Thus, the younger Augusto inherited from his grandfather and his mother respectively the two main intellectual interests of his life: economics and music. He started to play the violin at the age of fourteen, and he later passed his examinations for the fifth year of the music conservatory. He continued to play for the rest of his life. Only to few lucky friends did he grant the honour and pleasure of attending some of his ensemble music sessions. In that period, Augusto was educated at home by a private tutor. After the fall of fascism, he attended the then celebrated Umberto Lyceum in Naples.
He was an outstanding student. Upon finishing high school, he enrolled at the Faculty of Law of the University of Naples Federico II, and in he graduated with a dissertation in economics under the supervision of Giuseppe Di Nardi. Between and Graziani completed his education abroad. In — he was at Harvard University, were he attended courses given by Wassily Leontieff input-output analysis , James S. Duesenberry macroeconomics and John K.
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Galbraith economic development. However, his closest intellectual relationship was with Paul Rosenstein-Rodan, then at the Massachusetts Institute of Technology, who encouraged him to write an unpublished paper on regional inequalities. It also provided the only opportunity for postgraduate studies, at a time when Ph.
In Graziani joined the staff of the Portici Centre, where he taught and conducted research until the mids. His first chair was at the University of Catania, whence he moved to Naples from to and finally to Rome. In the course of his long career, Graziani received many honours. He contributed with comments on current economic affairs to some of the main Italian newspapers. Finally, he was a member of the Senate during the ninth legislature of the Italian Republic, and a member of the boards of the Bank of Naples and of the Istituto Banco di Napoli-Fondazione.
He pursued the first line of analysis in Equilibrio generale ed equilibrio macroeconomico [ General Equilibrium and Macroeconomic Equilibrium ] Graziani and some related writings e. Graziani , a. His contributions to the second line were many. Among them, to be mentioned in particular are his Introduction to Costabile , one of his first presentations of his new approach; Moneta senza crisi [ Money without Crises ] Graziani a ; The Theory of the Monetary Circuit b ; La teoria monetaria della produzione [The Monetary Theory of Production] ; The Monetary Theory of Production , an expanded version of the former book.
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Equilibrio generale ed equilibrio macroeconomico , his first theoretical book, was published in , when the Sraffian critique of general equilibrium analysis was gaining consensus among economists, especially in Italy and in Cambridge, UK. Graziani, too, was critical of general equilibrium analysis, but for different reasons.
In his critique, he focused on the problem of fixed capital, just as the Anglo-Italian school was doing in that period. But, differently from that line of thought, he defended the Walrasian model as a logically consistent representation of single-period equilibrium. His critique of general equilibrium theory went as follows.
Because fixed capital goods are durable goods, they establish a link between time periods. Whilst in single-period models competition equalises profit rates on all capital goods, in economies moving through time the competitive process generates positive and negative rents.
This happens because the competitive process equalises the prices of capital goods produced in different time periods e. From this it follows that positive or negative rents arise according to whether the seller of an old capital good at time T gets a price higher or lower than its historical cost. In other words, competition cannot perform two tasks at the same time, i. This analysis opens the way to a dynamic conception of competition and efficiency with a strong Schumpeterian flavour. In dynamic economies, resources move from declining sectors, where rates of return are lower, to expanding sectors, where returns are higher, thus enhancing economic efficiency.
This task he undertook in The Development of an Open Economy Graziani , a collection of essays written by a research group based in Portici and directed by him. In the first four chapters the fourth written in collaboration with Bruno Trezza Graziani developed the theoretical model of an open economy where the driver of growth and structural change is final demand: more precisely, export demand.
In his export-led growth model, the dynamic sector specialises in the products for which world demand is expanding, irrespective of resource endowments and comparative advantage, because this is a strategy more convenient than specializing in traditional, stagnating sectors. Moreover, once the choice of entering the world market has been taken, international competition also dictates the rate of productivity growth, investment, and the appropriate technologies in the exporting sector. The causal order of traditional static theory is thus reversed: growth, international specialization and productivity are not determined by factor endowments, costs or other supply-side factors, but by exports and the evolution of international demand.
To be noted is that, at this stage in his intellectual development, Graziani was already fully aware of the theoretical implications of his approach. Thus, these lectures given in are important documentation because they show that, in his subsequent theoretical evolution, Graziani was bringing to full maturity the seeds already sown in his early work on general equilibrium analysis. In the course of these reflections, Graziani also clarified his methodological stance concerning competing theoretical frameworks.
This attitude reflects a deeper methodological belief: that logical consistency is a necessary condition for a model to be viable, but not a sufficient condition for good economic theorizing. Economic models must also be relevant and fertile, i.
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Who owns capital? How is its ownership acquired? Who makes decisions on the allocation of resources between consumption and investment goods? These questions prompted new inquiries into the origins of profits and the determinants of the level and distribution of income and wealth; the role of saving in the intertemporal allocation of resources; and the methodological foundations of alternative interpretations of market economies.
