenTIfIc relaTIonShIp

The link between Schumete and Syls Labini is immediatelyevident un eadin thei maj bks. Syls may be cnsideedthe nly Italian ecnmist t have used a eneal Schumeteianaach t ecnmics, albeit in his wn way. In aticula, SylsLabinis thuht can be seen as an iinal mixtue f Maxian,Schumeteian and Keynesian elements. The cmaisn between Max and Schumete was vey imtant f SylsLabini,6 and many the Italian ecnmists have stessed this

4 At the beinnin f the 1940s this bk had nly been atially tanslated int

Italian, edited by givanni Demaia. See Demaia (1932). The st cmlete Italiantanslatin was ublished in 1971.

5 Lsin many dites, he tld me.

6 See Syls Labini (1954).

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int.7

We shuld hee biey ecall that Syls, like Schumeteand Max, was cnvinced that caitalism wuld be substitutedby scialism.8 But thee ae many the ints f cntact betweenthe tw ecnmists.

Fist, in sme ways, Syls Labini stats whee Schumeteends. Schumete (1942), the last ecnmic text witten by theAustian, deals with the life f the caitalist system duin itslast hase, in which lilistic ms ule the scene. Syls

Labini (1956), the Italians st imtant bk, tackles the sameblem, admittin that the lilistic system is the new face fcaitalism.9 But the link between Schumete and Syls becmesme evident when eadin that this bith f the lilisticsystem within caitalism is n accident, but a natual evlutin feality, caused by the mechanisms f innvatin and cmetitin(in Schumeteian tems).10

related t this is the cental le f innvatin and technly.11 In

Schumetes inin, the innvative cess dies ut with tus-tied caitalism, while Syls Labini states athe that bi ms,and ublic ms t, can lay an imtant le in stimulatinthe innvative cess thuh lae investments in eseach anddevelment.12 Meve, Syls Labini emhasizes the new life

7 See, in aticula, Vitell (1965), Eidi (1981), Tnti (1983), Salvati (1983), Messi(1983), gattei (1984), Belle (1984), Zaai (1986). F a eneal esective fSyls Labinis thuht n Max see Syls Labini (1994).

8 Syls Labini (1984a, . 53 f the Italian editin).9 Lachmann (1954, . 134), states that ne f the thee maj events we see in the eld

f ecnmic thuht in the 193353 eid is the evlutin f vaius theies fmixed maket fms, like mnlitistic and imefect cmetitin. And he adds(. 137) that the mst inteestin blems in the they f mixed maket fmsaise in cnnectin with the questin f whethe, t what extent, and, if at all,in what sequence the vaius maket fms can be said t succeed each the intime. In this cntext the inevitability f mnly, ehas lily, calls faticula attentin.

10 Syls Labini (1956, . 23, 89, 1112).

11 Technlical innvatins ae nt simly an imtant aid f ecnmic devel-ment cess: in the ln un they ae even a necessay cnditin f such acess. Syls Labini (1992, . 5) (tans. Camel Felit).

12 Syls Labini (1956, . 3536 and 146147) and Syls Labini (1990, . 447449).

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that small ms can exeience in the shadw f bi nes, helinand ceatin with them.13

Anthe int eads the inteest ate. Befe meetinSchumete, Syls Labini tied t build u a dynamic they f

inteest (in Syls Labini [1948]).14 The same attemt can be fund

in Schumete (1908, . 332346), Schumete (1911, . 173223)and Schumete (1939a, . 152159). Schumete des nt aee

with Bhm-Baweks cncet f inteest as a measue f temal

efeence. He assciates inteest with innvatin, t andceatin f cedit by banks.15 Syls Labinis visin is vey simila:

he seaks f inteest as a tax which enteeneus ay banksf sulyin the caital, necessay f the innvative cess.16Meve, Syls states that mney is created by banks, aeein

entiely with Schumetes view n the matte.17 In a hne call tme n Ail 22, 2003, Syls stessed hw clse he was t Schumete

even befe meetin him. When at Havad, Syls esented this

ae t the Austian, Schumete was vey enthusiastic, ndin itan exact demnstatin f his inteest they.18 Schumete did his

best t et the ae ublished in the Quarterly Journal of Economics,

but died befe he culd d s. Syls Labini, cnsidein himselft yun t knck n the d f such an imtant ublicatin,19efained fm any such attemt.

13 Syls Labini (1993a, . 224227).

14

Syls Labini suested we ead this ld ae. He tk u the auments f theaticle in Syls Labini (1998b) and Syls Labini (2003).

15 Schumete (1911, . 173175).

16 Syls Labini (1948, . 428429).

17 Syls Labini (1992, . 25).

18 Schumetes unaccmlished deam was t wite a billiant bk n inteestand mney. His mnetay teatise was ublished afte he died, but it cannt becnsideed a masteiece. See Schumete (1970) and Schumete (1996). Whenhe was at Havad, Syls Labini asked t Schumete abut his bk n mnetaythey and when he wuld nish it, but Schumete answeed, My fiend, Iuess Ill nish it in heaven, with the hel f celestial cheubs; ehas, as it isme bable, in hell, with the ims, led by Babaiccia.

19 F a cmlete exlanatin f Syls Labinis thuht n elatins between mney,cedit, inteest and ecnmic develment, see Syls Labini (1992, . 1727).

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Anthe imtant asect f this link is ecnmic they and thele f histy. Fm this int f view t, a numbe f cnnectinsbetween the tw auths can be fund. Secically, bth Schumeteand Syls Labini stess the link between they and histy. Schum-etes assin f histy is enwned, aticulaly if ne cnsidesthe ld Schumete.20 Thanks t his History, Schumete eacheshis full methdlical wth,21 clealy denin the tls anecnmist must use f his wk. Accdin t the Austian, thescientic ecnmist can be identied by his mastey f aaches,

elatin t thee secic us that tethe seve as the fundatinf ecnmic analysis: histy, statistics, and they.22 He then addsthat, wee he fced t chse amn ne f the thee aaches,he wuld dubtless t f histy.23 Actually, as it aeas in hisCycles, he had aleady lineed n the cmbinatin histy/statisticsas a fcal int, utlinin his edilectin f ecnmic histy;this ste wuld be then cmleted by his History. In Schumetesinin, histy in eneal (scial, litical, cultual), ecnmic

histy, and histy f industy ae essential in undestandin allblems. All the methds, the statistical and theetical nes,must be subdinated t histical undestandin. Schumete evencnsides them useless, if utside the eld f histy.24 In his BusinessCycles , we ead that the histical aach t the business cyclesissue is s fundamental that

the ultimate al is simly a easned ( = cncetually claied) histy,nt f cises nly, n f cycles waves, but f the ecnmic cess in

all its asects and beain t which they meely sulies sme tlsand schemata, and statistics meely at f the mateial.25

Schumete (1939a, . 237) adds that such histical analysis,with the use f undestandin the cyclic tend as chaacteistic

20 Schumete (1954, . 1530). See als De Vecchi (2002).

21 Schumete (1954, . 1530).

22

Ibid., . 1516.23 Ibid., . 16.

24 Schumete (1939a, . 5354).

25 Schumete (1939b, . 220).

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f the caitalist ess, must at least cnside the last 250 yeas.Theefe, Schumete means t shw the caitalist eid as awhle ecnmic cess shaed by histy, fllwin the examlef what Siethff meant by wirtschaftstil. This idea is a synthesisof the methodenstreit. Accdin t the last eesentative f thegeman Histical Schl, an ecnmic analysis can be achieved, but it must efe t a clea-cut histical and ecnmic eid,maked by distinctive elements, allwin the identicatin f asecic ecnmic style. Caitalism is ne f these styles, maked

by cyclic tend; Schumete wants t fcus n caitalism with theaid f histical eseach. This is what Schumete meant by theceatin f an ecnmic they shaed by histy.

