April 2014 newsletter – Augusto Graziani

Augusto Graziani 1933-2014

With the death of Augusto Graziani on January 5th economic theory has lost one of the last representatives of an original post-WWII Italian tradition, capable of novel and critical contributions, opposed to traditional approaches fostering conformism. His work has been fundamental on too many topics to be remembered here: monetary macroeconomics, economic policy, development, regional disparities, history of economic thought, recur most often in his writings.

His participation in the Italian tradition is clear from the way he —- like Sylos Labini, Napoleoni, Pasinetti, Garegnani, Caffè, Lombardini, as others — inextricably linked present-day theorising and history of economic thought. The study of the authors of the past was instrumental for revealing the problematic nature of current mainstreams, opening up new perspectives in dealing with economic, truly social, problems. This historically minded approach to economic theorising is dangerous since it reveals that economic theory is not a one-paradigm discipline but a multi-paradigms contested terrain. This, of course, made him not only an advocate of the teaching of history of economic thought in the basic curriculum, but also a supporter of an heretical view according to which the teaching of economics must be characterised from the start by a plural and non dogmatic assessment of the different approaches to the topics under investigation. Those who were lucky enough to listen to his lectures (passionate in his rigorous, Anglosaxon style of speaking, matched by the crystal clarity of his written style) or to study on his textbooks know very well that he was always encouraging an active attitude and critical spirit among his students, as well as offering them an original and heterodox perspective at the edge of the discipline.

Graziani’s originality in the Italian tradition, and his contribution to dissenting economic thinking, crystallised in the theory of the monetary circuit. He framed it in late 1970s, and sharpened it in the early 1980s in his closed Seminar on Monetary Theory in Naples (where I participated). This Italian theory of the monetary circuit had distinctive features relative to the French versions by Alain Parguez and Bernard Schmitt. Macroeconomics was for him the study of capitalism as a class and monetary society. Whereas current mainstream theory derives macroeconomics from microfoundations, Graziani thought that the individuals’ behaviour must be deduced from macrosocial conditions of reproduction. The main influences were Marx, Wicksell, Schumpeter, Kalecki, and Keynes: not so much the General Theory, focusing on money as a store of value, rather the Treatise on Money, viewing capitalism as a monetary production economy.

Graziani understood money as finance for production, and the economic process as a sequence of distinct phases in real time, as opposed to the Neoclassical simultaneous exchanges approach. Money enters the economy as purchasing power: banks' financing of the entrepreneurial class allows companies to set in motion production and innovations, shaping the composition of output and fixing income and wealth distribution. Money is totally endogenous and non-neutral, not only in depression, but also in the system ‘out of crisis’. Graziani’s circuitism is a positive rather than a normative analysis, like other cognate views (French circuitism, or neo-chartalism). It arose in opposition to standard Keynesianism, Monetarism and New Classical Macroeconomics; but also out of a dissatisfaction with the received versions of Neoricardianism and Marxism, as well as the main Postkeynesian streams. Needless to say, Graziani always distanced himself from the New Keynesian updating of the Neoclassical Synthesis.

Graziani was born in Naples in 1933 into a Jewish family. His grandfather, Augusto, was a Professor of Economics, and moved from Modena to Naples in 1899. His father, Alessandro, a Professor of Law, was forced into early retirement by the Fascist regime: because of racial laws his son could not go to school, and had for some years a private tutor. He learned to play violin, up to the 5th year of the Conservatory (not long ago in Naples a few lucky guests enjoyed his duet with Wynne Godley playing the piano). Graziani graduated in Economics in 1955. At the London School of Economics he had Lionel Robbins as his supervisor. He then went on to MIT and Harvard, meeting with Wassily Leontief and Paul Rosenstein-Rodan. Full professor at 27, he taught in Catania, Naples, and Rome. His first writings, often considered Neoclassical, testify instead to his attention to structural change and an early divorce from standard theory. His 1965 book on General Economic Equilibrium defended the logical soundness of Walras only to destroy its relevance for capitalism (a criticism he extended to the then fashionable balanced macro-models). His 1969 book on the development of an open economy showed how Italian dualism was not due to trade unions’ rigidities but to an export-led strategy, with producers’ sovereignty determining firms’ technology, organisational structures, productivity differentials, employment structure, and relative wages.

Graziani was a lucid interpreter of the contradictions of contemporary capitalist development, especially in Italy (and its Mezzogiorno) and Europe. He showed how successive competitive devaluations were never followed by industrial policies, and how the European Monetary System and the institutional framework of the single currency left Italy in a subordinate position lacking autonomous engines of growth — with wages and working conditions as the only adjustment variables. His circuitism extended into a criticism of economic policy, showing the limits of the explosion of bank interest rates in the 1970s (hiding surplus value in bank-balance sheets), of the burgeoning government budget deficits in the 1980s (providing money ‘for free’ to the firm sector), of the Bank of Italy high discount rate policy to induce capital inflows at the end of that decade (delaying the 1992 day of reckoning); but also of outsourcing and the ‘district’ model, the suicidal liberalisations and privatisations, the dismantling of manufacturing and big firms. Graziani insisted that the late US-driven indebted consumer model signalled a transformation of the circuit and not its obsolescence.

Graziani was President of the Italian Economic Association (1998-2001) and Senator of the Italian Republic (1992-1994, for the Partito Democratico della Sinistra). He leaves behind his wife Angela, and two daughters Sandra and Rebecca, who gave him two grandchildren. Graziani’s legacy is that of an ‘untimely’ intellectual, committed to progressive social change: countering his own time, thereby acting on it, for the benefit of a time to come.

Riccardo Bellofiore
Università di Bergamo, Italy