Developments in Major Fields of Economics
Edited by Gilbert Faccarello and Heinz D. Kurz
Only through the principle of competition has political economy any pretension to the character of a science. So far as rents, profits, wages, and prices are determined by competition, laws may be assigned for them. Assume competition to be their exclusive regulator, and principles of broad generality and precision may be laid down, according to which they will be regulated. (Mill 1848 , vol. II: 242) This oft-quoted passage by John Stuart Mill highlights the fact that, ever since economics acquired the status of an autonomous scientific discipline, competition has been one of its basic concepts. This is particularly true as regards the theory of value: the analysis of competition carried out by a few late seventeenth–mid-eighteenth century authors, such as William Petty, Pierre Le Pesant de Boisguilbert, François Quesnay, Richard Cantillon, Anne-Robert-Jacques Turgot and David Hume, provided the crucial breakthrough in order to free the theory of price determination from previous scholastic and Middle Ages influences. These authors established the view that competition imposes a discipline on the ebb and flow of market outcomes: the workings of competition enforces the gravitation of market prices towards some definite theoretical magnitudes, subsequently christened as natural prices, prices of production or long-run normal prices. As stressed by McNulty (1967), Adam Smith’s contribution with respect to the concept of competition was the systematization of earlier thinking on the subject and, more importantly, the elevation of competition to the level of a general organizing principle of economic society . . . After Smith’s great achievement, the concept of competition became quite literally the sine qua non of economic reasoning. (McNulty 1967: 396–7) It is not an overstatement to claim that the historical evolution of the concept of competition largely overlaps with that of economic theory itself. This may help explain the reason why, in the course of time, the same word “competition” “has taken on a number of interpretations and meanings, many of them vague” (Vickers 1995: 3).