Syls stated that evey they is histically cnditined. Mathis a useful instument, but evey statin int has t be cnnectedwith histical eality.26 Meve, like Schumete, Syls believedthat an effective they had t be a dynamic ne. And a dynamicthey is cmatible with histical analysis.27

In a late text, Syls (2005, . 182) stated that when elabatinan ecnmic they, he wuld think abut a methd usin hist-ically cnditined mdels. In the same way as Max, Syls (2005,. 182183) stessed that the business cycle is clealy histicallycnditined. It culd be inteestin t cmae this aach tthe methdlical view esented by Wene Smbat28 andAthu Siethff.29

Fist f all, Syls exlains that in any science, a sitin canbe inteeted nly if it is, at the same time, lically cect and

smehw elevant. That is t say, cnnected t eality.30 We ecallhee the mden fmal mdels. Syls ntes that it may aeathat, since ecnmics is a scial science, an histical aachis t be efeed t a mathematical ne. Hweve, he wans us,this is nt the case, f mathematics and histy d nt have t be cnsideed antithetical. of cuse the equiements f the

26 Syls Labini (1992, . VIXII) and Syls Labini (2005, . 189).

27

Syls Labini (1992, . VIVIII). See als Syls Labini (2002, . 6970).28 See Smbat (1929).

29 See Siethff (1952, 1953, 1970), and the st at f Siethff (1925).

30 Syls Labini (1992, . VII).

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eseach must be fund within histical eality, but mathematicscan tun ut t be a useful einfcement tl. Thee must beinteactin between theetical analysis and emiical eseach.What he citicizes is the mee ceatin f fmal mdels ducedwithut a cnnectin t eality.31 We may nw think thee ae smediffeences with Schumetes methdly, cnsidein that theAustian ecnmist always mted the use f mathematics andecnmetics, actically bein bsessed by them. Hweve, weals knw that Schumete neve actually used mathematics t

ceate his mdels, thus favin a wide aach s as t unite awide scilical and histical visin with the is f ecnmicanalysis. The faith Schumete had in mathematics was me f atheetical than an actual kind.

Moreover, Sylos can only see the analysis as dynamic, opposing thestatic neoclassical approach prevailing in his time. A dynamic analysiscan be seen in agreement with an historical analysis.32 Therefore,within economic analysis, all steps must be taken in reference to aspecic social reality and the results so obtained must refer to it, withno demand that the time period be extended.33 Such an approachleads Sylos to consider cultural and economical phenomena as inter-dependent, with no dominance of facts of the one kind over facts ofthe other kind, as happens with the Marxist theory.34

Thee is a last asect f the cnnectin that shuld be inted ut,which shws a eat diffeence between the tw ecnmists. SylsLabini was nmative in his ecnmics. We cannt say the same inead t Schumete. We have aleady emhasized Schumetes

desie t kee fm assin any judment, whethe a sitive a neative ne, each time he evaluates a scenai. readinCapitalism, Socialism and Democracy, we seem t nd a wiedSchumete; desite his tyin t be unbiased, he cannt hide hislminess caused by the disaeaance f the system whse mainchaacte, the businessman, he had descibed in aletic tems.The situatin is diffeent f Syls. We can see hw dedicated he

31

Ibid.32 Ibid. and Syls Labini (2002, . 6970).

33 Syls Labini (1989, . 99) and Syls Labini (1993a, . 124125).

34 Fcellini (1983, . 54) and Syls Labini (1984a, . 37 and 89).

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was, abve all late in his life, t htin litical and scial hts.This kind f cmmitment is vey diffeent fm Schumetesministeial invlvement. Wheeas Schumete aimed at value-feescientic cnsideatins, the Italian ecnmist tended t elateecnmic thuht t sci-litical efeences. F instance, Sylsassesses the develment cess as d, while undelinin theisks embedded in it.35 Wheeas Schumete sees the ecnmictheist as a naat f eality as it is, withut judin what he iseseachin, Syls inin is that the ecnmist, while analyzin

the diffeent situatins, must cnside all the effects deivin fmthe descitin f such situatins.

The last point pertains to business cycles: both Schumpeter andSylos believed that the cycle is the real form of economic developmentin a capitalistic system. Capitalistic development and business cyclesare inseparable.36 This point brings us to the main focus of the paper,but we will leave a detailed analysis of Sylos business cycle theory,as related to Schumpeters thought, to the fourth section.

III. commenTS on SYloS labInIS

unpublIShed noTeS

1. SchUmpeterS bUSineSS cycleS: a SUmmary

We shall nw discuss the cntents f the cmments Labini wten Schumetes Business Cycles int by int. Fist, it is necessayt biey summaize Schumetes cycle they.

Accdin t Schumete, the wave mtin (cycle) is the attentaken n by ecnmic develment unde caitalism. But assuminwe stat fm a system in static equilibium, what sets the cyclein mtin? Schumete identies cetain causes that can be fundbth inside and utside the ecnmic system; the ecnmist canntbseve analyze the extenal causes (was, eathquakes, etc.),while the intenal causes ae tyically ecnmic facts and may

35 Syls Labini (1954, . 1214) and Syls Labini (1984a, . 37 and 89).

36 This is a tansvese sitin, which, fm Max, tuches many ecnmic schls.We have t think, i.e., abut the sitin f Siethff (1925), Schumete (1939a)and Lachmann (1956, . 110112).

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thus be examined by the ecnmic scientist.37

Schumete makesthee key aximatins in his business cycle they.

Fist, we assume a efect static balance, whee the cnditinsf efect cmetitin ae valid, whee the ulatin is steady,whee thee ae n savins, and we have all the equiements fthe cicula w38 (Schumete calls such a balanced situatin atheetical nm).39 We als assume that, in the mdel f a cai-talist sciety, thee is always the ssibility f new cmbinatins fthe facts f ductin, and that ele ae able t and eady t

cay them ut (mtivated by the sect f t).

Sme ele, then, cnceive and wk ut with vayin mtnesslans f innvatins assciated with vayin (and ideally cect)anticiatins f ts, and set abut stulin with the bstaclesincident t din a new unfamilia thin [...] Cnfmin t eviuscnsideatins, we suse that he funds a new m, cnstucts a newlant, and des new equiment fm existin ms. The equisitefundshis entance ticket t the scial ste f means f ductinhe bws fm a bank. on the balance acquied by s din he daws,

eithe in de t hand the checks t the ele wh funish him withds and sevices, in de t et cuency with which t ay fthese sulies. Unde u assumtins he withdaws, by his bids fduces ds, the quantities f them he needs fm the uses whichthey seved befe. Then the enteeneus fllw, afte them stillthes in inceasin numbe, in the ath f innvatin, which becmesessively smthed f successs by accumulatin exeienceand vanishin bstacles.40

What can we see fm the exlicatin f the abve? Fist f all,

Schumete assumes that businessmen send thei funds ihtaway, with the excetin f a minimal stck. Secnd f all, withutunused esuces (due t the hythesis f the cicula w), theices f the facts f ductin will ise, and mnetay incmesand inteest ates will behave the same way. Thidly, incmes willals incease, in cesndence t the enteeneus exenses ininvestment ds. Wkes exenses will ise as well, as ln as

37

Schumete (1939a, . 9697).38 Ibid., . 161.

39 Ibid., . 6270.

40 Schumete (1939b, . 130131).

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they eceive a hihe salay and in cesndence t the exensesf thse ele eceivin all f these inceased ayments.41 Neve-theless, s fa, we can suse thee has nt been any incease inductin yet.42 This is what haens until the st enteeneussystem stats wkin.43

Then the scene beins t chane and a new business situatin emees,chaacteistically diffein fm the ne we lanced at, but nt lesseasy t undestand. The new cmmditieslet us say, new cnsumesdsw int the maket. They ae, since eveythin tuns utaccdin t exectatin, eadily taken u at exactly thse ices atwhich the enteeneu exected t sell them. [] A steam f eceitswill hence w int the enteeneus accunt, at a ate sufcientt eay duin the lifetime f the lant and equiment iinallyacquied, the ttal debt incued lus inteest, and t leave a t fthe enteeneu. [T]he new ms, ettin successively int wkinde and thwin thei ducts int the maket f cnsumesds, incease the ttal utut f cnsumes ds which had beeneviusly educed.44

Such new ds, in Schumetes inin, ente the maket att fast a ace t be absbed with n shcks. In aticula, the ldcmanies, the chases, face diffeent scenais, which d nt fllwa edetemined ule. Sme et int new scenais. Sme thes die,nt bein able t t in. Still thes still lk f a new use. 45Nevetheless, even the divin cmanys cmetitive lead tendst decease. As the ducts ente the maket and the imtance fdebt eayment ises, enteeneuial activity diminishes t the int

f nally disaeain.46

As sn as the enteeneuial exansinsts, mvin the system away fm its balanced sitin, thesystem itself stules aain twads a new equilibium. We nwstat seein the st utline f a cyclic scheme.47

41 Schumete (1939a, . 161).

42 Ibid.,. 163.

43 Ibid.

44

Ibid., . 133.45 Schumete (1939a, . 165).