To these questions Graziani provided his answers within the theory of the monetary circuit—or the theory of a monetary economy of production, as he also called it after Keynes. He presented this theory in many of his writings and formalised it in a number of models. The crucial theoretical focus within the circuit approach is the relationship among money creation, investment and saving. Firstly, modern economies should be characterised as monetary economies, because money is required in all market exchanges and, above all, in the opening stage of the production process, when money wages are advanced to workers.
Secondly, the existence of money is only compatible with a sequential economic process, because money would be useless in a general equilibrium, defined as a situation where all individuals keep their budgets balanced and all transactions are simultaneously carried out after equilibrium prices have been determined e. Fourthly, differential access to bank credit establishes a hierarchy in the economy between those agents who obtain finance for their production plans, and those who do not.
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This point can be restated in familiar textbook language: in the presence of imperfect capital markets, some agents are subject to liquidity constraints e. Graziani identifies the latter category with workers, whose purchasing power is thus limited by their income, while entrepreneurs are those select agents that enjoy full access to bank credit ibid. This bank-led selection process de facto amounts to establishing a class-based society. True, the relationship between banks and firms is by no means conflict-less: conflicts arise over the interest rate that firms and banks negotiate in the money market.
But the deepest or, we may say, the foundational divide is that between the agents who obtain credit and those who, failing to do so, can only earn a living by selling their labour.
Graziani rightly observed that, from a theoretical point of view, the two interest rates should not be collapsed into one. Starting from this distinction, he developed the more controversial propositions that the long-term interest rate paid on securities is less important than the short-term interest rate and that, under some simplifying hypotheses, it implies no real cost at all for firms Graziani : — Underlying his position is the idea that savers do not really become the owners of capital goods by buying the securities sold by firms on capital markets.
Ownership and control of capital can only be gained via access to bank credit. In this dualistic economy, productivity and investment growth are exogenous variables dictated by international competition, while employment is the endogenous variable in the exporting sector. The opposite is the case in the second, residual, sector, which is shielded by international competition and gives employment to the remaining labour force, but achieves low productivity growth.
As a matter of fact, the experience of the s, s and early s was proof that the culture of the entire country changed quickly in response to economic development. Ethical codes respond to incentives. It seemed as if those imbalances could be removed within a reasonable time horizon in the context of buoyant economic growth, also with the help of the appropriate development policies that, for a while, governments seemed willing to pursue.
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But these hopes gradually faded from the s onwards, and Graziani documented the grounds for new worries in his subsequent empirical work. Firstly, the North—South divide, in which Graziani and the Portici group had been investing such great intellectual energy, started to widen again. But these policies were gradually falling out of favour in the Italian economic and political debate and, most importantly, in the governing circles.
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One of the key factors in the miracle had been the weakness of trade unions, which had given rise to a sustained gap between productivity and wage growth. The miracle came to an end when wages started to rise in , and again in From that period onwards, Graziani, while always taking account of the entire spectrum of national and international economic and political circumstances, interpreted the evolution of the Italian economy as essentially driven by the conflicts between the main social groups.
For example, he saw deflation and unemployment in — , inflation in — and industrial restructuring from the end of the s to the s as alternative measures adopted by industrial capital and economic authorities for the purpose of restraining the strength of workers and their unions Graziani For instance, the inflationary strategy was more efficient with flexible exchange rates than it had been in the previous fixed exchange rate regime. However, in the longer run the successful strategy was industrial restructuring: production was decentralised away from large firms and workers were accordingly dispersed among a myriad of small firms.
If, as Graziani noted, decentralization was an excellent strategy for governing class conflict, the loss of big firms was not without costs for the Italian economy. Along these lines, in his last writings Graziani rang an alarm bell for the Italian economy. Italian firms were now facing increasing competition from both technologically advanced and low-wage countries, just when, with the EMU, they could no longer enjoy the benefits of external devaluations.
In these circumstances the trend towards greater inequality would gain momentum Graziani : An exhaustive rendering of his writings on the history of economic thought and analysis is out of the question within the limited space of this article. Therefore, I will merely illustrate some aspects of his methodological approach to this field, and give some examples. By comparing and juxtaposing alternative approaches and their developments over time, he clarified his own thought, and forged his own arguments and theoretical solutions for the issues involved.
Graziani was interested in the history of the discipline as the history of economic ideas and analysis. There is no hint of positivism in his thought. A paradigmatic case of this approach as a historian are his two volumes Teoria Economica. Prezzi e distribuzione and Teoria economica. Macroeconomia Radically revised versions of his textbook Teoria Economica , originally published in , these two books, which reached their fifth edition in , should be considered, when taken together, an outstanding, full-fledged economics treatise.
Here, he illustrated the analytical structure of many alternative micro- and macro-models. Malthus, K. Wicksell, J. Schumpeter and J.