46 Ibid., . 166.

47 Ibid., . 170.

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When we lk at the skeletn, we behld the ictue f a distinctcess in time that dislays functinal elatins between itscnstituent ats and is lically self-cntained. This cess fecnmic chane evlutin, meve, es n in units seaatedfm each the by neihbhds f equilibium. Each f thseunits, in tun, cnsists f tw distinct hases, duin the st fwhich the system, unde the imulse f enteeneuial activity,daws away fm an equilibium sitin, and duin the secndf which it daws twad anthe equilibium sitin.

Each f thse tw hases is chaacteized by a denitesuccessin f henmena. The eades need nly ecall whatthey ae in de t make the discvey that they ae eciselythe henmena which he assciates with seity andecessin: u mdel educes, by its mee wkin, thatvey sequence f events which we observe in the course of those uc-tuations in economic life, which have come to be called business cyclesand which, tanslated int the lanuae f diaams, esentthe ictue f an undulatin wavelike mvement in abslute

ues ates f chane.48

We can bseve the fllwin fm Schumete at this int:

1. pess makes the ecnmic mechanism unstable and makesit mve in a cyclic tend.49

2. poseity moves away fom balance, while ecession is arapprochement. This appears to be far from the usual meanings.50

3. Nthin in the they ives any indicatin that cycles will be

eula. The duatin mstly deends n the tency f inn-vatin, theefe the cyclic cess is stuctually ieula.51

Heein is the easnin leadin us t the analysis f the secndaximatin cycle. If innvatins ae embedded in new lantsand facilities, the exenses f cnsume ds will ise as fastas the exenses f investment ds. They will bth exandstatin fm thse ints in the system whee they had eviusly

48

Schumete (1939b, . 138).49 Schumete (1939a, . 170).

50 Ibid., . 174.

51 Ibid., . 175.

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eneated an imact, and they will ceate that set f ecnmicsituatins that we call seity. Hence we nte tw henmena.Fistly, the ld cmanies will eact t this situatin, and secndly,many f them will seculate. Thse willin t take advantae fthe situatin will act assumin that the bseved chane must cayn feve; such cnduct will anticiate seity, thus ceatin aboom.52 This way, cedit will nt be simly an invests eative,and desits will be ceated t fund the eneal exansin. Eveylan eneates anthe, s that a seies f ice inceases will bein.

At this stae, we see tansactins becmin ssible just with anincease in ices, whethe actual exected. We nw have, inthe cyclic cess, the intductin f a secnday wave, whseeffects vela thse f the imay wave.53 The cnsequences fthe secnday wave ae even me nticeable than the st ne,as bsevin a win e is easie than bsevin the matchlihtin it. Due t this difculty, we ften identify seculatin asthe cause f the cycle, while the innvatin causin seculatin isdiseaded because it is hade t sinle ut.54

Even in the secnday exansin, the end cmes fm a tuninint f the cess. Any state f seity entails a eidf failues, which, besides eliminatin bslete cmanies ntcaable f eadjustment, als detemines a ainful cess feadjustment in ices, quantities and values, as the new equi-libium emees.55 In the secnday seity, isky, deceitful, unlucky enteises als take shae, and they will nt withstand aecessin. The seculative sitin imlies a lt f unsustainable

elements, which will cllase afte the slihtest deteiatin invalue f the the cllateal elements. Theefe, a lae tinf the cuent business investments will suffe a lss as sn asices fall, and they will indeed fall, due t the imay cess. Aat f the debt stuctue will als cllase. If, in this case, anicand cisis ensue, futhe adjustments will be necessay: values falland evey decline induces the fllwin decline. F sme time,

52

Ibid., . 177.53 Ibid., . 178.

54 Ibid.

55 Ibid., . 180.

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the essimistic exectatin will lay a citical at, but it must beendsed by bjective elements, thewise it will nt last.56

Nw we see the utline f a fu-hase cyclic scheme (ecallinthat in the st aximatin we nly had seity andecessin): seity, ecessin, deessin, ecvey:

Nw that class f facts [the secondary wave], wheneve it is f sufcientquantitative sinicance, has an imtant beain un u schema.As ln as we tk n accunt f it, we had nly tw hasespseity

and recessinin evey unit f the cyclical cess, but nw we shallundestand that unde essue f the beakdwn f the secndaywave and f the beaish anticiatin which will be induced by it, ucess will eneally, althuh nt necessaily, utun (as a ule, alsmiss) the neihbhd f equilibium twad which it was headinand ente un a new hase, absent in u st aximatin, whichwill be chaacteized by what we shall efe t as Abnmal Liquidatin,that is t say, by a dwnwad evisin f values and a shinkae featins that educe them, ften quite eatically, belw thei equi-libium amunts. While in ecessin a mechanism is at wk t dawthe system twad equilibium, new disequilibium devels nw: the

system aain daws away fm a neihbhd f equilibium as itdid duin seity, but unde the inuence f a diffeent imulse.F this hase we shall eseve the tem f Deessin. But whendeessin has un its cuse, the system stats t feel its way back ta new neihbhd f equilibium. This cnstitutes u futh hase.We will call it recvey revival.57

Din the hythesis that the examined innvatin is the stne in histy, we must cnclude that evey bsevable and hist-

ically laced cyclic hase bins with it the effects f the eviuscycles, and will inuence the fllwin hases. We must alsundestand that efect cmetitin is nt a fequent henmennwithin the dinay cyclic tend. Instead, the enteeneuialush is based n a wld in which imefect cmetitin eins.Innvatin itself chanes the maket, ceatin f the innvat acmetitive advantae that fces the thes t adjust. In the sthase, the csts saved by the innvat allw him ice-seachinstatus that is nt seen unde the cnditins f efect cmetitin.

Accdin t Schumete, the nly eal cmetitin is the ne

56 Ibid., . 181.

57 Schumete (1939b, . 149).

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established between the emein new and the ld stulin tsuvive. This cmetitin is t neclassical efect cmetitin (amass f identical cmanies ducin hmeneus ds) whata bmbin is t the essue necessay t beak en a d.58

The thid aximatin iinates fm Schumetes aumentthat innvatins ae the suce f cyclic ws. Thinkin them asa cnsistent wave mtin is imssible, because the eids festatin and effects absbed by the ecnmic system ae nt thesame f all innvatins undetaken at any iven time.59 Theefe

Schumete sees thee simultaneus wave mtins, altenatinwithin the caitalistic dynamic. This des nt mean we wnt beable t nd thes, such as Kndatieff, Jula and Kitchin cycles.The Kndatieff cycle is cmleted in 5060 yeas, the Jula cyclein 710 yeas, and the Kitchin cycle in 23 yeas.60

In his Economic Cycles , Schumete thuhly analyzes smeKndatieff cycles he detected (incidentally shwin his vastknwlede f ecnmic histy):

a. 17861842: Fist Kndatieff cycle, cnnected t the winuse f hyd we f industial uses61

b. 184397: Second Kondratieff cycle, connected to railway growth62

c. 18981913: Thid Kndatieff cycle, cnnected t electi-catin.63 (This study sts in 1913 due t watime.)

Nw that Schumetes ecnmic cycle they has beensummaized, Syls Labinis ideas can be ely intduced.

2. typeSof innovationS, Growthand evolUtion

Fist f all, Syls cnsides ne f the tyes Schumete indicatesas innovations: the enin u f new suces f suly and that

58Cf. Schumete (1942).

59 Schumete (1939a, . 195196).

60

Ibid., . 197198.61 Ibid., . 237261.

62 Ibid., . 263-312.

63 Ibid., . 312345.

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f new makets. Accdin t Syls, it is nt tue that the eninu f new suces f suly always imlies a new ductinfunctin; we can imaine the enin u f new lands with thesame deee f fetility as the aleady cultivated nes. In this casewe wuld nt have a new ductin functin and n innvatinwuld ccu. Meve, the Italian ecnmist admits (Schumeteehas nt) that ms culd incease ductin vlume withthe same technical cefcients, withut vayin the ductinfunctin. As Syls exlained late,64 it is misleadin t assciate the

cncet f innvatin with the intductin f a new ductinfunctin and, in his inin; this sentence was just a fm f vebalbeisance aid t neclassical lanuae by Schumete. In anycase, cntinues Syls, the cncet f innvatin is linked t that fa new ductin functin and the ductin functin is linked tthe intductin f a new technical methd.

The next int is aticulaly imtant. Schumete is knwnt distinuish between growth and evolution ( development),the latte entailin innvatin. Accdin t Schumete, in the

cicula w, wth alne exists but nt evlutin. Syls aeeswith the fact that wth by itself is incaable f eneatin the business cycle, but, as eads the sitin f the tw tems,he is, maybe, me Schumeteian than Schumete: in Sylsinin, wth withut evlutin ( innvatin) is inadmissible.He wites, gwth is cnceivable withut innvatin nly inthe (excetinal) case f enin u f new lands with the samedeee f fetility than the cultivated nes and with which it isssible t duce with the same cefcients. This is becausef the law f diminishin etuns f land (in the ricadian sense)and the scacity f natual esuces. S, if we want t exandductin at cnstant aveae csts, innvatins ae necessay.Syls tk u this cncet in his subsequent bks. F examle,in Syls (1956, . 13233), we ead,

But the the kind f investment, which assciated with a chane intechnical cefcients, is f imay imtances much that it is thedeteminin fact f ecnmic develment. Unless the technical cef-

cients chane, ecnmic develment cannt n indenitely, if nlybecause f the diect indiect effects f the diminishin etuns f land;

64 See rncalia (1988, . 137).

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the veall ate f incease in ductin wuld be bund t diminishand, in the ln un, wuld tend twad ze. Develment can nindenitely nly if technical cefcients chane nt meely ccasinallybut systematically, that is, as a esult f a seies f innvatin investment.Such investment cnsists imaily f new and imved machines,which have the effect f lwein the lab cefcient and which, f thiseasn, may well eneate technlical unemlyment.

And in Syls (1984a, . 81), the theme is eafmed.

If we take int accunt the tendency f diminishin etuns fm ai -cultue and minin, we ae bund t ecnize that, with unchaninmethds f ductin, the ate f incease f the scial duct in theln un wuld necessaily tend t ze. This means that in the lnun technlical ess is nt simly the main fact f ecnmicwth: it is the necessay cnditin.65

Syls suests that thse innvatins which d nt entail thecnstuctin f new lant equiin a eat amunt f time and

utlay (the nes which Schumete des nt cnside) culd alsbe included in the analysis fgrowth.

Meve, Syls classies innvatins fm the mney cstesective. He distinuishes between innvatins that allwt exand [sic] ductin at cnstant aveae csts and inn-vatins that bin abut a diminutin f aveae csts. In Sylsinin, nly the secnd tye f innvatins culd ive ise t thecmetitin-educin cess, and theeby t the cycle.

A cucial citicism is cnnected with the cncet f creditcreation in an ecnmy with wth and withut develment.Syls, statin that in this case cedit ceatin des nt imlyinatin, adds that ehas in such a system cedit ceatin isnt cnceivable. In fact, cedit ceatin is based n the aymentf inteest, but the latte aises fm t tunities that aent cnceivable withut innvatin, and thus develment. S, tsum u, admittin the existence f cedit exansin is nt ssiblewhen tunities f t and innvatin ae nt esent. This

means that the ssibility f a nn-inatinay cedit exansinis self-cntadicty. In this cheent analysis Syls is clse t

65 See als Syls Labini (1981, . 41) and Syls Labini (1989, . 32).

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Misess thuht. Hweve, that thinkin aeas t have fadedin Syls late wk. In Syls (1992, . 25) we nd a chane inhis cuse; Syls even states that the ceatin f cedit can beused in an anti-inatinay mde. He claims that thee may be aductive exansin with steady ices if, when the duct wises, a tinal mnetay means w ises als. The ceatinf cedit nds its basis in inceased ductin, which fms smekind f altenative cuntebalance t the inceased savins.66 Heethe elatinshi amn savins, cedit and ecnmic exansin is

diametically sed t the Austian aadim.

3. declineof capitaliSm

We may futhe cnside the elatinshi between the uswinhase f the cycle and eneal welfae. Syls says that theauments made by Schumete suest the existence f an inveseelatinshi between the tw, and he seems a little sketical nthis int. Tw the dubts elate t scial blems. Accdin

t Schumete, demcacy wks bette in eids f declininices; Syls states that thee may be sme cnsequences. In fact,duin a eid f declinin ices, caitalists miht attemt tmaintain thei incme levels thuh mnlistic baies, while,f the same easns, wkes wuld ty t eseve thei waelevels by htin aainst wae cuts. Thus, we miht bseve,duin a hase f declinin ices, an incease in scial stules.

Accdin t Syls, this matte is elated t the decline f

caitalism. It seems that Syls, in his questins, aees withSchumete, when the Austian states that caitalism ducesby its mee wkin a scial atmshee... that is hstile t it, andthis atmshee, in tun, duces licies which d nt allw itt functin.67 Syls makes tw ints that wuld seem t cnmthis. The dynamics f caitalism beeds a tend f unemlymentduin the deessin, but the we f wkin classes andwkes unins is inceasin in caitalist cunties, s, duindeessins, these tw facts culd lead t the eneatin f anti-

caitalistic ecnmic licies, binin abut stuctual chanes

66 Syls Labini (1992, . 26).

67 See Aendix, I.3.

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in the system. Still thee is a eat diffeence between Syls andSchumetes attens. While the Italian fcuses n stictlyecnmic facts, cnnected t the enesis f deessins withinthe aea f the ecnmic cycle, Schumetes analysis has a widequality, scilical, sci-histical, utside the sectum fistine ecnmics. Such visin is nt seen in his Business Cycles, but in Capitalism, Socialism and Democracy. Capitalism, Socialismand Democracy , witten between 1938 and 1941, is undubtedlyhis mst famus efft. Althuh the st editin (1942) was nly

knwn t a small numbe f ele, the secnd ne (1947) wasvey successful. The text, enin with a multifaceted analysis fMaxist thinkin,68 evlves aund tw cucial questins: Cancaitalism suvive?69 and, Can scialism wk?70 Schumeteanswes neatively t the st questin, but he aues that theend f caitalism will be due t nn-ecnmic causes. In hisinin thee is a hstile attitude within the bueis scietywhen it cmes t caitalism. This hstility is fmented by theinceasin numbe f intellectuals, as basically all f them ae

aainst caitalism. Accdin t Schumete, intellectuals aent a class themselves, but they like cntllin the classes andexlainin t wkes what they shuld think. The analysis ledSchumete t believe that demalizatin was seadin withinthe caitalist sciety. Schumete saw a middle class lackinin vitality and esined t defeat. The middle class was disen-chanted and, in Schumetes inin, this wuld t lead t thematuatin f scialism. But the tansfmatin wuld nt neces-saily be a sht ne: thee culd be a mment when caitalism

wuld ve incaable f bth dyin and suvivin.In Schumetes mind the decline f caitalism is als cnnected

t the decline f the pure enteeneuial le, tyical f caitalismsst hase, which tayed the enteeneu as a heic uemastein the scene. In his inin, caitalism was chanin,leavin eate m t bi ms and state cmanies, which weeunable t ive caitalism the innvative ush vital t its suvival.Syls tk, ve time, a diffeent stand. Fist f all, he believed that

68 Schumete (1942, . 356).

69 Ibid., . 59169).

70 Ibid., . 173227).

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a vituus ceatin between small and bi cmanies culd beestablished, n the basis f innvatin.71 In aticula, he claimed weae in the esence f a mechanism f vetical inteatin; accdint this mechanism, small cmanies ceate innvative cesses,which will be cntinued and develed by eseach facilities f the bi ms. The dynamic innvatins f small cmanies ceate avituus cmetitin and a stimulus f bi ms. Theefe, Syls bean his analysis f the develment f lilistic caitalismwhee Schumete had sted. Thuh he did nt aee with

his mastes essimistic visin, he e-launched the centality f theinnvative cess within a cmletely chaned ecnmic cntext.

4. QUantityof money, SavinGand intereSt

Sectin II is the mst imtant f the ntes. Syls stesses that inthis sectin thee ae thee cucial ints.72 The st is the cncetf quantity f mney. Schumete wites that it is imssible t

seak f a quantity f mney in the sense in which we seak fthe quantity f a cmmdity, addin that the distinctin betweenvelcity and quantity may becme blued. Syls aees that wecannt stictly talk abut quantity f mney, as we talk f quantityefein t any the ds. But he wndes whethe such an ideais useless fm a scientic int f view. Syls says that bankseseves ae nt mney and cannt be used as mney, s we candistinuish between velcity and quantity. Answein rncaliain 198873 and talkin t me in 2002, hweve, Syls admitted that,

as his studies had essed, he had cme clse t shainSchumetes inteetatin n this int. Syls neve elabated,duin the cuse f his caee, n the idea f quantity f mney,ehas because he decided that it was intless.

The secnd bjectin in sectin II cncens savin. In Sylsinin, we cannt deny the le f savin as Schumete des, atleast duin eids f cisis. Syls efes, in aticula, t savinaccumulated by banks. It cnstitutes the banks eseves and is

71 Syls Labini (1993b, . 269274).

72 rncalia (1988, . 138).

73 Ibid.

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vey imtant duin cises. Accumulated savin is needed bybanks t deal with bankutcies and inslvencies, and eesentsan inteatin f the deatin cess and liquidatin. If bankseseves ae insufcient, the cental bank has t tackle the cisiswith injectins f mney, binin abut a ice incease. Sylsadds74 that this int is nt a citicism f Schumetes they,but an attemt t inteate it, exlainin the case f a e caitaincme incease caused by isin ices.

Finally we each the int that Syls cnsides the mst inte-esting75 (II. 3). He stats by qutin Schumete, when he witesthat the cheaness f mney (a lw inteest ate) ushes the systemtwads mechanizatin. This is a tyical neclassical belief, whichSchumete esuses in his 1939 bk. Schumete (1939b, . 123)denes the inteest ate as a emium n esent ve futue meansf ayment, , as we will say, a potiori balances. He cnsides theinteest henmenn t be cnnected t innvatin. As a matte ffact, iven the evius assetin, f inteest t be eneated, it is

necessay that smene lace a hihe value n cuent mney thann futue mney. Fm whee can this disaity iinate? In cai-talistic dynamic, as Schumete analyzed it, such a henmenncan ccu with an innvative efft by the enteeneu wh, if theinteest ate is lw, estimates that ts cnnected t the inn-vative cess will be sufcient t suesede the inteest mnetaycst. Syls, athe, says that lwein the inteest ate must be anincentive t exand ductin, aisin demand f all ductinfacts, machines and lab. Accdin t Schumete this is nt

admissible. What mtivates the enteeneu is nt the ssibilityf inceasin ductin, but the ssibility f eneatin at. This can be dne with innvatin alne, ften maked bymechanizatin. Hweve, in ivate, Schumete, cmmentinn this int, tld Syls: But then yu eject an essential atf the taditinal [neclassical] they! Syls, in rman dialectand shuin his shuldes, answeed: Ehn b? [And then?]S Schumete simly said: All iht, all iht. S the Austian

ecnmist seemed t be awae f a weakness in his system. Besides,

74 Ibid.

75 Ibid.

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a cmlete mnetay analysis is the missin iece f Schumetestheetical aach and als ne maj easn f fictin withthe the Austian ecnmists. We nly need t emembe hwseveely he citicizes the distinctin between the actual inteestate and the natual inteest ate, which can be tyically fundin the Wicksell-Mises-Hayek aach.76 As Syls tld me, andrncalia befe me,77 Schumete in The Theory of Economic Devel-opment seems much clse t Syls thuht n this int. Sylsstates that the st attemt t beak dwn this they (the invese

elatinshi between the inteest ate and mechanizatin) is t befund in Saffa (1960) and the ensuin debate n caital they.78His thuhts n this matte ae late develed in Syls (1988).

The last tw ints f sectin II ae nt s inteestin, while sectinIII is a list f bibliahical suestins, which Schumete maynt have aeciated, believin that Syls wished t challene hisimmense euditin.

Iv. SYloS buSIneSS cYcle TheorY

As mentined eviusly, Syls business cycle they was stnlyinuenced by Schumete. In aticula, the Italian ecnmist seesthe caitalistic cess as a elatinshi between innvatin, devel-ment and the business cycle.79 F this easn, studyin this ticmeans exlainin the cycle and develment at the same time. Suchexlanatin must be centeed n the le f investments.80

76 Schumete (1939a, . 15658).77 rncalia (1988, . 139).

78 Ibid.

79 In u time, theefe, the elatinshi between scientic ess andtechnlical innvatins is systematic: we have eached the int whee ueseach and innvatins have been institutinalized. pductive develmentcntinued, thuh acceleatins and temay dwnswins (cisis); in thewds, develment went n thuh cycles. pductive develment, businesscycles and technlical innvatins ae thee asects f the same cess: this isSchumetes esective. Syls Labini (1989, . 20) (tans. Camel Felit). Seeals Syls Labini (1993a, . 121122) and Syls Labini (1992, . 16).

80 Thus, investments must be the essential element f such a cess, becausethese must nt nly have an immediate multilie effect n cnsumtins, but,when cmleted, als have the effect f inceasin eithe ductive caacity

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Like Schumete, Syls indicates seveal tyes f innvatin thatmay eneate business cycles: ductin f new ds, chanesin ductin cefcients, and chanes in the quality f ducts.

Syls then mentins fu staes f caitalistic evlutin, clset the Schumeteian idea f Kndatieff cycles.81 But the Italiandes nt want t dene them as cycles, efein t assciate themwith the fu industial evlutins.82 The st ne was the EnlishIndustial revlutin, which histians date t between 1780 and

1850. Duin this eid, the develment cess was diven bythe intductin and diffusin f steam we and mden facties.The secnd evlutin, duin the secnd half f the 19th centuy,was chaacteized by the alicatin f steam we t ailadsand steambats. Duin the thid, in the st half f the 20thcentuy, thee wee a vaiety f lae-scale innvatins: electicity,the intenal cmbustin enine, chemisty. In additin, the eneysuces als aeaed: il and electicity, in additin t cal. Thee

and fact ductivity, in aticula lab. Syls Labini (1992, . 235) (tans.Camel Felit).

81 Syls Labini (1993a, . 115) adds that we can distinuish thee main cyclicaleids. Duin each eid the featues f uctuatins diffe eatly. At leastthee eids need t be distinuished: (1) 18001913, (2) the intewa eidand (3) the eid statin with the end f the Secnd Wld Wa. The cyclesbsevable in the nineteenth centuy and until the Fist Wld Wa can be calledclassical business cycles, the intewa eid was maked me by vilent andieula uctuatins than cycles, and the cycles that can be bseved afte theSecnd Wld Wa can be dened as new business cycles. See als Syls Labini

(2004, . 9295).82 The idea f ln cycles must be aached with eat cautin. It may ve

t be nly analytically decetive, but als daneus f ecnmic licy, sinceit may eneate an almst fatalistic accetance f the ecnmic difculties withwhich we ae at esent alin. This idea can be useful nly if it is used as aatinal basis f uin, and imvin the descitin f, cetain cmlexcesses which take lace in histical time. Sme asects f these cessesecu because the imulses which eneate them ae themselves ecuent, andin the ultimate analysis they w fm maj innvatins. But ecuence andeulaity ae seaate cncets. reulaity may be an tical illusin; and it is

ssible t identify the ln cycles, f a diffeent duatin, as Schumetehimself was inclined t admit. In any case, the idea is still valid, that thee aeseveal industial evlutins succeedin each the ve time and chaacteizindiffeent eids f the mden ae. Syls Labini (1984b, . 8788). See alsSyls Labini (1989, . 5859).

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was als an exansin f the ublic hand in the ecnmic system.Tday, Syls stated, we ae livin in the futh industial evlutin,dminated by atmic eney and ailanes.83

In this ead, Syls des nt aee with Schumete when thelatte states that cycles bean in the dawn f time. Syls efes tMax, sayin that cyclical mvements bean just afte mechanicalindusty established itself, afte the Nalenic was.84 Syls addsthat scial, institutinal and ecnmic chanes inuenced the cycle

and its featues. Until the Fist Wld Wa, small ms dminatedthe scene, s the cycle was me eula and an aveae lenthf 79 yeas (the Jula cycle in the Schumeteian teminly)was clealy distinuishable. Afte the Secnd Wld Wa, the lncycle idea n lne sufced t exlain uctuatins. We nw hadt cnside the le f the State and the unins.85 This was the ststatement indicatin Syls fusin f Keynes and Schumete.

Schumete des nt cnside in his theetical mdel eithe the State the tade unins, which Keynes n the cntay des, althuhnly in a stylized and cicumscibed way. Keynes, hweve, des nt

cnside eithe the chanes in ductivity innvatins, whichSchumete laces at the heat f his analysis. As t maket fms,Schumete is well awae f the sead f the lae units f ductin,

s much s that he uts fwad the distinctin between cmetitiveand tustied caitalism t indicate the new ecnmic system which,in his view, is tendin t emee fm the cncentatin f the unitsf ductins; hweve, he feels that the new maket stuctues have

nt yet succeeded in dminatin the scene and in mdifyin in deththe mechanism f eactin f the ecnmic system. Hence, he easnsas if the taditinal tye f cmetitin cntinued t eate fully in

u days as well. paadxically Keynes sitin is the invese ne. Heassumes cmetitin, but at bttm he easns as if the fmatin f,

and chanes in, ice tk lace in nn-cmetitive makets.86

83 Syls Labini (1984b, . 8688), Syls Labini (1993a, . 115116), Syls Labini(1989, . 3336), Syls Labini (1983, . 379380).

84 Syls Labini (1984a, . 59 f the Italian editin; it is nt tanslated in the Enlisheditin), Syls Labini (1998a, . 347).

85 Syls Labini (1984b, . 9394).

86 Ibid., . 89.

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Syls thus distinuishes thee mdels f business cycle theies:Schumeteian, st-Keynesian and inteated mdels.87 In theSchumeteian aach, innvatin ives the st imetus tcyclical develment. This imulse means inceasin investment,weed by cedit ceatin. The isin demand f ductinbins ut inceases in the demand f cnsumtin ds t;this means isin ices and ts. When innvative ductseach the maket and ms stat t etun lans, ices fall, causinbankutcy f the nn-innvative ms, since they failed t educe

csts and acknwlede the chanes in ices.88

At st lance, it miht seem that this aach has nthin incmmn with Keynesian esective.89 In fact, Keynesian mdelsead technly as iven and ices as cnstant; meve,the cycle is analyzed in tems f aeates. In Keynesianmdels, the initial imulse cmes fm autnmus investment(eneated by innvatin ublic decisins). An autnmusinvestment makes cnsumtin ise and thus, via the multilie,

incme ises t. The incme incease, in tun, causes futheinvestments via the acceleat. This way a sial mechanism isceated; it einfces itself, until it beaks dwn, when full utili-zatin f ductive esuces is imminent. At this int, the atef incease in incme tends t slw dwn, then fall. The decease,st elative t the multilie, becmes abslute: incme falls. S,the exlanatin f cyclical mvements, in this aach, is via theinteactin f the multilie and the acceleat. Hweve, thisinteactin can eneate the cycle or develment, nt bth at thesame time.90

Syls tied t cmbine the tw aaches. In fact, the statinint, in his inin, is the same.91 In the Keynesian mdels,wth cmes fm a secic mechanism f inteactin in whicha cental le is layed by a essive and ieula incease in

87 Ibid., . 86100.

88

Ibid., . 9091.89 Ibid., . 91.

90 Ibid., . 9091. See als Syls Labini (1993a, . 121).

91 Syls Labini (1984b, . 91).

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ices. This cess is hinted at, althuh in a nn-methdical way,by Schumete t.92

pice stability is ne f the maj limitatins f the Keynesianaach. But neithe this, n the Schumeteian mdel, takeaccunt f the State, unins, fein demand imts. T buildu an inteated mdel, thee cectins need t be made.

The st cncens maket they. Syls says we have tdistinuish between the sect f industial ducts and the

banch f aw mateials. The link between ices and diect cstseads industial ices nly, while f the aw mateials maket,the efect cmetitin assumtins ae valid. Meve, Sylsties t aly the Schumeteian view t an lilistic system,while Schumete, thuh sayin lily is eality, elabates amdel f a cmetitive system. Secically, Syls states that, inthe new eality, the new des nt meely add t the ld, butelaces it, and the vlume f investment may even fail t ise,thuh the ductivity f ductin facts ises.93

The secnd cectin deals with uchasin we. picevaiatins ae nt tinal t thse eadin salaies, becausef chanes in ductivity. Meve, they ae nt tinalin the ice system in itself, because f innvatins (Schumete)and because diffeent ice cateies ae uled by diffeentmechanisms. Thus, chanes in ices cause vaiatins in the wayincme is distibuted between diffeent ductin facts. Thet shae chanes t, and this mutatin affects investment

decisins, havin effects n the develment f the cycle.94

The last cectin cncens ductivity. An incease in labductivity is ne f the mst imtant effects f innvatins.It is a fequent, but nt necessay, effect. In fact, in Syls inin,it is ssible t talk abut such an incease nly in the case finnvatins eadin ductin cesses, nt in the case fnew ducts.95

92

Ibid.93 Syls Labini (1956, . 147148). See als Syls Labini (1968).

94 Syls Labini (1984b, . 9394).

95 Ibid., . 94.

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Schumete ays attentin t autnmus innvatins, nelectininnvatins esultin fm an incease in demand.96 If we bsevechanes in ductivity, it can be seen that ductivity inceasescnstantly, thuh at vayin ates. This means that the smalleinnvatinseneated by exansin f the maket and by a ise inthe elative cst f labhave, in the aeate, the mst weiht.That is t say, in each histical eid, the bi innvatins ceateimulses and equiements f develment, while the develment,nce activated, is weed by the w f small innvatins.97

In Syls inin, the link between the incease in aeatedemand and the incentives ceated by the w f small innvatinsis, tethe with the cental le f autnmus investments, thebide between Schumete and Keynes. Unlike Keynes, Sylsfcuses nt nly n aeate demand, but als n the demandf each sect. Hweve, Syls states that the faste the ise inaeate demand, the faste the ise in sect demand. In thiscntext, the dynamics f aeate demand and facts thataffect mvements in the demand f evey cnsumtin d98need t be studied.

In this inteated mdel, Syls intduces the hythesis that,when cetain cnditins chane, fundamental equatins chanet. This mdicatin stands n the fllwin set f assumtins.

1. Duin the dwnswin, families save less, tyin nt t educecnsumtin. Thus, in this hase the cnsumtin/incmeati inceases.

2. Caital stck ises with investments, s the limit t the incmeincease ises t.

3. The incme incease is eneated by the incease in investment.Hweve, when these investments tend twad ze (naccunt f the limitatin mentined abve), they decease andfavable cnditins cme abut f autnmus investments(i.e. lw inteest ates).99

96

Ibid .and Syls Labini (1992, . 14).97 Syls Labini (1984b, . 94) and Syls Labini (1983, . 385).

98 Syls Labini (1984b, . 94).

99 Syls Labini (1993a, . 121122).

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Accdin t Syls, afte 23 yeas, an incease in investment (theeal statin int f the cycle) duces an incease in ductincaacity and in the ductivity f ductin facts (lab aswell). Via the multilie, these inuence aeate demand. Ttaldemand and suly incease, n accunt f the inceasin utili-zatin f ductin caacity. The aid incease in demand flab and aw mateials duin the uswin, ushes u lab cstsand the ices f aw mateials, aisin diect csts and cnsumtinices. But ices incease slwe than csts, s ts fall. The ise

in lab csts stimulates technlical investments, but slwinemlyment eneates a fall in ttal cnsumtin. Thus we cansay, accdin t Syls, that:

a. when investments made t incease ductin caacity st,the incease in suly is aid; and

b. when investments made t cut lab csts st, the duc-tivity incease is aid, but cnsumtin slws dwn.100

These assumtins lead t a eneal slwin f the ecnmy,

caused by the cnict between acceleatin suly and decel-eatin demand. The iin f this situatin is a decline in tseneated by inceasin lab csts. As ts dive investment,fallin ts mean fallin investment and thus fallin ttaldemand. Thus, the ue tunin int is caused by fallin tselated t cntactin demand. In Syls visin, the uswin lastsas ln as the investment estatin eid lasts, tw thee yeas.The subsequent cntactin will last at least ne yea: the timeequied t ebuild t mains by (atially) estuctuin thexed caital stck.101

The ecvey can be achieved by autnmus innvatins,ublic exenditue, fein demand, lwein salaies. The lastmethd has been imssible since afte the Secnd Wld Wa.Syls adds, fllwin Keynes, that in the sht un we nly havene ssibility: ublic exenditue.102

100 Ibid., . 122123.

101 Syls Labini (1993a, . 123).

102 Ibid., . 124. We have t ecall that even Hayek admits the imtance f ublicexenditue f a licy f sulementin demand, duin the late half f thedeclinin hase f the cycle. See Hayek (1939, . 63).

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Mnetay licy is als imtant, esecially duin theecnmic evival. A new incease in ttal demand may be ceated by autnmus investments, ublic exenditue feindemand. In all these cases, additinal mney is needed, because aeductin in the mney suly/ttal ductin ati wuld binabut a ise in the inteest ate, stin the ecvey. If demandis diven by decit sendin, the cental bank has t inceasethe basic mnetay aeate (Keynes cnsides this case). If theecvey is diven instead by ivate investments, the incease in

the mney suly may deive fm an incease in banks desitsn demand (Schumete emhasizes this fact).103

This is the business cycle they elabated by pal Syls Labini.It is a useful inteetative instument, cnstucted n the wk fMax, Schumete and Keynes.104

103 Ibid., . 125.

104 An analytical illustatin f this they is esented by the auth in Syls Labini(1956), . 103187) and Syls Labini (1993a, . 131135). A detailed analyticaland emiical mdel is elabated in cnnectin with the Italian ecnmy: seeSyls Labini (1992, . 251305) and Syls Labini (2004, . 95100).

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appendIx: conTenT of The unpublIShed noTeS

105

Paolo Sylos Labini

I. 1. Tyes f innvatins. 2. gwth and evlutin. 3. pseityand welfae.

II. 1. The quantity of money. 2. Savin and the theoeticalmodel. 3. Chea money and unemloyment. 4. Motaes. 5.Huny foties.

III. 1. on the ate f inteest. 2. on the life f the ms. 3. Anexamle f esistance t the new.

I.1. Amn the examles f innvatins yu mentin the eninu f new suces f suly and that f new makets.

Des the enin u f new suces f suly necessaily imlya new ductin functin? Is it nt ssible t cnceive, f

instance, the enin u f new lands with the same deee ffetility than the aleady cultivated nes, s that the ductinmiht be caied ut with exactly the same cefcients?

And des the enin u f new makets mean innvatin inany case? We may cnceive that the ms exand thei ductinwithin the same ductin functins (at deceasin aveae cstsif thee ae lumy facts). The enin u f new maketsmiht allw f the ssibility f alyin new technical methds,f settin u new ductin functins; in this case the alicatin

f these new methds wuld be eally the innvatin.

I.2. In yu Business Cycles and in the wks f yus I haventiced the sitin: gwth vs. Evlutin, the fme excludin,the latte includin--and bein iinated by--innvatins.

Yu desinate as gwth the chanes in ulatin andin the sum f ttal savin lus accumulatin (. 83). And yusay that the effects f gwth ae... caable f bein cuently

absbed... hence, cannt by themselves ceate the altenatin f

105 We have ublished hee the iinal cntent f the ntes. Any ammatical esae in the iinal vesin.

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bms and deessins we bseve (. 84). This int f viewseems t me accetable.

But I ask myself: is a wth lically cnceivable withutchanes in ductin functins?

I am still eectin n this int.

It seems t me that gwth is cnceivable withut inn-vatins nly in the (excetinal) case f enin u f new landswith the same deee f fetility than the cultivated nes and

with which it is ssible t duce with the same cefcients.But withut fee lands gwth withut innvatins des ntseem t me ssible. The ulatin cannt incease indenitelywithut a cesndin incease in the subsistencies; andthe eal caital cannt incease indenitely withut inceasein the ductin f aw mateials. It seems t me that neitheBhm-Baweks cncet f the lenthenin f ductin eidn the hythesis f an incease f caital e man-hu culdemve the dubt. I think that it is eally imssible t assume

that thee is n deceasin-etun inuence (dened withesect t iven ductin functins and invaiant fetility fsil) t vecme (. 237). I think that eve in de t exandductin at cnstant aveae csts (in the ln un at least)innvatins ae necessay.

Yu make a distinctin between innvatins that entail, andinnvatins that d nt entail, cnstuctin f New plant equiinnn neliible time and utlay (. 93), statin that in yu analysis

yu will estict yuself t the st tye f innvatin. Wuld ntbe f sme hel t intduce a distinctin f this kind in cnnectinwith the questin f gwth?

If it wee ssible t dene all the innvatins in tems f mneycsts, we miht distinuish between innvatins that allw texand ductin at cnstant aveae csts and innvatins thatbin abut a diminutin f aveae csts. (The main difculty, fcuse, aise in the case f innvatins cnsistin in the suly fnew cmmdities; theetically, ehas, we miht cmae the

aveae cst f the new cmmdity with that f the neaest ldcmmdity, namely with the cst f the cmmdity that satises asimila want and that is likely t suffe diectly and immediatelyfm the cmetitin f the new cmmdity).

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The innvatins f the st tye, thse which simly enablethe ms t neutalize Law f diminishin etuns, miht beabsbed withut cnsideable tuble; they, lausibly, miht becuently adted by the existin ms and anyway miht ntive ise t the cmetitin-dwn cess. on the cntay,the innvatins that nt nly neutalize the Law f deceasinetuns, but bin abut a diminutin f the cst f ductin(f the nmal value), miht ive ise, sne late, t thecmetin-dwn cess and, ssibly, t the cycle in yu sense.

A questin elated t the blem f gwth is that f the effectsf cedit ceatin. Namely, if we take int accunt gwth, thecedit ceatin des nt imly necessaily ( nt tinately)incease f ice level. The case f cedit ceatin withut inceasef ices miht be linked with the ssibility yu mentin (. 111,ftnte) f an hythetical shift f facts f ductin.

If an ecnmic system shwed gwth nly, a cntinuuscedit ceatin wuld be cnceivable withut chanes in the ice

level. But in this case it wuld be necessay t see whethe ceditceatin itself wuld be cnceivable; as cedit ceatin necessailyimlies the ayment f inteest, it wuld nt be cnceivable, ifwe admit that inteest aises fm t and t aises fmeductin f csts (in a bad sense).

I.3. I aee that (cyclical) seity is nt synnymus withwelfae; but fm yu cnsideatins ne daws the imessin that,in a sense, an inveted elatin exists.2 It is tue that, in this kind fstatements, yu ut always many imtant qualicatins (the mstimtant is that cncenin the dee deessins); but, when wecnside the neative hases f the ln waves the qualicatins,ehas, may aea me imtant than the statements.

Yu say, if I emembe cectly, that, in eneal, Demcacywks bette in eids f declinin ices. Thee ae tw cnside-atins that leave dubtful n this int: the efft f a nn neliibleat f the caitalist classes t maintain thei vanishin incmes

thuh aticial (mainly litical) mnlistic baies; andthe efft f the wkin classes t maintain the emlyment andt cntast wae cuts. F these and simila easns (but nt takinint accunt evlutinay chanes) ne miht think that scial

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stules shuld athe incease duin the eids f fallinices, abve all, f cuse, duin the deessins ccuin inthese eids.

Thee ae sme cnnectins between this questin and that fthe stanatin and the decline f caitalism.

Yu say that caitalism duces by its mee wkin a scialatmshee... that is hstile t it, and this atmshee, in tun,duces licies which d nt allw it t functin.

Yu stess, amn the the thins, the declinin imtancef the functin f enteeneu in a tustied caitalism, thecumblin f the tective walls and the anticaitalist attitudef many intellectuals.

I he t have the tunity t seak with yu abut twints elated t this matte. Hee I nly indicate these ints.

Fist, the inceasin ecnmical and litical we f thewkin classes and, secnd, the inceasin elative imtance f

the industial sect in the caitalist scieties.The secnd int miht ive ise t the idea that, iven the

chaacteistics f the industial activities, the avity f theblem f unemlyment tends necessaily t w in eveydeessin. pehas, it wuld be ssible t seak f a isinesult tend f unemlyment.

The inceasin ecnmical and litical we f the wkinclasses als esult fm the cyclical evlutin (incease f eal

incme and technical and ecnmical ssibility f anizinweful unins).

Fm the cmaisn f the tw tendencies we miht daw,ehas, inteestin cnsideatins. We miht stess, f instance,the fact that wkes anizatins ae, duin deessins, meand me able t se laissez faie (=bueis) slutins fthe blem f unemlyment and imse, diectly indiectly,licies binin abut stuctual (bably anticaitalist) mdi-

catins f the ecnmic system.

II.1. I aee that it is... imssible t seak f the quantityf mney in the sense in which we seak f the quantity f a

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cmmdity (esecially because the ductin f mney, in thecase f ae mney, is a think cmletely diffeent fm theductin f a cmmdity). But I wnde whethe the cncetf quantity f mney is cmletely valueless deceitful. Yusay that cetain claims t mney seve, within wide limits, thesame uses as leal tende itself; and that ne f the cnse-quences is that the distinctin between velcity and quantitybecmes blued. I am nt cnvinced f this. The int f viewf Wicksell (shaed, if I emembe cectly, by rist) seems t me

t be unsund. The banks eseves (even if cnsistin f ldcins) may be nt cnsideed as mney, because they ae nt usedas mney; if, duin emeencies f eids f anic, they cmeback int ciculatin, they becme aain mney, but in this casethey ae n lne eseves. And if we efe uselves t a ivenmment, the distinctin between velcity and quantity (the-etically at least) seems t me clea: if thee ae 100 individuals and100 bank ntes, each individual, in a iven mment, can hld (andnt simly exect) ne bank nte and build u lans with it. I

think that analus cnsideatins miht aly t balances heldby individuals with desit banks.

II.2. Accumulatins and savin vide the means f cnsli-datin athe than f buildin u industial ventues (. 601). Iaee. Als yu thesis that savin is nt a maj fact initiatinecnmic chane (. 83) seems t me accetable.

But the exclusin f savin fm yu theetical mdel leaves

me dubtful.If I have undestd cectly, yu cnsideatins abut the

cnslidatin functin f savin aly mainly t savin used tbuy stcks and bnds (. 588).

What abut savin lent t banks? T a cnsideable extent thissavin is used by banks t build u thei eseves. Theefe thequestin aises: is the cyclical cess cnceivable withut thebanks eseves?

It seems t me that ecvey and seity can, ecessin anddeessin cannt, be cnceived withut banks eseves. In thewds, the cess f autdeatin des nt exhaust the elatinsbetween banks and ms duin the neative hases f the cycles,

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because thee ae bankutcies and anyway inslvencies. Desit banks nd themselves with desits that, havin been bnsimultaneusly as cedits and debts, becme nly debts. The bankscan face (and eventually eliminate) this disequilibium if nlythey have adequate eseves. Fm this int f view, savin mayaea as a cnditin f the vey life f banks. Me eneally, inthe cyclical cess savin may aea as an element necessayf the liquidatin f the ld ms and theefe may aea asa necessay inteatin f the cess f autdeatin. If savin

is nt sufcient t liquidate the ld ms, cnsequences mayfllw vey imtant f the stuctue f the ecnmic system.

These cnsideatins miht ehas have als t d with thequestin f the esult tend f ices. Because, if bankutciesand inslvencies f ms ae cnsideable and the banks esevesae insufcient t face the claims f the cedits; and if the bank fissue, n behalf f the venment and tected by a declaatinf incnvetibility f its ntes ( nly by a deeciatin f themin tems f ld), cme t escue f the desit banks antin itsntes t them, at the end f the cycle the ttal quantity f mneymiht esult s much inceased as t iinate a ice level hihethan that existin duin the evius neihbuhd f equi-libium. This ssibility (it is nly a ssibility, f cuse) may becnceived even in elatin t eids s ln as t include methan ne Kndatieff.

In Italy, f instance, duin the seventy yeas ecedin thesecnd wld wa, we hand an inceasin tend f ices; and this,

I think, nt nly f easns elated t unductive exensesf the state (e.., wa exenses), but als f cyclical easns(escuin f banks and ms eated, duin deessin, by thebank-- banks--f issue n behalf f the state), thuh undubtlythe cyclical cess in Italy has been, t a vaiable but neveneliible extent, the esult f the imact f the cycles f mecaitalist cunties. Duin the same eid the incease f ecaita incme, which has been vey small, may be attibuted t thefact that the incease f the wae level has been a little hihe than

the incease f the ice level. In the wds, the incease in thestandad f livin in Italy tk lace thuh an incease in waeseate than the incease in ices, instead f a decease in iceswithut a decease in waes.

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II.3. The evailin cheaness f mney will ive them a slanttwads mechanizatin... (. 954; als: . 995).

This int is nt clea t me. The ssibility, f ms, t btainmney me chealy shuld ive them a slat t incease thedemand f all the facts f ductin, labu included. If thems efe t buy me machiney and less esnal sevices,the chice wuld seem t me t be based n the cmaisn fthe ices f the vaius facts f ductin and nt n thecheaness f mney. (E nn dett che i estiti a luna scadenzasevan sl a nanziae acquisti di macchinai e quelli a bevedi caitale ciclante. pu dasi che unimesa si caichi di debitia beve che via via innva ed anzi accesce, e aae salaittali, che aumentan; i cnslida il debit emettend azini bbliazini a luna scadenza. Vicevesa, limesa u fa debitia beve che innva ed accesce e acquistae macchinai. Si udie che questi sn casi atlici, anmali, pu dasi, ma ilincii cade).

II.4. Me than nce I fund in yu Business Cycles statementsthat culd ive ise t the idea that mtaes cntacted f theuse f buyin lands ae necessaily unductive. If mtaesae cntacted in eids f isin ices and, meve, with theuse f ienin ains due t the inceasin land values athethan havests, what yu say is unquestinable. But we may think thatan enteeneu, ssessin n facts f ductin and needinaicultual land in de t actuate an innvatin, may acquie a

iece f land with a mtae lan. In this case, it seems t me, thatmtae lan may cme int catey f ductive lans.

II.5. As a histical indicatin f the shift f facts twadsthe ductin f duces ds at the beinnin f the (ln)cycle, yu mentin me than nce the huny fties (. 142,503, 576). But I wnde whethe thse huny fties may beathe attibuted t a slackenin f the aicultual ductin

cnsequential t the ln ecedin aicultual deessin,culed with a seies f bad havests. If the shift wasne f the facts deteminin that situatin, it was nt, I think, amaj ne. (In eneal, I think that, takin int accunt gwth,

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the hythetical shift may be cnsideed--esecially in elatint the ln waves--me imtant than the actual ne.)

III.1. I have fund an inteestin cnsideatin in a ae by F.Kniht abut the behavi f the ate f inteest duin the businesscycle (inteest des nt becme ze incially because men dnt exect the deessin last feve; rev. f Ec. St., 1941, n. 2).

III.2. Quantitative infmatin abut the life san f individualms and analysis exlanaty f thei caees and thei ae disti-butin ae amn u mst uent desideata (. 95, ftnte).

pehas the fllwin list f Italian statistical aes may bef sme inteest t yu. (I had the list fm the cutesy f pf.g. Cadali.)

F. Vinci, La vita delle sciet e azini, rivista delle sciet eazini, 1918, . 316.

g. Lassa, Indaini sulla mtalit delle sciet e azini,rivista di plitica Ecnmica, 1936, . 527.

g. Cadali, Stia di un investiment di caitale. La scietitaliana e le stade feate meidinali (1862-1937), Milan,Bietti, 1939 (. 60: Tavla di savvivenza delle sciet italianee azini)

III.3 The Lee sulla discilina dei nuvi imianti industiali

f 1933 (Januay, 13) affds a d examle f lealized andlanned esistance t the new in a fascist state. Accdin tthis law, evey ject f new industial lant f enlaementf the existin nes had t be examined and aved by thecmetent cazine, i.e., actically, by the eesentatives fthe aleady eatin ms. The infmatin abut the alicatinf the law and, me badly, the analysis f the Italian Industialsect duin the decade ecedin the secnd wld wa miht beinteestin ehas, als in cnnectin f the theetical questin

f gwth and f what yu call cyclical evlutin. (L. Einaudi,La cazine aeta, rifma sciale, 1934, n. 2, . 134; A.Santaelli, Dati e cnsideazini intn alla discilina cativadelle nuve iniziative industiali, rivista intenazinale di scienze

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sciali, 1941, n. 1, . 48; L. Einaudi, Intn alla discilina deliimianti industiali, ginale deli ecnmisti, 1941, n. 78, .458; g. Demaia, Il blema industiale italian, ginale deliecnmisti, n. 910, 1941.).

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